BUDGETING AND ECONOMIC PLANNING IN PAKISTAN

CONTENTS

Economic growth and development Economic Planning and Budgeting around the world What is Economic planning? Importance of Economic planning Objectives of Economic planning Economic Development through planning Economic history of Pakistan Role of fiscal policy in economic development of Pakistan What are budgeting and its importance? Budgeting and its process in Pakistan Federal Board of Revenue and its role Main sources of revenue budget GDP ratios of Budget and balance of payment Concluding views References

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ECONOMIC GROWTH ECONOMIC DEVELOPMENT

Economic Growth and Economic Development are used to convey the same idea i.e. economic progress. Economy Growth is a steady process by which the productive capacity of the economy is increased to bring about the national rise in output and income. It is a long run process. It is a positive change in the level of production of goods and services by a country over a certain period of time. Economic growth drives new changes in the economy, causing new products and firms to be created as well as countless incremental innovations thus, increasing the level of the productivity. The Economic Growth and Economic Development are structural changes in the economy. Thus the term economic growth is the signification of only rise in real national income and per capita incomes; whereas the term economic development is the rise in real national income and per capita incomes along with the changes in occupational structure, changing in sectoral structure of national output, changing structure of industrial production, changing structure of foreign trade, technological progress and social, institutional changes. Economic development is fundamentally about enhancing the factors of productive capacity i.e. land, labor, capital and technology of a nation, state or local economy. By using its resources and powers to reduce the risks and costs which could prohibit investment, the public sector often has been responsible for setting the stage for employment-generating investment by the private sector. The public sector generally seeks to increase incomes, the number of jobs, and the productivity of resources in regions, states, counties, cities, towns, and neighborhoods. Development is a qualitative change, which entails changes in the structure of the economy, including innovations in institutions, behavior, and technology. Growth is a quantitative change in the scale of the economy - in terms of investment, output, consumption, and income.

AROUND THE WORLD

Economic development to an advanced country means a contribution or acceleration of existing rates of economy growth. For a developing country, it means the rate of expansion which can move a developing country from the state of development through the changes in the technical and institutional arrangements. Whatever may be the objectives or goals of development, the more important development of physical quality of life such as education, health, life expectancy etc. Effective planning of economy plays an important part of every country. The making of budget and its allocation is extremely important for any growing country.

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ECONOMIC PLANNING
Economic planning is the making of major economic decisions - what and how much is to be produced and to whom it is to be allocated by the conscious decision of a determine authority on the basis of a comprehensive survey of the economic system as a whole. Planning is a technique for achieving certain self-defined and pre-determined goals laid down by a central planning authority. It is a conceiving, initiating, regulating and controlling economic activity by the State according to set priorities with a view to achieving well-defined objectives within a given time. It is planning alone which can guarantee quick economic growth in under-developed countries.

IMPORTANCE OF ECONOMY PLANNING:

1. Planning decides in which direction the Country should go. 2. How much resources should be allotted to each sector. 3. How much to be produced for the present and future periods. 4. Planning helps the country to achieve what it can achieve in decades if it is left to natural transformation. 5. Planning helps to use the maximum utility of the scarce resources 6. Planning is headed by central committee and it decides the periods to be adopted for planning 7. Even in capital countries where such strict formalities is not adopted they still decide plan ahead for the country

OBJECTIVES OF ECONOMIC PLANNING :

1. Increase in the Rate of Economic Development One of the most important objectives of Economic Planning is to increase the rate of economic development. Capital formation should be carried out. Infrastructure facilities should be extended and social overhead such as education, technical training and health facilities should be increased. Planning in Pakistan should be done keeping in mind that country is populous and there are too many people looking for jobs, hence labor intensive projects should be given priority, which will absorb labor force and employment opportunities will increase. Increase in employment will increase national income and per capital income. Standard of living of people will raise and rate of domestic savings will increase. 2. Diversification of Economy All sectors of economy should be given proper importance. No sector of economy should be neglected. Pakistan is an agrarian country, the development of industry of Pakistan depends upon agriculture, and therefore more emphasis should be given to agriculture. Since population is too much and it is further increasing at a fast rate, therefore production of food grains should be increased.

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3. Price Stability Increase in price level hits the poor and fixed income people very much, whereas decrease in price reduces profit margins of the businessmen, which causes reduction in investment. One economic planning is to maintain the price stability. Through planning equal distribution of national wealth be made. The society should not be divided between "Haves and Have-nots" 4. Higher Standard of Living Economic Planning should ensure that good education; technical training and better medical facilities are available to all the people of the country. Every one should be provided a reasonable accommodation. Thus policy should standard of living of the masses. 5. Improving Balance of Payments All out efforts should be done under planning that balance of payments continues to improve. Export oriented and import substitutions industries should be given importance. Luxurious goods should be banned and small and agro-based industries should be given concessions and facilities. Imports should be reduced and export increased, in order to improve foreign exchange earnings. Dependence on foreign aid and grants should be curtailed.

ECONOMIC DEVELOPMENT THROUGH PLANNING

In developing countries like Pakistan, planning is an essential mean of guiding and accelerating their development. The need of planning arises because the market mechanism does not function well and efficiently. The role of planning is advocated on the following grounds 1. Decision of the planning authority are superior 2. Coordinated programs 3. Eliminating Business Fluctuations 4. Reducing Economic Inequalities 5. Provision of Job opportunities 6. Elimination of wasteful competitions 7. Proper distribution of resources 8. Keeping down the social costs 9. Creating favorable terms for trade 10. Making major economic changes 11. Secure high rate of capital accumulation

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ECONOMIC HISTORY OF PAKISTAN

History of Economic Planning in Pakistan The history of national economic planning in Pakistan is divided in the following periods: 1. Period of economic coordination (1947-53) 2. Period of planning board (1953-58) 3. Period of Planning Commission (1958-68) 4. Period of decline of Planning Commission (1968-77) 5. Period of revival of Planning Commission (1978-88) 6. Period of (1988-98) 7. Period of restructuring of economy (1999-2007) Period of economic coordination (1947 1953): Pakistans first planning board was established in 1950 with main emphasis on agriculture. Unfortunately, that plan was not well implemented on time. There were no targets fixed for the plan and the planning machinery was so weak to tackle with implementation. Therefore, the economic planning efforts during this period were a complete failure. Period of planning board (1953 1958): The planning board of Pakistan was renamed as Planning Commission in 1953. The planning commission was facing the following serious problems: Shortage of trained staff, Non-availability of accurate and reliable data, Uncertain conditions in the planning machinery Political instability Annual economic planning was never seriously followed Most of the economic advices were rejected by implementing authorities Economic priorities were not given due importance Budget decisions were also distorted Period of planning commission (1958 1968): The third period of the planning process began in October 1958 with the assumption of power by the military government of Ayub Khan. The new regime chooses to make economic development through a marked economy and reliance of the private sector as its primary objective. The new government gave proper attention to achieve the following targets Rapid industrialisation in the country, Removal of food shortage, Removal of political instability.

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Period of decline of planning commission (1968 1977): This is the period of decline of Planning Commission as an important decision-making body coincided with the fall of Ayub Khans government. During the Yahiya Khan period (1969 1971), the serious planning on national level was completely ignored. The Third Five-Year Plan (1965 1970) was virtually abandoned by the Yahiya Khans government. In 1970, the Fourth Five-Year Plan (1970 1975) was made and it was also a big failure because of the worst political conditions and instable government policies. In 1972, the newly elected government of Z. A. Bhutto decided to run the economy through annual planning, rather than through a comprehensive five-year plan. During the same year, the Planning Commission was placed directly under the control of Ministry of Finance as a Division. Period of revival of planning commission (1978 1988): After taking charge of the government, the Zia-ul-Haqs regime emphasised on the needs of five-year plans. In early 1980s, the Zia government took steps to revive the Planning Commission as an effective and authoritative economic decision-making body. During this period, three Five-Year Plans were formulated. But the Government failed to pursue the plan mainly because of uncertain political as well as economic conditions at that time. The period of (1988 1999): The period of 1988 to 1999 the period of political and economic instability. During this period, four elected governments were dismissed by the President on the charges of corruption. The role of Planning Commission was over-shadowed by political decisions. Its role was just limited to the preparation and submission of reports. After the fall of Benazirs government in 1990, Nawaz Sharifs government came into power. During his tenure, he introduced privatisation, deregulation, and economic reform aimed at reducing structural impediments to sound economic development. His top priority was to denationalise some 115 public industrial enterprises, abolishing the government's monopoly in the financial sector, and selling utilities to private interests. In the parliamentary elections of 1993, Benazir Bhutto, once again, became the Prime Minister of Pakistan. The parliamentary election was held in 1997 and, once again, Mian Nawaz Sharif elected as the Prime Minister of Pakistan. Period of restructuring of economy (1999 2007): In October 1999, the Nawaz Sharif government was dismissed with the military coup by the Chief of Army Staff, General Pervez Musharraf. The era of General Pervez Musharraf is known as the era of economic and political restructuring. During this era, the economy grew at an average growth rate of 5.1%. President General Pervez Musharraf invited Mr. Shaukat Aziz to take charge of the Ministry of Finance. He very quickly assembled a team of highly trained economists and extremely talented civil servants to address the issue of the severe macroeconomic crisis and place the economy on a path of sustained higher growth, financial stability, and improved external balance of payments and make economy open, liberalised and market friendly. As a result, private sector had begun to play an active role in shaping structural changes in the economy. 6|Page

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ROLE OF FISCAL POLICY IN ECONOMIC DEVELOPMENT OF PAKISTAN

Fiscal policy is one of the most important methods of fine tuning the economy of the country. It is defined as the process of shaping government taxation and government expenditure so as to achieve desired economic and social objectives. The objectives and the role of fiscal policy in developed countries of the world are promoting stabilization of economic activity at high levels of output and employment free from inflation. The objectives of fiscal policy are To encourage economic growth in an atmosphere of stability. To achieve greater equality in the distribution of income To reduce regional disparity and to restrict import to essential items To provide incentives for increased savings and investment in the country To regulate resource allocation and increase export to earn foreign exchange. To attain maximum well-being of the people etc

The above objectives cannot be achieved without proper planning. The Government of Pakistan is tapping various sources for raising its income to meet the growing development expenditure.

BUDGETING
A budget is a financial document used to project future income and expenses. Every government plans various economic activities and for undertaking these activities, it has to first raise revenues and then incur expenditures. Federal budget is the annual statement of the expenditures and revenues of the federal government with the laws and regulations that approve and support those expenditures and taxes. The main objectives of the federal governments of the developing and developed countries of the world are: to finance the activities of the federal government and to encourage economic growth in an atmosphere of stability.

The first purpose of the federal budget is to finance the business of the government by raising revenues through the direct and indirect taxes. After the great Depression of 1930s the federal budget is used through the fiscal policy to achieve macroeconomic objectives such as sustained long term economic growth, higher level of employment, price stability etc. Budget is very often divided into revenue and capital budget. The revenue budget covers items of recurring nature. The government raises revenue from direct and indirect taxes such as income tax, excise duty, custom duty etc. The capital budget includes those items which are meant for 7|Page

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acquiring and disposal of capital assets. The development expenditures on construction of roads, railways, parts, industrial projects, irrigation projects etc. Generally the budget paper shows The financial accounts if the previous year, The budgeted figures and revised estimates for the current year, The budget for the coming year.

PROCESS OF BUDGETING
The Budget of a country reflects its social, economic, fiscal and financial responsibilities. It also reflects the government policies which it has for the future of the country.

CONSTITUTION:
In Pakistan legal system, various provisions Relating to budget appear in the constitution. The budget when proposed is a bill before the parliament & once accepted is an act of parliament. The procedure for general bills establishes that a bill can originate in either in national assembly or in senate. Once passed by the house in which it originates, it is transmitted to another house & if passed without amendment, is passed to the president for approval. The president must give his approval within 30 days. Once it receives presidential approval, it becomes a law.

ROLE OF NATIONAL ASSEMBLY:

Before its presentation to N.A., the budget is discussed by cabinet & approved. The rules then provide that the budget shall be presented to N.A. by the finance minister on a date determined by the head of the house. No other matter is discussed on the Budget day: There then follow a period of at least two days before any discussion of the budget. At least four days must then be allocated for budget discussion.

BUDGET DEBATE IN NATIONAL ASSEMBLY:

The annual budget system is generally presented at the N.A. during the 2 week of June and is passed by the beginning of last week of June. This process generally leaves 12 to 17 working days for the various stages in budget debate.

ROLE OF SENATE IN BUDGET PROCESS:

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Since 2003, it has been a requirement that the budget statement is copied to the senate at the same time as its presentation to the N.A. The senate may discuss the budget proposal & make recommendation to the N.A.

ROLE OF PARLIMENTARY PARTIES:

The parliamentary parties dont make organized advance preparation for budget debate. Some parties do hold meetings during two days break b/w presentation and debate &are briefed by financial experts.

ROLE OF STANDING COMMITTEES:

There are currently 41 N.A. standing committees, each corresponding to a federal ministry or division. However, the current structure and practice excludes standing committees from any role in budget process.

PRE-BUDGET CONSULTATION WITH CIVIL SOCIETY:

No pre or post budget consultation process is held. However, this is essential before to budget announcement, the total available funds, rather than any alternative to government spending policies.

FEDERAL BOARD OF REVENUE

The Federal Board of Revenue (FBR) is the supreme federal agency of Pakistan that is responsible for enforcing and collecting revenue for the government of Pakistan. Dr. Abdul Hafeez Shaikh is the Minister of Finance. He was appointed as Minister for Finance, Revenue, Economic Affairs, Statistics and Planning & Development on 5th June, 2010. By the enactment of FBR Act 2007 in July 2007 the Central Board of Revenue has now become Federal Board of Revenue. FBR is estimated to be the largest federal bureaucracy in Pakistan. The agency primarily operates through its collection arms, the Regional Tax Offices (RTOs) and Large Taxpayer Units (LTUs), across the country. FBR is the guardian of the national treasury. FBR has two major wings: (i) The Inland Revenue

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(ii)

Income tax Federal excise Sales tax Customs

The Inland Revenue Wing (Income Tax Officers) which brings in over 90% of FBR's collection and Customs Wing in Pakistan. For the purpose of collection of revenue and pursuing tax cheaters, FBR's powers & functions also include but are not limited to: carrying out inquiries and investigative audits into the tax affairs, commanding arrests, attachment as well as public auction of movable and immovable assets of a non-compliant. FUNCTIONS OF FBR/REVENUE DIVISION: In the existing setup, the Chairman, FBR, being the executive head of the Board as well as Secretary of the Revenue Division has the responsibility for Formulation and administration of fiscal policies, Levy and collection of federal taxes and Quasi-judicial function of hearing of appeals.

His responsibilities also involve interaction with the offices of the President, the Prime Minister, all economic Ministries as well as trade and industry.

MAIN SOURCES OF REVENUE BUDGET

a) Tax Revenue 1) Taxes on income, profit and wealth 2) Taxes on goods and services Excise duty: selected industries like hotels, hotels and advertisement Sales Tax: the sale price of goods Surcharge: import price of petroleum, natural gas etc 3) Custom duty : Tax on Import and export commodities b) Non-tax revenue 1) Income on property and enterprises 2) Profits from post office 3) Trading profit 4) Interest and dividends

GDP GROWTH AND BALANCE OF PAYMENT

Gross Domestic Product. Is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports." A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and 10 | P a g e

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imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. Pakistans economy has been weakened by persistent political instability, security problems, infrastructure gaps and large macroeconomic imbalances. Nonetheless, it does have attractions for the adventurous: it is the sixth largest economy in Asia. The economy needs significant industrial and infrastructure investment to relieve capacity constraints and boost growth. Moreover, inflation is rising on the back of the August floods and surging global food prices. Inflation spikes are very destabilizing given high rates of poverty.

IMF loans and record workers remittances have strengthened the balance of payments. But the current account deficit will widen, as food and capital imports increase in the wake of the August floods, and farm exports fall. Pakistans external position is very vulnerable to higher commodity prices, a drop in external financial assistance, or rising global risk aversion in financial markets.

CONCLUDING VIEWS
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FBR should improve the working with proper check and make strict rules and regulations for revenue collection. Exemptions should not be there especially on agriculture tax. Reform General Sales Tax (GST) and impose it. Maintenance the GDP ratio. Industries should produce more to increase the export so that the balance of payment is maintained.

REFERENCES:
Economic of Pakistan by M.Saeed Nasir and Syed Kamal hyder Leading Issues Facing Pakistan Economy www.finance.gov.pk/ en.wikipedia.org/wiki/Economy_of_Pakistan http://www.investorwords.com http://www.valleycountyeconomicdevelopment.com
http://www.friendsmania.net/forum/b-com-part-2-ii-economics-pakistannotes/28447.htm#ixzz1LwxioAFo

www.pide.org.pk/Mimap/Report04.pdf www.dailytimes.com.pk/default.asp?page...5-6-2010...1 investinpakistan.pk/

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