The cash-deficient Finance Division has conveyed Indicative Budget Ceilings (IBCs) to all the ministries/divisions with a clear message that whatever is allocated is final and no meeting of the priority committee will be held for this purpose, well-informed sources told Business Recorder. The Finance Division's team which is preparing the draft of the budget has to keep available resources in mind for allocation. The top priority of "Corona Budget" is defence/security followed by development budget. A few days ago Prime Minster Imran Khan held a consultative session on forthcoming budget with key ministers including those with a political focus aimed at preparing outlines for federal budget 2020-21 at a time when the economy has shrunk and the State Bank is projecting negative GDP growth.
"The government has reviewed macroeconomic and fiscal projections and spending priorities in the light of the impact of coronavirus on the country's economy," sources added.
The Finance Division, sources said, wants a belt-tightening in the budget as per the IMF agreement while the political minded ministers are of the view that the people and industry should be provided some incentives so that they can cope with the crisis. Revenue collection is expected to not be robust due to closure of industrial units and business with lower sales tax collections which in turn implies share of provinces will also shrink.
For development budget, Planning Division argues that it needs at least Rs 700 billion to continue existing development projects and a few new projects but Finance Division is unwilling to allocate more than Rs 600 billion.
Finance Division argues that the IBCs for development budget shall be separately communicated in due time by the Planning, Development and Special Initiatives.
Out of total indicative development budget, Rs530 billion is proposed to be earmarked for core development activities being undertaken under the umbrella of the PSDP. The remaining Rs70 billion has been proposed for projects being administered by the finance ministry, including meeting the military's development needs from the PSDP.
The general policy related instructions are as follows; (i) under article 79 of the Constitution of Pakistan, the Public Finance Management (PFM) Act 2019 has been enacted with effect from July 1, 2019. All Principal Accounting Officers (PAOs) which is Federal Secretary of each Ministry/Division are required to fully comply with the provisions of the Act regarding performance based budgeting and expenditures by well defined plans; (ii) an effective cash management system for all public entities leading to Treasury Single Account (TSA) is being enforced in the federal government as per section 30 of the PFM Act 2019, and Finance Division will issue separate rules and policy guidelines; (iii) Finance Division has published budget manual 2019 for providing assistance to the PAOs and various government functionaries by improving budgeting process in the federal government; and (iv) budget strategy paper, a standard policy document of the government which sets out the revenue and expenditure priorities was approved by the federal cabinet in March 2020 and available on the official website of the Finance Division.
The specific budget related instructions for the FY 2020-21 are as follows; (i) allocations for various heads of accounts including ERE & OE shall be made by the respective PAO within the budget ceilings, keeping in view the government spending policy priority. The PAO shall ensure adequate amounts are placed in each head of account; (ii) supplementary budget (regular and technical) shall not be provided during the FY but only in exceptional circumstances, after approval of the ECC and Cabinet. Therefore PAO shall ensure reliability of the allocations with the ceilings without any assumption of additional allocation through supplementary grants; (iii) There shall be no requirement to allocate an amount in the budget for keeping a head of account operative on presumption basis and no supplementary grants shall be allocated; (iv) There shall be one demand for the main Division. The funds for the attached departments and sub-ordinate offices of the Division shall be placed under demand named "other expenditures of the Division." While grants-in-aid to all other entities and subsidies etc shall be placed in a separate demand "Misc expenditures of the Division"; (v) government drive for adoption of austerity measures in the Federal Ministries/Divisions/offices shall be fully adhered to; (vi) research related institutions shall ensure sufficient allocation for budget for R&D purposes at the time of NIS submission; (vi) funds placed in the assistance package for families of employees who die during service shall not be re-appropriated or utilized for any other purpose and; (ix) out of allocation given to educational and health institutions/entities, a significant part shall be allocated for repair and maintenance by PAO concerned.
Finance Division, presented economic stabilization framework that seeks Rs1.2 trillion fiscal consolidation during the ongoing economic recession. The proposed plan also includes Rs5.1 trillion tax collection target for the Federal Board of Revenue (FBR) that will require imposition of record additional taxes of nearly Rs780 billion in the next fiscal year 2020-21.
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