ECONOMY OF PAKISTAN: 2012-13

Main Focus
1. 2. 3. 4. 5. Economy of Pakistan Federal Budget: 2012-2013 Economic Challenges: 2013 Fiscal Policy Suggested Charter of Economy

Presentation by Prof. Dr. Khawaja Amjad Saeed

Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan (2003----), Member Governing Council, International Federation of Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President, Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996) & Senior Faculty Member of Hailey College of Commerce, University of the Punjab, Lahore (1965-73). Earlier he served in Corporate Sector in Pakistan for1 eight years (1958-65).

WELCOME TO OUR PROGRAM

PRESENTATION FRAME
1. Economy of Pakistan 2. Constitution of Pakistan 1973: Economic Matters 3. Federal Budget: 2012-13 4. Pakistan: Economic Challenges: 2013 5. Economic Management Matrix 6. Fiscal Policy 7. Suggested Charter of Economy
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1: ECONOMY OF PAKISTAN
Components S. No. 1. 2. 3. Components Agriculture Manufacturing Services

1-1: AGRICULTURE
Components

S. No.
1. 2.

Components
Livestock Crops: 1. Major 2. Minor

3.
4.

Fishing
Forestry

1-2: MANUFACTURING
Components

S. No.
1.

Components
Industry: High Tech LSM SME Cottage

2.
3. 4.

Minerals
Electricity Construction

1-3: SERVICES
Components S. No. 1. 2. 3. 4. Components Physical Social Financial Intellectual

2: CONSTITUTION OF PAKISTAN 1973:

ECONOMIC MATTERS
Article 03 18 37 38 Emphasis Exploitation: Eliminate Freedom: Trade, Business or Profession Promotion: Social Justice and Elimination of Social Evils Well Being: Social and Economic of People

3: FEDERAL BUDGET: 2012-13

MASTER CHART (FEDERAL BUDGET 2012-2013)
Particulars NEEDED 1. Current Expenditure 2. ADP: 2012-2013 AVAILABLE Net Federal Revenue SHORTFALL FINANCING PATTERN 1.Capital Receipts (Net) 2. Bank Borrowings 3.External Receipts 4.Estimated Provincial Surplus 484 478 386 80 1,428* 34 34 27 05 100 2,612 591 3,203 1,775 1,428* 3,203 81 19 100 51 49 100 Rs. b %

3-1: FEDERAL REVENUE BUDGET: 2012-13

FEDERAL REVENUE BUDGET 2012-13 Particulars CURRENT REVENUE 1. Indirect Taxes Rs. b 1,572* % 49

Composition Sales Tax Custom Duties Federal Excise Others (Plus Petroleum Levy)

Rs.b 1,077 248 125 122 1,572* 2. Direct Taxes

3. Non-Tax Revenue

% 69 15 08 08 100 932 2,504

730 3,234

29 78 22 100

3-1: FEDERAL REVENUE BUDGET: 2012-13

Rs. B 4. Less: Transfer to Provinces Net Federal Revenue CURRENT EXPENDITURE 1,459 1,775 %

1. Debt Servicing
2. Defence Affairs & Services 3. Cost of Running Govt 4. Grants & Transfer to Provinces 5. Subsidies Less: Deficit in Revenue Budget

1,142
545 404 312 209

44
21 15 12 08

2,612
837 1,775

100

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3-2: FEDERAL ANNUAL DEVELOPMENT PLAN 2012-2013

Particulars DEVELOPMENT EXPENDITURE ANNUAL DEVELOPMENT PLAN 2012-2013 Rs. b %

1. Federal Govt: 2012-13 Departments (rs. 207b), Corporations (Rs. 80b) Special Programs (Rs. 27b) Special Areas (Rs. 36b) and ERRA* Rs. (10b) 2. Other Developments Expenditure
3. Provincial Governments

360

61

154 77 591

26 13 100

*Earthquake Rehabilitation & Reconstruction Authority

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3-2: FEDERAL ANNUAL DEVELOPMENT PLAN 2012-2013

FINANCING PATTERN 1. Bank Borrowings 2. External Receipts 3. Estimated Provincial surplus 4. Net Internal Resources Rs.b 484 386 80 % 82 65 14

(359)* 591

(61) 100

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3-2: FEDERAL ANNUAL DEVELOPMENT PLAN 2012-2013

BREAK UP OF INTERNAL RESOURCES 1. Deficit in Revenue Budget for 2012-2013 2. Less: Net Capital Receipts Rs. b 837 (478) (359)*

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3-3: PROVINCIAL ALLOCATION: 7TH NATIONAL FINANCIAL AWARD

Province
Punjab Sindh KPK Balochistan

Allocated %
48 27 16 09 100

Population* %
57.36 23.71 13.82 5.11 100

*Based on Population Census of 1997.

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4: PAKISTAN: ECONOMIC CHALLENGES: 2013

A: Economy Challenges 2012
1. 2. 3. 4. 5. 6. 7. 8. Business Environment: Deteriorating Foreign Investment: Declining Exchange Rate: Depreciating Inflationary Pressure: Building Up Foreign Exchange Reserves: Depleting Industrialists relocating their Industries Abroad Electricity and Gas Shortages: Aggravating Relations with International Financial Institutions Including IMF: Deteriorating 9. Exports Growth: Turning Negative 10. Mysterious Growth in Remittances: Continuing 11. Economy Remaining the off radar Screen of the Government
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4: PAKISTAN: ECONOMIC CHALLENGES: 2013

B: Measures with Question Mark
7th NFC Award

1. New NFC Award diverted bulk of Federal Government Resources to Provinces at a time when they were needed more: a. To Finance Growing Interest Payment b. Security Related Expenditure c. Bailing out of PEs with losses d. Paying WAPDA/PEPCO to Finance their Inefficiencies 2. Tax System: Failure to Reform Taxation System and Broadening Tax Base to Generate more Tax Revenues.
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4: PAKISTAN: ECONOMIC CHALLENGES: 2012

B: Measures with Question Mark 3. Petroleum Products These are doubly taxed: a. Exchange rate depreciation has increased the landed cost of oil. b. Petroleum Development Levy (PDL) is levied on Inflated basis to mobilize more resources.

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4: PAKISTAN: ECONOMIC CHALLENGES 2013

C: 2013 Outlook Outlook for 2013 is Likely to Further Deteriorate.
1. Political uncertainty with adverse consequences on the economy. 2. Fiscal indiscipline hallmark of the Government during election year. 3. Mobilization through taxation will take the back seat. 4. Reliance on Non-Tax Revenues would increase further. 5. Expenditure is expected to rise further with budget deficit likely to be in the range of 6% 6.5% of GDP. 6. Economy will remain out of focus of the political leadership. 7. Energy shortage (electricity and gas) to aggravate further. 8. Politics is likely to dominate economics.
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4: PAKISTAN: ECONOMIC CHALLENGES: 2013

D: Expected Trends 2013
1. GDP Trend : 3-4% 2. Domestic Investment : Not expected to Pick up 3. Unemployment and Poverty are likely to rise further 4. Inflationary pressure to rise on account of senseless increase in government administered prices 5. External balance of payments to come under pressure due to following: a. Flat, even negative export growth b. Search in payment to the IMF c. FDI to witness a sharp decline d Sharp depreciation of exchange rate e. Public debt is likely to worsen on account of large fiscal deficit.
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4: PAKISTAN: ECONOMIC CHALLENGES: 2013

E: Consequences
1. National Security at Stake 2. Miss-Governance to Continue 3. In Search of a Direction

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5: ECONOMIC MANAGEMENT MATRIX

Economic Consumption Dimension Management Dimension

Production

Exchange

Distribution

Public Finance

Planning Organizing Staffing Leading Controlling

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6: FISCAL POLICY
1. Objectives a. Full Employment b. Resource Mobilization c. Resource Allocation d. Maintenance of Economic Stability e. Income Re-Distribution 2. Canons of Taxation: Adam Smith a. Equity b. Certainty c. Convenience d. Economy 3. Other Canons a. Flexibility b. Situation
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6: FISCAL POLICY
4. Income Tax Rates 2013
1. Individuals - Non-Salaried - 5 brackets (10% -----25%) - Salaried 5 brackets (5.0% -----20%) - Exempt upto Rs. 4 Lac Companies - Public, Private& Banking Companies 35% - Small companies 25% Dividend received by all tax payers 10% and 20% on banking company from its assets management company Property income - Rs. 150,000 exempt - Rates 5% -----10% Capital gains With holding period less than six months 10% More than six month but less than 12 months 8%
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2.

3.
4.

5.

7: SUGGESTED CHARTER OF ECONOMY

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Domestic Resource Mobilization Income Tax by All Self Reliance for Financing ADP Financing Provincial Govt Budgets Public Enterprises Losses Good Governance & Corporate Governance Inflationary Impact: Salary increase CBA----PSA NPLs Professionals Role Holistic approach to Economic Development with equitable distribution of wealth and income across the board

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