A REVIEW

ON
FEDERAL BUDGET 2008-09
Federal Minister for Finance announced the national budget for the fiscal year 2008-09 (01 July
2008-30 June 2009) in the National Assembly on 11 June 2008. The total outlay of budget 2008-
09 is PKR 2010 billion. This size is 29.7 % higher than the size of budget estimates 2007-08.

Table1: Comparative Budgetary Position 2007-08 and 2008-09

Budget Revised Budget
2007-08 Estimate 2008-09
2007-08
RESOURCES 1393672 1522274 1835698
Internal Resources 1135139 1246868 1535530
Revenue Receipts 902175 941716 1110900
Capital Receipts 58518 142817 221302
Financing by Provinces for PSDP 122695 129752 124407
Change in Provincial Cash Balance 51751 32583 78921
External Resources 258533 275406 300169

EXPENDITURE 1549611 1948031 2009812

Current Expenditure 1056350 1516262 1493183
Development Expenditure (PSDP) 520000 458283 549709
Est. Operational Shortfall -50000 -63200 -77000
Other Development Expenditure 23261 36686 43920
PRIVATIZATION PROCEEDS 75000 1650 25106

BANK BORROWING 80938 424107 149008

Highlights and comments (budget 2008-09):

The budget 2008-09 has the following main features:
• The total outlay of budget 2008-09 is PKR 2010 billion. This size is 29.7 % higher than the
size of budget estimates 2007-08.

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Table2: Budget - 2008 – 09 at a Glance

Receipts Expenditure

Tax Revenue –CBR 1251.5 CURRENT 1493.2

Non Tax Revenue 427.8 General Public Service 929.5

Gross Revenue Receipts 1679.2 Defense Affairs & Services 296.1

Less Provincial Share 568.3 Public order safety affairs 26.8

Economic affairs 201.2

Net Revenue Receipts 1110.9 Environment protection 0.2

Net Capital Receipts 221.3 Housing and community 1.4

External Receipts 300.2 Health affairs and services 5.5

Self financing of PSDP by
Provinces 124.4 Recreational, cultural services 3.2

Change in Provincial cash 78.9 Education affairs services 24.6

balance

Privatisation Proceeds 25.1 Social protection 4.8

Bank Borrowings 149.0

DEVELOPMENT 516.6

PSDP 549.7
Federal Government 399.7

Provincial Government 150.0

Est. Operational Shortfall -77.0

Other Development
Expenditure 43.9

TOTAL RESOURCES 2009.8 TOTAL EXPENDITURE 2009.8

PKR in billions

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• The resource availability during 2008-09 has been estimated at PKR 1836 billion against
PKR 1394 billion in the budget estimates of 2007-08.
• Net revenue receipts for 2008-09 have been estimated at PKR 1111 billion indicating an
increase of 23.1% over the budget estimates of 2007-08.
• The provincial share in federal revenue receipts is estimated at PKR 568 billion during 2008-09
which is 22% higher than the budget estimates for 2007-08.
• The capital receipts (net) for 2008-09 have been estimated at PKR 221 billion against the
budget estimates of PKR 59 billion in 2007-08.
• The external receipts in 2008-09 are estimated at PKR 300 billion. This shows an increase of
16.1 % over the budget estimates for 2007-08.
• The overall expenditure during 2008-09 has been estimated at PKR 2010 billion of which the
current expenditure is PKR 1493 billion and Public Sector Development Programme (PSDP) at
PKR 550 billion. Current expenditure shows a decrease of 1.5 % over the revised estimates of
2007-08, while PSDP will increase by 20 % in 2008-09 over the revised estimates of 2007-08.
The share of current expenditure in total budgetary outlay for 2008-09 is 74.3 % as compared to
77.8 % in revised estimates for 2007-08.
• The expenditure on General Public Services (inclusive of debt servicing transfer payments
and superannuation allowance) is estimated at PKR 930 billion which is 62.3 % of the current
expenditure.
• The size of Public Sector Development Programme for 2008-09 is PKR 550 billion. While
for Other Development Expenditure an amount of PKR 44 billion has been allocated. The PSDP
shows an increase of 20% over the revised estimates 2007-08.
• The provinces have been allocated an amount of PKR 150 billion for budget estimates 2008-09
in their PSDP.
• An amount of PKR 27 billion has been allocated to Earthquake Reconstruction and
Rehabilitation Authority (ERRA) in the PSDP 2008-09.
• In the budget estimates 2007-08 subsidies were 1.1% of GDP, in revised estimates 2007-08 at
3.9% of GDP and in the budget estimates 2008-09 reduced to 2.4% of GDP.
• Pakistan's defense budget has been classified since the country went to war with India in 1965.
The military has since kept spending concerns out of the realm of civilians for reasons of

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national security. According to the two-page document issued in Islamabad, Pakistan's army gets
the largest share. The army accounts for PKR 188bn (USD 2.80bn) out of a total defense
expenditure of PKR 294bn (USD 4.39bn). The country's air force gets PKR 71bn (USD 1.07bn),
while the navy gets comparatively measly PKR 29bn (USD 432 m). Most of the army's budget is
going to be spent on its staff. The case is similar as far as the air force and navy are concerned.
Operational costs for the two services are listed as PKR 16bn (USD 238m) and PKR 4bn
(USD59.56m). Analysts believe the move to declare the budget will lead to greater
accountability in the forces. But they insist there is still a need for a proper audit of the military's
expenses to ensure greater transparency. The force has been faced allegations in the past of
kickbacks over arms sales and alleged misappropriations of funds.

Table3: DEFENSE AFFAIRS AND SERVICES

DEFENSE AFFAIRS AND SERVICES

Classification Budget Revised Budget

2007-08 2007-08 2008-09

Defense Affairs & Services 275000 277265 296077

Defense Administration 1459 1460 1170

Military Defense 273541 275805 294907
Employees Related Expenses 91680 95741 99092
Operating Expenses 71296 74331 82841
Physical Assets 87334 82913 87638
Civil Works 23672 23202 25736
Less Recoveries -441 -382 -400
PKR in billions

Highlights and Comments (Duties & Taxes)

• Fully dedicated CNG buses exempted from customs duty.
• Eighteen medicines used for cancer/heart treatment etc. exempted from customs duty.
• Bitumen, JP4&JP8 exempted from duty. Duty rate on base oil for lubricating oils reduced from
20% to 10%.
• Rice seeds, energy saving lamps, dredgers, specified solar energy equipments exempted from
customs duty.

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• Power plants imported by WAPDA on temporary basis exempted from customs duty.
• Reduction of duty on calcium carbide from 15% to 5%, PTA from 15% TO 7.5%, PSF 6.5% to
4.5%, Caustic soda from Rs.5000/MT to Rs.4000/MT, Printing
screens from 15% to 10%, nickel not alloyed from 5% to 0%, Textile buckram from 25% to
10%.
• Duty rates on non-essential & luxury items have been increased. Hence, duty rate on dairy
products, fruits, chewing gum, chocolate, processed food, fruit juices, aerated waters, ceramic
products, air-conditioners/refrigerators, electric fans, toasters, micro wave ovens, televisions,
furniture and lighting equipment etc increased from 25% to 35%. Duty rates on cosmetics
increased from 20 -25% to 35%. Duty rate on electric ovens/ cooking ranges etc. increased from
20% to 30%.
• Customs duty @ PKR 500/ per set levied on import of mobile phone.
• Customs duty on betel leaves increased from PKR 150/kg to PKR 200/kg.
• Duty rate increased on sulphonic acid from 10% to 15%.
• Duty rate increased on CKD/SKD of sewing machines from 5% to 20%
• A uniform rate of 30% specified for import of special purpose motor vehicles.
• Increase in duty rates on import of cars/jeeps above 1800cc from 90% to 100%. Fixed duty/tax
rates on old and used cars/jeeps increased by 10%.
• The rate of sales tax has been increased from 15% to 16%
• Exemption of sales tax on import and local supply of fertilizers and pesticides
• In order to encourage the farmers to get their crops insured, 5% FED on insurance premium has
been exempted.
• Raw materials of Acetic acid have been zero rated.
• To further facilitate the export oriented zero-rated sectors caustic soda flakes/solid, cotton linter
and sequins are being zero-rated.
• Enhancement of rate of Federal Excise Duty (FED) from 15% to 16% on goods and services
which are subject to FED in VAT mode
• Rate of FED on telecommunication services is being enhanced to 21%.
• Federal excise duty on Cement is enhanced to Rs. 900/- per tonne from Rs. 750/- per tonne.
• Rate of FED on banking, insurance and franchise services is enhancement from 5% to 10%
• Sales tax refund to foreign nationals visiting Pakistan on trade fairs on reciprocal basis.

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• Exemption of sales tax on medical equipment, apparatus, reagents, disposables, spares and
donations supplied to operating hospitals of 50 beds or more
The government has not announced any incentive for the ailing textile sector to boost dwindling
exports. The textile sector accounting for 57 per cent of total exports, performed poorly as its
exports fell 2.5 per cent. The Economic Survey 2007-08, while giving first nine months’
performance of the sector, clearly depicted poor performance of textile products. Except for raw
cotton, knitwear, made-up articles and other textile materials, the rest of the products showed a
negative growth. The textile ministry, in an Economic Coordination Committee (ECC) meeting
on June 3, submitted a proposal to allocate PKR 30 billion under the head of additional duty
drawback for the sector, but the committee scrapped the scheme, saying the sector did not
deserve it.
The business community has termed the budget as pro-poor and pro-agriculture. They said the
incentives announced in the budget will hopefully boost production of food items and other
agriculture products and boost employment. The business community however, criticized the
increase in the rate of sales tax, specially, at a time when the industry was already facing a higher
cost of doing business in the country. They welcomed the government’s earlier announcement
before the budget that the country will have an additional 2200 megawatts of electricity by next
year and said that it will be very encouraging as the industry needed uninterrupted power supply.
The Karachi Stock Exchange appreciated the government's decision to continue with the on-
going incentives for the capital market including extension of exemption of capital
gains tax (CGT) on listed shares for another two years, that is, up to June 30, 2010 along with
keeping the current tax regime on stock market unchanged.
Opposition political parties termed the budget as disappointing as it lacks any relief measure
for the poor and middle class of the country. In their opinion the government is still ignoring the
major issues of high inflation, poverty, unemployment and denial of basic needs for the majority
of country’s population.
The Government has proposed certain measures to attain goals set for economic growth and
stability. Some of the solid measures include reduction in the fiscal deficit, improvement in the
system of provision of subsidy, reduction in current account deficit, and bringing up the foreign
exchange reserves. Other steps include increase in the income of poor segments of society
through provision of cash money under various programmes, to focus more on enhancing

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agricultural and manufacturing sectors, to restore confidence of investors, to bring real change in
the social indicators through allocation of funds and to increase number in the low-cost housing
units for the low income groups.
In spite of some timely decisions of the government (such as allocating more funds for education
and increasing the salaries of government employees by 20 percent), common people are still
skeptical of how the government would control the hyper-inflation rate confronting people.
The government announced that the poorest of the poor would get PKR 1,000 monthly aid.
However, people have shown concern over the modalities of this scheme, fearing that this new
scheme might fall prey to irregularities.
Despite positive reforms and strong performance, major threats to Pakistan economy are high
inflation, particularly food inflation, shortage of electricity and political instability. The
agricultural sector is still substantially dependent on weather conditions and demonstrates lack of
planning with a consequence of import of a number of minor crops. The high cost of doing
business, low productivity, infrastructure constraints, inadequate institutional capacity and lack
of skills development still remain major constraints. The economy has shown traction in the form
of extended period of high growth but its sustainability in competition with exceptionally high
growth economies of India and China would depend on a dynamic reform process, solid
institutional support, high quality of governance and transparency coupled with political
stability.

Courtesy:
Embassy of Switzerland
Street 6, Diplomatic Enclave, G-5/4
Islamabad 44000
Pakistan
Tel. +92 51 2279 291
Fax +92 51 2279 286
E-mail: isl.vertretung@eda.admin.ch
www.eda.admin.ch/islamabad
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