Budget Process Pakistan

Understanding the
Budget Process
A Handbook for Parliament
2014
This project is funded by

the European Union
Improving Parliamentary Performance in Pakistan
Improving Parliamentary Performance in Pakistan (IP3), Islamabad, Paksitan

T: +92 (0) 51 831 8209, F: +92 (0) 51 2821315, info@ip3.org.pk www.ip3.org.pk
IP3 is Implemented By
TABLE OF CONTENTS
Purpose of this Guide .................................................................................................................................... 3
CHAPTER 1: THE BASICS ............................................................................................................................. 4
1.
What is a Governments Budget? ........................................................................................................ 4
2.
Why is the Governments budget important? ...................................................................................... 4
3.
Principles of a good Budgeting System ............................................................................................... 5
4.
Budget Transparency .......................................................................................................................... 9
5.
Budgetary Management Processes .................................................................................................. 10
CHAPTER 2: LEGAL REQUIREMENTS AND ROLES ................................................................................ 11

1.
Role of the Executive and Legislature in Budgeting .......................................................................... 11
2.
The Constitution of Pakistan and Budget Management System ....................................................... 12
3.
Rules and Regulations of the Federal Government .......................................................................... 17
4.
Rules of Procedure of the National Assembly and Senate ................................................................ 18
CHAPTER 3: BUDGET MANAGEMENT ...................................................................................................... 20

1.
Budgetary Management Processes .................................................................................................. 20
2.
Spending reviews .............................................................................................................................. 20
3.
Strategy, policy and formulation of plans ........................................................................................... 21
4.
Budget preparation processes ........................................................................................................... 21
5.
Presentation of the budget The Budget Books ............................................................................... 25
6.
Presentation of the budget The Budget Classification System ....................................................... 30
7.
Budget Execution Processes ............................................................................................................. 34
8.
Accounting, reporting and audit ......................................................................................................... 35
CHAPTER 4: BUDGET RELATED MATTERS ............................................................................................. 37

1.
Macroeconomic framework ............................................................................................................... 37
2.
Intergovernmental fiscal relations ...................................................................................................... 39
3.
Assessing public financial management system in a country ............................................................ 41
4.
Managing Public Debts ...................................................................................................................... 44
5.
Managing Public Procurements ......................................................................................................... 45
Budget Guide for Parliamentarians
CHAPTER 5: BUDGETING AND LEGISLATURE ........................................................................................ 46

1.
Budgeting and Legislature Examples of other countries ................................................................ 46
2.
Timeframe for Budget passage in other countries ............................................................................. 48
3.
Parliamentary review and approval ................................................................................................... 48
4.
Role of Parliamentary Standing Committees ..................................................................................... 49
5.
Process of Cut-Motions ..................................................................................................................... 51
GLOSSARY OF TERMS ............................................................................................................................... 54
2 Budget Guide for Parliamentarians
PURPOSE OF THIS GUIDE

This guide is prepared to provide a reference for Parliamentarians on the Federal Governments
budgetary systems. Since the budget occupies a central position in Parliamentary democracy, it is
important for Parliamentarians to have a clear understanding of how budgets are prepared,
executed and monitored to enhance their oversight role.
The budgetary management processes does not only include preparation and presentation of the
annual budget. Equally important are processes that precede budget preparation i.e.
policymaking, planning, and determination of priorities and allocations. Also important are
processes that follow budget preparation i.e. budget execution, accounting, monitoring &
reporting, and auditing.
This guide is divided into chapters.
Chapter 1 presents the basic understanding of what is a government budget and why it is
important. In this chapter an overview of budget processes is provided together with other
concepts that are necessary for understanding budgetary management system. This chapter also
highlights principles of good budgeting systems for the reader to understand international
practices that form the foundation of good budgeting mechanisms.
Chapter 2 presents the legal framework and roles of the Executive, Legislature, and Government
institutions of Pakistan in budgeting. This chapter also highlights the important role of Standing
Committees in budgeting.
Chapter 3 provides an understanding of how budgets are prepared, presented, executed,
accounted, and monitored in Pakistan. This chapter also provides an overview of budget books
that are presented by the Executive each year at the time of the budget speech. Also included in
this chapter is a basic understanding of the budget classification system the codes and format of
budget presentation.
Chapter 4 discusses broader aspects of the Federal Governments budgeting system. The chapter
provides a brief understanding about macroeconomic frameworks, managing public debts, and
public procurements. This chapter also provides some details related to an assessment of a
countrys budgetary management system.
Chapter 5 discusses the role of Parliamentary Standing Committees, and describes the process of
cut-motions undertaken as part of the budget discussions in the National Assembly. It also
includes budgetary processes in other parliaments.
CHAPTER 1: THE BASICS

1. WHAT IS A GOVERNMENTS BUDGET?
The budget is the Governments most important economic policy tool. Government budgets
translate a Governments policies, political commitments, and goals into decisions. Decisions
such as; how much revenue to raise, how to raise it, and how to use these funds to meet the
countrys competing needs, from bolstering security to improving health care to alleviating
poverty.
International Budget Partnership
2. WHY IS GOVERNMENTS BUDGET IMPORTANT?
In a modern economy, the government budget plays a key role in the maintenance of economic
stability and growth, and the achievement of national objectives. A poorly managed budget can
lead to economic instability and national decline.
The budget is one of the most tangible expressions of how a government intends to govern the
state. In many countries, the government is the largest spender of resources. Hence the choice of
allocations through distribution of wealth and income can determine what type of development
outcomes a country intends to achieve.
The government budget also occupies a central position in any system of parliamentary
democracy. The budget is essentially an agreement or contract between the Executive and the
Legislature. It is an expression of no taxation without representation. Through the appropriation
of the budget the Legislature empowers the Executive to raise the revenues and other funds
required to finance the delivery of public services. The Executive, for its part, undertakes to
deliver the agreed services and discharge the agreed functions in an economic, effective and
efficient manner.
The budgetary process is inherently and necessarily political in nature as it is driven by the
policies of the Government and involves making choices between alternatives, within limited
resources.
In a modern democracy accountability and transparency are essential attributes of the budget as
they generate confidence in the political process and the rule of law.
3. PRINCIPLES OF A GOOD BUDGETING SYSTEM
Government should maintain a sustainable fiscal discipline

Fiscal discipline means that government expenditure remains within the limit of its revenues. If
government expenditure exceeds its resources than it either raises debt or prints more money
resulting in a budget deficit. If continued unabated, both of these options are unsustainable.
Governments normally have fiscal responsibility laws to check on the level of borrowings. In
Pakistan, the Fiscal Responsibility and Debt Limitations Act of 2005 provides borrowing limits.
Effective allocation of resources to departments, sectors, and services

Public money should be allocated on the basis of evidence of effectiveness and in furtherance of
the priorities of government. This requires moving away from incremental budgeting (a method
under which a percentage is added to the previous years budget to arrive at the next years
budget). The Government should have the capacity to evaluate activities, which are not
contributing to the achievement of its goals, based on which resources can be shifted to more
efficient use.
Efficient provision of public services

The Government should achieve value for money in delivering public services and should be
attentive to the quality and accessibility of services.
Value for money means that the Government should have the capacity to spend resources in such
a manner that results in achievement of objectives with minimum resources (e.g. cost, materials,
people, etc.)
Alignment of policy planning, budgeting and monitoring systems

Budgets should reflect plans and policies of departments. Budgets and plans should be monitored
on a periodic basis and lessons learnt from monitoring should be used to improve the next round
of policy planning.
Policy / performance based budgeting

Traditionally budgets are made by inputs (i.e. financial, material and human resources). While it
is important to present resources required, it is even more important to present a budget by
outputs (i.e. public services) to understand government priorities and plans.
Budget by Inputs
Pay and allowances
Budget by Outputs
100
Primary health care services
50
Operating expenditure
20
Secondary health care services
40
Physical assets
10
Tertiary health care services
55
Repairs and maintenance
25
Total
155
Total
155
In the above example, the health budget is presented by both inputs and outputs. It is easy to
provide expenditure limits on a budget by inputs. Similarly, it is easy to link policy planning,
priorities and performance with budget by outputs.
The Output-based budget introduces results-orientation to budget. This means not only resource
requirements, but the government budget also, presents the expected results that will affect the
beneficiaries.
Medium-Term budgeting and predictability of resources

The budget needs to have a medium term, e.g. 3 years, perspective. Each year the budget should
be made on a rolling-basis (i.e. each year the budget should be presented for the next 3 years)
Economic circumstances may change and so can plans of the Government. It is therefore,
necessary to understand medium term implications of those decisions.
Since government policies are normally of a longer duration (e.g. 5 years), it is also important to
have a medium term perspective in budgeting.
Each year departments must be communicated with medium term ceilings (budget limits) so as
to allow them predictability of resources for better policy planning.
Harmonised Recurrent and Development Budgets to focus on delivery of

services
Effective integration of current and development budgets is one of the hallmarks of a good
budgetary system. Moving to a unified budget, however, can be difficult as it involves legislative,
institutional, budget presentation and expenditure management issues.
From the legislative perspective, presenting a single vote (Demand) for each Principal
Accounting Officer, instead of two votes (Demands); one for recurrent and one for development
may require legal changes and significant consultants within the Parliament. There may also be a
revision of roles of the Finance Division, and Planning, Development and Reforms Division.
Similarly, the line Ministries may undergo restructuring to focus on a policy-based budget as a
unified activity.
Therefore, countries have adopted stepwise progress. Initially both the recurrent and development
budgets are presented through a unified system of budget classification.
Presenting the budget by Functional classification (as developed by the IMF to provide a list of
standard government functions - e.g. defence, health, education, etc.) can unify the presentation
of the two sides of the budget.
In addition, presenting the budget by services (also known as outputs) can also act as a means to
unify the presentation of the two sides of the budget.
In this regard, output-based budgeting is also seen as an important step to enhance unified
budget preparation, review, reporting and approval.
Delegation of financial authorities and straightening of internal control

systems
Budget owners (e.g. Secretaries) should have the authority to allocate resources to the areas of
priority. In parallel, Ministries / Divisions should strengthen their internal control systems - to
ensure that:
Laws and regulations are adhered to
Financial information is analysed and reported on a regular basis
Organisations objectives are addressed including performance and value for money
goals, and
Organisational assets are safe guarded.
Ministries / Divisions should have a dedicated finance function (e.g. office of the Finance
Director) with formalised responsibilities and an internal audit function.
Budget Laws
Organic budget laws are common in Parliamentary democracies. Through budget laws, roles and
responsibilities of different institutions are prescribed. In addition, budget laws contain provisions
of how the budget should be prepared, presented, executed, monitored and reported. Also
important are legal provisions related to changes in limits (also known as virement a process
through which the budget is shifted from one Demand to another, or an additional budget is
agreed) and purpose of the budget during the year.
The following diagram presents examples of countries with written and unwritten constitutions.
In most of the situations, the Executive rules and regulations are subservient to either one or
many budget laws.
Control over Supplementaries

It is of course impossible to fully predict the future needs of the Government, and for Parliament
to provide for them. However, budgeting requires that the system of supplementary funding be
controlled. This is done in two ways:
Provision of contingency funds. In this way, Parliament provides additional funds in the
budget based on its expectation of the minimal amount of additional supplemental funds that
may be provided. Parliament may, if it wishes place constraints on the use of this contingency
fund. However even when this is done, the system should require an immediate report to
Parliament when the funds are accessed to inform it of how they are to be used.
Transfer authority. Parliament may provide limited transfer authority to government, also
possibly with constraints, permitting the Government to use funds provided for one purpose
or another. For example, many U.S. appropriations permit one percent of funds to be
transferred to other purposes. Any such transfers should, of course, also generate a report to
Parliament.
Mid-session review of the budget. A system of a mid-session review of the budget can be
established. This review is an updated Government report to the Parliament both on the
economic situation and the budget execution. Most provision of supplementary funding
should be provided pursuant to a request made with the mid-session review, with provision
for emergency supplementals to be requested outside this structure.
Transparency and public participation

Governments should be transparent on how budget numbers relate to issues that affect peoples
daily lives. Participation of public and civil society organisations in the Governments budgeting
processes is increasing globally.
Role of Parliamentary Standing Committees

A vibrant committee structure creates a reservoir of legislative expertise that can inform
Parliaments budget process. Most national budget processes contain a formal system of
committee review and comment on budget proposals. This committee role would be facilitated by
the support of the legislative staff agency described above, but would also require adequate
training of key members and staff. It may also suggest to the Assembly and Senate the value of
consolidating committee comments, and perhaps committees.
In most Parliamentary democracies considerable time is allocated to the Parliament for review
and oversight of budgetary proposals of the Executive. In this case, the Speaker of the House
refers the Demands for Grants to the sectoral standing committees that review the budget and
provide a comprehensive report to the House for general debate.
4. BUDGET TRANSPARENCY
International Budget Partnership (an international research organisation that has developed an
assessment tool for determination of openness and transparency in a countrys budgeting system)
has developed criteria through the Open Budget Index initiative.
As per the criteria, their following documents should be available for public consumption:
A Pre-Budget Statement
This is the budget policy document of the government presenting the overall economic and fiscal
forecasts, key budget policies (e.g. tax policy, sectoral expenditure policies, etc.), and should be
available to the public at least 2 months before the budget is presented in the Legislature.
In Pakistan, while the government produces a Budget Strategy Paper (a pre-budget statement) it
is not shared with the public.
Governments Budget Proposals

Governments budget documents should be made available to the public as soon as they are
presented to the legislature.
Enacted Budget
In case where the Governments budget proposals are changed, the Government should provide
information to the public on the changes incorporated during the budget debate and the
appropriation process.
A Citizens Budget
An easy to understand document for the public to understand outlining the Governments budget
that should also provide information on the Governments policies and plans and how the budget
numbers are shaped, should be produced. This document should be part of the budget documents
that the Government produces each year.
In Pakistan the Government does not produce a citizens budget.
In-year Reports
Monthly or quarterly reports on the use of the budget presented to the Parliament and shared with
the public.
In Pakistan quarterly fiscal operations (actual expenditure) reports are uploaded on the Finance
Divisions website. However, the information is not very user friendly.
Mid-year Report:
Comprehensive update on the implementation of the budget, including a review of the economic
assumptions underlying the budget and an updated forecast of the budget outcome for the current
budget year
Year-end Report:
The year-end report is the governments key accountability document. It should be audited by the
Supreme Audit Institution (Auditor General). It should include the original budget, any changes
made by the Government during the year and the actual expenditure together with performance
planned and delivered
Audit Report:
Audited financial statements of the Government by the Supreme Audit Institution (Auditor
General) should be made available to the public within 2 years after the end of the financial years.
5. BUDGETARY MANAGEMENT PROCESSES
Budgetary management processes of a government comprise of the following different stages:
Spending reviews
Strategy, policy,
and formulation
of plans
Budget
preparation and
presentation
These stages are explained in Chapter 3.
Budget
execution
Accounting,
reporting and
audit
Monitoring and
evaluations
CHAPTER 2: LEGAL
REQUIREMENTS AND ROLES
1. ROLE OF THE EXECUTIVE AND LEGISLATURE IN
BUDGETING
Experiences from parliamentary systems of governments from around the world suggest that the
following stages are observed in the budgetary processes:
First Stage Budget Preparation

First the Executive prepares a draft budget and submits it to the legislature. This is usually a twostep process: The Ministry of Finance prepares a draft budget that incorporates the Governments
expressed budget orientation; the draft budget prepared by the bureaucrats is then approved by the
Cabinet of Ministers. This budget is submitted to the legislature for possible amendment and
approval.
Second Stage Parliamentary Review

Second, at the parliamentary stage, the budget is generally discussed in Parliamentary
Committees, which may propose amendments. Once amendments are agreed in the plenary
session, the legislature approves the budget. Legal authority is provided to the Executive for
raising revenues if this is not on-going. Formal adoption of the spending proposals means that
legally binding upper limits are established for many expenditure categories.
Third Stage - Implementation

The third stage is the implementation of the approved budget, which is performed by the
Executive and/or Government Ministries. In so doing, the Ministry of Finance monitors the
budget implementation and prepares periodic budget execution reports using a well-defined
accounting system. The Executive may be provided with the power to change the approved
budget in the case of unforeseen emergencies, including major deviations in the macroeconomic
framework underlying the budget law. A supplementary budget may be needed to confirm any
such action by the Executive. The Executive may also be provided with other powers to modify
the approved budget, including powers to change its composition (e.g. by technical
11
supplementary / re-appropriations or by using a reserve fund approved in the annual budget) or to

control actual spending to a level below that approved, should economic circumstances dictate.
Fourth Stage - Monitoring

The fourth stage is parliamentary monitoring of budget implementation. This takes place both
during and, especially, after the close of the fiscal year. Parliamentary monitoring is based on
reports provided by the Executive. It is Parliaments prerogative to specify the content and timing
of such reports, which may contain both financial data (annual accounts) and non-financial data
(e.g. attainment of performance targets).
Fifth Stage Audit

The final stage is when an independent external audit office audits the financial accounts. It may
also have a mandate to assess the results of the annual budget in terms of efficiency, economy and
effectiveness.
2. THE CONSTITUTION OF PAKISTAN AND BUDGET

MANAGEMENT SYSTEM
The Constitution of the Islamic Republic of Pakistan provides for a system of budgetary
management. Specific articles and their simplified explanation is provided below:
Article 73, 74
Money Bill, and Finance Bill

A Money Bill will originate in the National Assembly.
Money Bill, which also includes the Annual Budget Statement, will contain a
Finance Bill. A copy of Money Bill will be sent to the Senate to make
recommendations to the National Assembly within 14 days.
Recommendations of the Senate are non-binding on the National Assembly.
A money bill can contain matters related to:
Taxes and duties (Finance Bill)

Government borrowing or government guarantees
Federal Consolidated Fund (the main bank account of the government)
Public Account (as defined in Article 78)
Audit
Only Federal Government can introduce or move Money Bill in the Parliament.
The Speaker of the National Assembly will certify that the bill is a Money Bill and
send it to the President for assent. After assent of the President the bill will be
called Act of the Parliament (Article 75).

[Authors note: It is a common practice in Pakistan that the Finance Bill contains
information related to taxes that becomes the Finance Act after approval of the
President. For expenditure, the Annual Budget Statement contains statement of
estimated receipts and expenditure (Article 80) and is signed by the Prime
Minister through Schedule of Authorised Expenditure (Article 83)]
Article 77
Levy of taxes
Taxes shall not be imposed without an Act of the Parliament.
th
[Authors note: This article was introduced as part of the 18 Amendment to the
Constitution]
Article 78,79:
Consolidated Fund and Public Account

A consolidated fund (the main bank account of the government) will include all
revenues received, all loans raised, and all moneys received by the government in
repayment of any loan.
All other monies will become part of the Public Account.
Matters related to Consolidated fund and public account will be regulated through
the Act of the Parliament. If there is no Act of the Parliament, then rules and
regulations made by the President will prevail.
[Authors note: Pakistan does not currently have a law that regulates Consolidated
fund and public account and hence rules (e.g. General Financial Rules, New
Accounting Model, etc.) signed by the President prevail]
Article 80,81,82,83,84:
Budgeting
Annual Budget Statement
The Federal Government will lay Annual Budget Statement in the National
Assembly containing statement of estimated receipts and expenditure.
The Annual Budget Statement will show charged, and other than charged
expenditure separately.
The statement will distinguish between revenue and other account.
The Annual Budget Statement will be presented in form of Demands for Grants.
The National Assembly has the power to accept or reject a Demand.
[Authors note: the budget books contain expenditure on revenue account, and
expenditure on capital account separately. The words capital account are
specified in the Audit Code issued by the Auditor General of Pakistan.]
Charged Expenditure
Expenditure of constitutional authorities, e.g. President, Judges, Chief Election
Commissioner, Speaker and the Deputy Speaker of the National Assembly,
Auditor General, will be charged. In addition, loan servicing (including principle
repayment of debt and interest), grants-in-aid to provinces will also be considered
charged.
13
[Authors note: While the Parliament can discuss charged expenditure, voting
does not take place on these items (Article 82). The rationale for this is to give
financial autonomy to these institutions, whereas debt servicing is included
because it has the states sovereign guarantee. ]
Schedule of Authorised Expenditure
Once the National Assembly approves Demands, the Prime Minister will sign the
Schedule of Authorised Expenditure which will specify expenditure limits against
each Demand / vote.
Supplementary and Excess Budgets
In case of any insufficiency of funds, or a new service is required to be funded for
which no funds were approved in the Schedule of Authorised Expenditure, the
Federal Government has the power to authorize supplementary budgets.
[Authors note: Pakistan is amongst only a handful of countries where the
Executive can change the budget and enhance budget limits without seeking prior
approval of the legislature. Each year together with the Annual Budget Statement,
the Federal Government also presents Supplementary Budget Statement, and
Excess Budget Statements]
Article 85, 86:
Authorising Demands
th
If the National Assembly is not able to approve Demands by 30 June each year,
it can authorize the Federal Government to spend funds for up to 4 months of the
financial year.
If National Assembly stands dissolved, then the Federal Government (Cabinet of
Ministers) can authorize spending of funds for up to 4 months.
Article 156:
National Economic Council (NEC)

The President constitutes NEC, which will consist of the Prime Minister (who will
be called the Chairman of the NEC), Chief Ministers, one nominated person by
Chief Ministers, 4 other members nominated by the Prime Minister.
The NEC reviews overall economic condition of the country, can advise Federal
and Provincial Governments in formulation of plans in respect of financial,
commercial, social and economic policies.
The NEC will meet at least twice each year.
NEC will present annual report to the Parliament.
Article 160:
Distribution of Revenues between Federal Government and Provincial

Governments
The President constitutes National Finance Commission (NFC), within 6 months,
after every 5 years. The NFC will consist of Minister of Finance for Federal, and
Provincial Governments, and persons appointed by the President after
consultation with Provincial Governors.
The NFC will make recommendations to the President on:
Distribution of proceeds of taxes between Federal and Provincial
Governments
Grants-in-aid to provinces
Borrowing powers of federal and provincial governments.
Upon agreement, the President will issue an Order on NFC Award.

Recommendations of NFC will be placed before the Parliament and Provincial
Assemblies.
The share of provinces in each NFC Award will not be less than the share agreed
in the previous Award.
The Federal and Provincial Ministers will monitor implementation of NFC Award
twice each year and lay monitoring report to the Parliament.
[Authors note: The duration of the current NFC Award is till the financial year
2014-15]
Article 166,167:
Government Borrowings
On security of the Federal Consolidated Fund (the main bank account of the
government), the government can borrow and provide guarantees, within limits
imposed by Act of the Parliament.
[Authors note: Fiscal Responsibility and Debt Limitations Act of 2005 provides
limits on borrowings and issuance of guarantees. The Act prescribes the limit of
th
60% of GDP on public debts to be observed by 30 June 2013 and guarantees to
the limit of 2% of GDP each year]
Article
168,169,170,171:
Audit and Accounts

There will be an Auditor General of Pakistan, appointed by the President. The
post will be for 4 years.
Terms and conditions of service of the Auditor General shall be regulated by the
Act of the Parliament. Until the time an Act is promulgated the terms and
conditions will be regulated by the Order of the President.
The accounts of Federal and Provincial Governments will be kept as per the
principles and methods prescribed by the Auditor General with the approval of the
President.
The Auditor General will conduct audit of audit of Federal and Provincial
governments, and public entities.
The reports of the Auditor General will be presented to the President who will lay
these before the Parliament.
[Authors note: Two ordinances were promulgated in 2001 to separate the
functions and powers of the audit and accounts functions. These were called: 1)
the Auditor General's (Functions, Powers and Terms and Conditions of Service)
Ordinance, 2001, and 2) the Controller General of Accounts (Appointment,
Functions and Powers) Ordinance, 2001]
15
3. RULES AND REGULATIONS OF THE FEDERAL

GOVERNMENT
The government has prescribed rules and regulations for budgetary management mechanism.
These rules and regulations include:
General Financial Rules (GFR)

The GFR contains provisions related to revenues, sanctioning powers, budgets, grants and
appropriations, establishment, contingencies, debts, etc.
Federal Treasury Rules (FTR)

The "Treasury Rules of the Federal Government" primarily deal with the procedure, which should
be followed in treasuries including offices or agencies of the State Bank conducting the cash
business of treasuries. These rules also provide vital principles and important safeguards of
general applicability for the departments, which generally deal with the receipt, custody and
disbursement of government money.
New Accounting Model (NAM)

In the year 2000 the Auditor General of Pakistan issued the New Accounting Model, which
prescribes budgeting, accounting, and reporting rules and regulations. The NAM includes 7
books:
1) Accounting Policies and Procedures Manual provides detailed policies and
procedures of budgeting, accounting, bookkeeping, and reporting (for example the
manual includes procedures for certifying, recording, and reporting pensions,
amongst others.)
2) Book of Forms provides a format of forms that are used to capture data (for example
one of the forms is used for payment of bills)
3) Chart of Accounts provides structure of chart of accounts (accounting codes on which
accounting transactions are recorded for example A01101 is a code for basic pay of
government officers)
4) Manual of Accounting Principles provides main principles guiding the new accounting
model (for example one of the principles is that double-entry bookkeeping will be
followed under this system at the time of payment of a claim both the value of the claim
and the bank account from where money is transferred is recorded in accounting books)
5) Handbook of Accounting Guidelines provides a general introduction to the accounting
model (for example the guideline amongst other provides overview of legal framework)
17
6) Financial Reporting Manual provides detailed formats of financial reports that are
produced by accounting offices (for example the manual provides amongst other
specimens for consolidated monthly accounts)
7) Accounting Code for Self-Accounting Entities provides accounting framework for SelfAccounting Entities (such as Pakistan Railways).
System of Financial Control and Budgeting, 2006

The procedure manual provides guidelines on duties and responsibilities of Principal Accounting
Officers, Chief Finance and Accounting Officers, delegation of financial powers, and the role of
the Financial Adviser Organisation of the Finance Division. In addition the procedure manual
provides guidelines for budgetary procedures (including formulation, releases of funds,
supplementary grants, etc.).
In addition to the above, the Finance Division issues procedures, from time to time, related to
releases of funds, financial discipline, procedures of assignment accounts, etc.
4. RULES OF PROCEDURE OF THE NATIONAL

ASSEMBLY AND SENATE
Rules of Procedures and Conduct of Business in the National Assembly, 2007 provides rules
related to budgetary processes. These rules are mentioned in Rule 182 to Rule 197.
The following table provides the rule number and what it relates to:
Rule
Relate to
Rule 182
Budget presentation date and time
Rule 183
How the Demands for Grants are shown
Rule 184
Who presents the budget?
Rule 185
There will be no discussion on the budget day
Rule 186
Stages of discussion on the budget
Rule 187
Days allocated for discussions
Rule 188
General discussion on the budget as a whole
Rule 189
Cut Motions
Rule
Relate to
Rule 190
Conditions for admissibility of Cut Motions
Rule 191
Speaker will decide on admissibility of Cut Motions
Rule 192
Notice of Cut Motions
Rule 193
Amendments to Cut Motions
Rule 194
Voting on Demands for Grants
Rule 195
Schedule of Authorised Expenditure
Rule 196
Vote on Account
Rule 197
Procedure for dealing with supplementary and excess demands
19
CHAPTER 3: BUDGET
MANAGEMENT
1. BUDGETARY MANAGEMENT PROCESSES
Budgetary management processes of the Government comprises of the following different stages:
Spending reviews
Strategy, policy,
and formulation
of plans
Budget
preparation and
presentation
Budget
execution
Accounting,
reporting and
audit
Monitoring and
evaluations
These processes are explained below:
2. SPENDING REVIEWS
Once a fiscal year (July-June) ends, the Accountant General of Pakistan Revenue (AGPR)
compiles a statement showing total expenditure against the allocated budget. This report is called
Appropriation Accounts, which is verified by the Auditor General of Pakistan and presented to
the President.
At the Executive level the Planning Commission undertake quarterly reviews of projects, while
the Financial Advisers in the Finance Division undertake regular reviews of budget and
expenditure related to the current expenditure.
The Ministry of Finance has recently started an annual monitoring exercise under which
expenditure and performance information is compiled.
3. STRATEGY, POLICY AND FORMULATION OF

PLANS
The policymaking process of the government starts at the level of Ministries / Divisions. After
undertaking research of the current situation, a Ministry / Division formulates policy which is
shared with different stakeholders and endorsed by the Federal Cabinet. At policymaking level,
inputs from the Planning Commission and Ministry of Finance are taken in order to ensure that
the policy is in-line with the greater economic objectives of the country and required funding can
be made available.
For development projects generally referred as the Public Sector Development Programme
(PSDP), the Planning Commission has issued a Planning Manual that provides for processes
related to:
Project development, appraisal and selection
Approval processes and sanctioning power of approving forums
Project implementation, monitoring and evaluations
Financing of development projects.
The Planning Commission formulates the following list of plans:
Vision currently the Planning Commission is in the process of formulating Vision 2025
Medium-Term Development Plan / Five-year Plan
Annual Plan.
4. BUDGET PREPARATION PROCESSES
The Federal Government follows the following budget preparation process:
Step 1:
The Finance Division and Planning, Development and Reforms Division prepare a Medium-Term
Macroeconomic Framework in consultation with various Government Ministries / Divisions and
the State Bank of Pakistan.
21
Step 2:
Based on the macroeconomic environment, the Finance Division articulates its policy priorities
and prepares a Medium-Term Fiscal Framework (budget for the 3-years forecasting revenues,
expenditure, borrowings, and debts).
Within the governments policy priorities the Finance Division and Planning, Development and
Reforms Division work out medium-term Indicative Budget Ceilings for each Principal
Accounting Officer (PAO). These are expenditure limits that each Principal Accounting Officer
(Secretary of a Division) receives. The ceilings are indicative in nature and discussed in detail in
a wider forum called Priorities Committee (as mentioned in step 6).
Step 3:
Fiscal framework, policy priorities, and forecasted ceilings are presented in the Cabinet through a
paper called Budget Strategy Paper. The Cabinet debates on policies, priorities, and allocation
for different Ministries / Divisions.
Step 4:
In the next step, the Finance Division issues a Budget Call Circular and forwards 3-years
Indicative Budget Ceilings for recurrent and development budgets separately to line Ministries.
A Budget Call Circular includes forms that are filled by Ministries / Divisions. Based on these
forms, the budget books are compiled.
Step 5:
Based on the Indicative Budget Ceilings, Ministries / Divisions prepare their detailed budgets that
are quality assured by the Finance Division, and Planning, Development and Reforms Division.
From the Finance Division, the Financial Adviser Organisation quality assures budgets. From the
Planning, Development and Reforms Division the Sector Chiefs discuss and agree allocations for
projects.
Step 6:
The Secretaries of Finance, Planning & Development, and Economic Affairs Divisions jointly
chair the Priorities Committee meetings. These are weeklong meetings held in the Finance
Division. The meetings discuss policy, budget allocations and priorities, and any additional
budget demands with each Principal Accounting Officer.
Step 7:
The Annual Plan Coordination Committee (APCC) discusses the public sector development
projects with the Federal Government and Provincial Governments. This a daylong meeting
chaired by the Minister / Deputy Chairman of the Planning Commission. The meetings discuss
projects, allocations, and Ministerial developmental priorities.
In the APCC, the Planning Commission provides total size of the PSDP (Public Sector
Development Programme), and macroeconomic context including projected growth rate,
investments, and savings.
Step 8:
The Finance Division shares the broad contours of Budget Strategy Paper with the
Parliamentary Standing Committees on Finance & Revenue.
Step 9:
The National Economic Council (NEC) approves the Public Sector Development Programme
(PSDP) of the Federal and Provincial Governments.
Step 10:
The detailed budgets for recurrent and development sides are consolidated in a computer system
available with the Finance Division. Through the computer system, information for the budget
books is prepared.
The finalized budget is presented in the Cabinet for endorsement and Parliament for
appropriation.
PUBLIC SECTOR DEVELOPMENT PROGRAMME (PSDP)
Key document:
The Planning Commission has prescribed the following 5 documents during different stages of
project management:
PC2: Feasibility study for Rs.1 billion and above projects giving long-term perspective, rationale,
brief description
PC1: Details about a proposed project detailed objectives, rationale, finances, phasing,
measurement criteria, project plan etc.
PC3: Quarterly review report of projects being implemented undertaken by project directors
consolidated by Planning Commission
PC4: Project completion report developed by project directors consolidated by Planning

Commission
23
PC5: Sustainability report has rationale been achieved?
Approval Forums:
DDWP: Departmental Development Working Party up to PKR.60 million Chaired by concerned

Principal Accounting Officer (Secretary)
CDWP: Central Development Working Party up to PKR.1 billion Chaired by Deputy Chairman /
Minister for Planning
ECNEC: Executive Committee of National Economic Council above PKR.1 billion
NEC: National Economic Council approves ADP / PSDP
How to include a PSDP project in the annual budget?

1.
Planning Commission issues PSDP proforma based on which PSDP budget proposals are
invited
2.
Based on this information Planning Commission undertakes Mid-year review for on-going
projects (in January each year)
3.
Finance Division forwards Indicative Budget Ceilings (single-line) to Principal Accounting Officers
(PAOs) to provide guidance to Ministries on their resource availability
4.
Ministries compile their proposals for the upcoming year including on-going and new projects Sector Chiefs in Planning Commission undertake technical review
5.
Proposals are discussed in Priorities Committee chaired by Secretary Finance, Secretary

Planning & Development, Secretary Economic Affairs Division
6.
Federal and provincial projects are then discussed in Annual Plan Coordination Committee
(APCC) chaired by Deputy Chairman Planning Commission / Minister
7.
Project Directors prepare New Item Statement (NIS) which specifies budget required and
submit to Computer Section in Finance Division based on which Demands for Grants as
required in the Constitution is prepared
8.
The Planning Commission prepares PSDP (list of projects), and Annual Plan (macroeconomic
situation, sectoral policies, etc.) approved by the National Economic Council chaired by the
Prime Minister
9.
Cabinet approves Demands for Grants, PSDP and Annual Plan, etc. and forwards the budget to
the Parliament.
Process of release of funds for PSDP projects:
Projects prepare quarterly Cash Plans and forward to Planning Commission
Planning Commission reviews these plans and forwards these to Finance Division
Finance Division undertakes ways and means clearance based on which Planning Commission
gives authorisation to project directors to spend funds
A quarterly release strategy 20:20:30:30 guides releases
Project Director opens up an Assignment Account (bank account) with approval of Finance Division
Monitoring of PSDP projects:
Monitoring and Evaluation units exists in Ministries that have PSDP projects
An Implementation and Monitoring section in the Planning Commission monitors projects on a

regular basis
Planning Commission also undertakes evaluations
5. PRESENTATION OF THE BUDGET THE BUDGET

BOOKS
Together with the Budget Speech, the Federal Government presents the following budget books.
Each book and brief explanation of what it contains is provided below:
FEDERAL'BUDGET'
DEMANDS FOR
GRANTS AND
APPROPRIATIONS
BUDGET YEAR
GOVERNMENT OF PAKISTAN
FINANCE DIVISION
ISLAMABAD
Demands for Grants and Appropriations (also

known as the White Book)
Demands for Grants is shown separately for each Ministry /
Division. Each grant includes:
Demand number
Demand name
Total amount, and
Detailed estimates divided into items.
The items are of two types; 1) Functional Classification, and 2)

Object Classification. Functional classification specifies the
function to which a Demand relates.
The book is divided into current and development grants.
Each current and development grant is further subdivided into
revenue account and capital account. The capital account
contains investments, and loans and advances.
Each Demand is labelled either voted or charged.
FEDERAL'BUDGET'
DETAILS OF DEMANDS
FOR GRANTS AND
APPROPRIATIONS
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
Details of Demands for Grants and Appropriations

(also known as the Pink Book)
Similar to the White Book, this book presents details of each
Grant by spending units (a spending unit is an organisation that
consumes the budget for example, PIMS Hospital in Islamabad
is a spending unit).
25
Budget in Brief
FEDERAL'BUDGET'
BUDGET IN BRIEF
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
This book provides extracts of the budget with some explanation.

The book contains:
Review of the current years budget
Salient features of the next years proposed budget
Summary of revenue resources
Tax Revenues
Non-Tax Revenues
Net Capital Receipts
Estimated Provincial Surplus
Transfer to Provinces and Net Revenue available to
Federal Government
External inflows
Federal Transfers and Provincial Shares
Current Expenditure by Functional Classification and details
Details of Subsidies and Grants
Details of Loans and Investments
Summary of allocations to Public Sector Development
Programme
Medium-Term Budgetary Framework
Working of the Fiscal Deficit and Deficit Financing
Annual Budget Statement

FEDERAL'BUDGET'
This book contains summary level:
ANNUAL BUDGET
STATEMENT
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
Details of revenue resources

Tax Revenues
Non-Tax Revenues
Net Capital Receipts
Estimated Provincial Surplus
Transfer to Provinces and Net Revenue available to
Federal Government
External inflows
Public Account Receipts
Summary of Expenditure by functional classification
Demand Number, Demand Name, Total Amount for:
Current Expenditure divided into revenue and
capital account
Development Expenditure divided into revenue
and capital account
Public account expenditure
Schedule I schedule summarizing Demands and their

proposed budget
Schedule III schedule summarizing budget by object
classification
[Authors note: The Annual Budget Statement and the Budget in

Brief are two essential books that parliamentarians should keep
with them for reference throughout the year].
Estimates of Foreign Assistance

FEDERAL'BUDGET'
ESTIMATES OF
FOREIGN ASSISTANCE
This book provides details of assistance that the Government will

acquire for plan and non-plan purposes from foreign sources. The
plan purposes relate to projects.
This book contains:
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
Loans for projects, divided into:

Loans for Federal Projects
Loans for autonomous bodies
Loans for Provinces
Grants for projects, divided into:

Grants for Federal Projects
Grants for autonomous bodies
Grants for Provinces
Loans other than projects, divided into:

Loans for Federal Government
Programme loans for provinces
Grants for other than projects, divided into:

Grants for Federal Government
Grants for provinces / NGOs
Summary of external loans and grants by country / agency

For plan loans
For non-plan loans
For grants
27
Explanatory Memorandum on Federal Receipts

FEDERAL'BUDGET'
EXPLANATORY
MEMORANDUM ON
FEDERAL RECEIPTS
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
FEDERAL'MEDIUM+
TERM'BUDGET'
ESTIMATES'FOR'
SERVICE'DELIVERY'
FINANCE DIVISION
ISLAMABAD
This book provides details of receipts divided into:
Tax receipts
Non Tax receipts
Miscellaneous receipts
Provincial share in revenue receipts
Capital receipts
Recoveries of loans and advances
Public debt
Public accounts
Privatisation proceeds
External flows
Self-financing of Public Sector Development Programme by

provinces
Province-wise development assistance to provinces
Federal Medium-Term Budget Estimates for

Service Delivery (also known as MTBF Green
Book)
This book is produced as per the Medium-Term Budgetary
Framework (MTBF) reform initiative of the Federal
Government.
The book contains budget by Principal Accounting Officers. For
each Principal Accounting Officer the book contains:
Executive Authority (the Minister)
Goal
Outputs (services to be delivered)
Outcomes (affects of services on target population)
Past actual expenditure, budget for current year and proposed

budget for the next year, and forward estimates for 2 years
by:
Outputs
Inputs (object classification)
Key Performance Indicators and Targets for each output
Personnel plan
Selected projects for each output their cost, date of

completion, expenditure up to previous financial year, budget
for current year and next year, and forward estimates for 2
years
Annual Plan
ANNUAL%PLAN%
BUDGET YEAR
PLANNING COMMISSION
MINISTRY OF PLANNING,
DEVELOPMENT AND REFORMS
This book is tabled in the Parliament by the Planning

Commission. Broadly it contains macroeconomic framework for
the budget year.
The macroeconomic framework is presented in form of policy
and estimates. The macroeconomic framework contains
information of growth and investments, balance of payments,
fiscal and monetary sectors.
In addition developmental policies are provided as per the policy
documents of the Government (e.g. 5 years plan, Vision 2025,
medium-term development framework, etc.)
Public Sector Development Programme (PSDP)

also known as the PSDP Green Book
PUBLIC'SECTOR'
DEVELOPMENT'
PROGRAMME'
BUDGET YEAR
PLANNING COMMISSION
MINISTRY OF PLANNING,
DEVELOPMENT AND REFORMS
For each of the sector, this book presents details of projects. The
project details include approval status (usually containing date of
approval and approving authority), total cost of the project,
expenditure to date, budget estimates for the budget year divided
into local currency, and foreign currency components.
Medium-Term Budgetary Statement

FEDERAL'BUDGET'
MEDIUM-TERM
BUDGETARY
STATEMENT
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
This book is presented in compliance with the requirements of

Fiscal Responsibility and Debt Limitations Act of 2005.
It presents Medium-Term Budget (revenues, expenditure and
debts), and growth and inflation forecasts.
This is also a statement through which the Government provides
medium-term policy on public debt reduction.
29
6. PRESENTATION OF THE BUDGET THE BUDGET

CLASSIFICATION SYSTEM
The Government presents the budget as per a system of classification. The system of
classification classifies budget as per the following main categories:
Object Classification
This represents line items of revenue, expenditure, asset, liabilities and equity. Each line item
is represented with a code. An example is provided below:
Element
Major Object
Minor Object
Detailed Object
A Expenditure
A01 Employee
related expenditure
A011 Pay
A01101 Basic Pay
On the revenue side, the budget books provide information up to the Detailed Object level.
For expenditure side, in order to reduce size of budget documents, the budget books provide
information up to the Minor Object level.
Another example of codes of Non-Tax Revenues is reproduced below. For detailed objects
Chart of Accounts can be downloaded from PIFRA (Project to Improve Financial Reporting
and Auditing) website: (www.pifra.gov.pk/chart-of-accounts.html).
Major
Object
Code
C01
Description
Income from Property and
Enterprise
Minor
Object
Code
C010
C012
C025
C026
Law and Order Receipts
C027
Community Services Receipts
C028
Social Services
C029
Social Services Miscellaneous
C019
Receipts from Civil
Administration and Other
Functions
Profits
Interest on Loans and Advances to Provinces
Interest on Loans to Local/ Autonomous
Bodies
Dividends
General Administration Receipts - Fiscal
Administration
General Administration Receipts - Economic
Regulation
Defence Services Receipts
C013
C02
Description
C022
C023
Functional Classification
Represents functions of the Government. An example is provided below:
Major Function
Minor Function
Detailed Function
03 Public Order and

Safety Affairs
031 Law and Order
03101 - Justice
List of the major functions is provided below. For minor and detailed functions Chart of
Accounts can be downloaded from PIFRA (Project to Improve Financial Reporting and
Auditing) website: (www.pifra.gov.pk/chart-of-accounts.html).
Function Code
Description
01
General Public Service
02
Defence Affairs & Services
03
Public Order and Safety Affairs
04
Economic Affairs
05
Environment Protection
06
Housing and Community Amenities
07
Health
08
Recreation, Culture and Religion
09
Education Affairs and Services
10
Social Protection
Entity Classification
This represents organizational hierarchy of the Government. An example is provided below:
Government
Ministry and Division
Attached Department
Spending Unit
F - Federal Government
F012 Cabinet
Secretariat
Establishment Division
CSA1 Civil Services

Academy
LO005 Civil Services

Academy Lahore
Fund Classification
This represents structure for Demands for Grants. An example is provided below:
Fund
Sub Fund
FC - Federal
FC11 Voted current

expenditure (capital)
31
Example of how to read the Classification System in the Budget Books

EXAMPLE 1
In the book called Demands for Grants and Appropriations for year 201314, the following information is presented on Page 44:
FEDERAL'BUDGET'
DEMANDS FOR
GRANTS AND
APPROPRIATIONS
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
Example
Demand No. 030 (FC21P03) PAKISTAN MINT
(Pakistan Mint is an attached department of Finance Division, responsible
for minting coins. Currently coins of Re.1, Rs.2 and Rs.5 are minted there)
As per Entity Classification: Pakistan Mint is part of the Ministry of Finance /
Finance Division.
As per Fund Classification Pakistan Mint will be paid out of Federal
Consolidated Fund.
Voted Amount: Rs.401.7 million. This demand will undergo voting.
Functional Classification: 011 Executive and Legislative Organs,
Financial and Fiscal Affairs, External Affairs
Object Classification:
Budget 2013-14
Code
A01
Employees Related Expenditure
252.3
A02
Project Pre-investment Analysis
20.0
A03
Operating Expenditure
A04
Employee Retirement Benefits
1.0
A05
Grants, Subsidies, and Write off Loans
3.6
A06
Transfers
0.1
A09
Physical Assets
A13
Repairs and Maintenance

Total
Rs. Millions
105.4
10.2
8.9
401.7
In this example, Pakistan Mint is proposed to be provided Rs.401.7 million

rupees of budget against which 63% relate to resources for employees.
Example of how to read the Classification System in the Budget Books

EXAMPLE 2
In the book called Demands for Grants and Appropriations for year 201314, the following information is presented on Page 270:
FEDERAL'BUDGET'
DEMANDS FOR
GRANTS AND
APPROPRIATIONS
BUDGET YEAR
FINANCE DIVISION
ISLAMABAD
Example
Demand No. - (FC24E08) ELECTION
(This demand is a charged demand and relates to Election Commission of
Pakistan. Since it is a charged expenditure, it does not have a Demand
Number and hence is not open for voting)
As per Entity Classification: Budget of Election Commission of Pakistan is
shown in the hierarchy of Ministry of Law and Justice.
As per Fund Classification Election Commission of Pakistan will be paid out
of Federal Consolidated Fund.
Charged Amount: Rs.1,843.4 million. This demand will not undergo voting.
Functional Classification: 018 Administration of General Public Service
Object Classification:
Budget 2013-14
Code
A01
Employees Related Expenditure
881.4
A02
Project Pre-investment Analysis
A03
Operating Expenditure
A04
Employee Retirement Benefits
1.6
A05
Grants, Subsidies, and Write off Loans
5.0
A06
Transfers
1.6
A09
Physical Assets
3.8
A13
Repairs and Maintenance

Total
Rs. Millions
1,004.4
15.5
1,843.4
In this example, Election Commission of Pakistan has demanded Rs.1.8

billion out of which it intends to undertake operations worth Rs.1 billion.
33
7. BUDGET EXECUTION PROCESSES
The budget execution processes include the following key activities:
Cash forecasting and treasury management

On a monthly basis the Finance Division forecasts cash requirements and undertakes treasury
operations to make sure that sufficient cash is available in the Federal Consolidated Fund (the
main bank account of the Government) in order to make payments.
The main funding sources of the Government are:
Commercial banks
National Savings Organisation
State Bank of Pakistan
Foreign Bilateral and Multilateral Loans
International and domestic bonds issue.
The main instruments through which the government borrows from the domestic sources include
treasury bills, investment bonds, and national savings instruments such as prize bonds, Bahbood
savings certificates, etc.
Releases of funds
Based on cash forecasting and treasury management the Finance Division issues releases orders
for current and development budgets as per its funds release procedures that it issues from time to
time.
For the current budget, funds are released on quarterly basis. For the development budgets the
release mechanism is as follows:
1) Projects prepare quarterly Cash Plans and forward to Planning Commission
2) Planning Commission reviews these plans and forwards these to Finance Division
3) Finance Division undertakes ways and means clearance based on which Planning
Commission gives authorisation to project directors to spend funds
4) A quarterly release strategy 20:20:30:30 guides releases
5) Project Director opens up an Assignment Account (bank account) with approval of

Finance Division.
Re-appropriations and Supplementary Budgets

As per the System of Financial Control and Budgeting of 2006 issued by the Finance Division,
the following are key procedures in this area:
1) Re-appropriations from one line item (Object Classification head) to another, other than
obligatory heads (e.g. pay and allowances), can be undertaken by the Principal Accounting
Officers without seeking approval from the Finance Division.
2) For Supplementary Budgets, approval of the Finance Division is required. There are two
types of supplementary budgets:
a. Regular Supplementary Budget this is supplementary budget over and above what
was approved by the Parliament. The regular supplementary budget increases the
overall size of expenditure. The Finance Division is authorized to approve such
supplementary.
b. Technical Supplementary Budget this is re-appropriation of funds from one
Demand to another. In this type of supplementary the overall size of the budget does
not increase. The Finance Division is authorized to approve such supplementary
appropriation.
8. ACCOUNTING, REPORTING AND AUDIT
Accounting and reporting

The Accountant General of Pakistan Revenue (AGPR) is responsible for:
1) Pre-audit,
2) Payroll, Payment and claims, and
3) Recording of information in the books of accounts.
The processes of accounting are guided by the New Accounting Model.
At present three important reports are produced on a periodic basis by the Controller General of
Accounts:
1) Appropriations Account - lists down the actual expenditure for recurrent and development
budgets and for revenue and capital accounts separately. The presentation of expenditure is
by entity and object classification,
35
2) Financial Statements - includes receipts, payments and public accounts balances. Moreover,
balances of assets and liabilities are also included in it along with current year flows, and
3) Combined Finance and Revenue Account - is consolidated Finance Account including all
Accountant Generals and Accountant General Pakistan Revenue and its sub-offices.
These three reports are prepared by the Controller General of Accounts and presented to the
Auditor General of Pakistan for endorsement. The Appropriations Account report is presented to
the President and the Public Accounts Committee.
Financial Reporting and Audit

Governments Integrated Financial Management Information System
In the late 1990s, the Government embarked upon an important project to improve financial reporting
and auditing called Project to Improve Financial Reporting and Auditing (PIFRA). In this project the
New Accounting Model was developed as a first step. In the second step a large-scale
computerization exercise was undertaken. More than 120 accounting offices throughout the country
have been computerized and linked to central servers via wide-area-network.
Today, after more than a decade, the financial reporting is being done through the computerized
system. Average cycle time of month-end closing and finalization of annual accounts has drastically
been reduced.
The certification of accounts, and conduct of audit is the responsibility of the

Auditor General of Pakistan
The Auditor General of Pakistans Ordinance of 2001 state that, the Auditor-General shall, on
the basis of such audit as he may consider appropriate and necessary, certify the accounts,
compiled and prepared by Controller General of Accounts or any other person authorized on their
behalf, for each financial year, showing under the respective heads the annual receipts and
disbursements for the purpose of the Federation of each Province and of each district, and shall
submit the certified accounts with such notes, comments or recommendations as he may consider
necessary-to the President or the Governor of a Province or the designated District Authority, as
the case may be.
As per the functions1 of the Public Accounts Committee, it is stated that the Committee shall
examine the accounts showing the appropriation of sums granted by the Assembly for the
expenditure of the Government, the annual finance accounts of the Government, the report of the
Auditor General of Pakistan (AGP) and such other matters as the Minister for Finance may refer
to it. This requirement also requires scrutiny of cash based accounting statements and audit
National Assembly website: http://www.na.gov.pk/pac/?q=functions
reports. This requirement also does not preclude preparation of accounts on accruals-basis of
accounting.
CHAPTER 4: BUDGET RELATED

MATTERS
1. MACROECONOMIC FRAMEWORK
The Governments budget has wider economic implications. If a government spends more than its
revenues, then it has to borrow to finance expenditure leading to budgetary deficits. A
government having limited revenue resources can easily fall in debt trap if borrowings continue
unabated. A country enters into a debt trap if interest on borrowings occupies most of its
expenditure. At this stage more loans are taken to repay existing loans. In such a condition,
private sector investment suffers through crowding out. Private investment is important for
increasing productivity and job creation. High government borrowings also result in printing of
money, which causes inflation (i.e. rise in prices of commodities).
It is therefore, important to view the budget in the wider macroeconomic context. A
macroeconomic framework helps in understanding the context.
In a macroeconomic framework four sectors of an economy are considered. These include:
1) Growth a study of economic growth, investments, consumptions, etc.
2) Governments budget a study of revenues, expenditure, borrowings and public debts
3) Balance of payments - a study of foreign exchange movements through imports, exports,
remittances, foreign loans, etc.
4) Monetary a study of the banking sector and inflation.
In order to understand the macroeconomic context the following important ratios can be studied:
37
Sector
Important ratios
Growth
GDP growth annual

percentage change
What is their importance?

Helps in understanding how much economic
growth will increase or decrease as compared
to last year.
In 2013-14 Pakistans economy grew by 4.1%
as compared to 2012-13. Source: GoP/MoF
Investment as
percentage of GDP
Higher investments means higher chances of

economic growth and job creation
Pakistans Investment to GDP ratio is around
12% as compared to Chinas Investment to
GDP ratio of over 35%.
Governments
budget
Savings as percentage
of GDP
Higher savings means higher disposal income

that can be used for investment in the future.
Tax as percentage of
GDP (to understand the
level of
To understand the proportion of tax collections

to national income.
Interest as proportion of
net revenues
To understand how much funds can be made

available to finance government functions.
Pakistan collects around 10% of taxes as

proportion of its national income which is one
of the lowest in emerging economies.
In 2012-13 the Federal Government paid

interest equal to 63% of its net revenues (i.e.
revenues available after transfer to provinces).
Debt to GDP ratio
To understand the level of debts and whether

they are sustainable.
In Pakistan the Fiscal Responsibility and Debt
Limitations Act prescribes a limit of 60% of
th
public debt to GDP ratio to be attained by 30
June 2013. Last year the Government reported
public debt to GDP ratio as 62.7%.
Balance of
Payments
Monetary
Current account to GDP

ratio
Balances of exports, imports, and remittances.

If the current account is in deficit then it means
that the government has to rely on external
assistance to balance its reserves.
Reserves months of
import cover
How many months of imports can foreign

reserves finance? Ideally a country should have
reserves to cover at least 3 months of imports.
Inflation annual
percentage change
To understand rise or fall of prices.
2. INTERGOVERNMENTAL FISCAL RELATIONS
The resource allocation and budgetary system in Pakistan is critical in nature. Since the country is
a federation of four Provinces, revenues are collected centrally (mainly by/through the Federal
Board of Revenue) and then distributed between the Federal Government and the Federating
units. This distribution takes place in accordance with a resource distribution mechanism called
National Finance Commission (NFC) Award, which is applicable to resource transfers to the
Federal Government and the four Provinces.
[Note: Transfers to AJK, Gilgit-Baltistan, FATA or FANA are made through the Federal
Governments Budget]
Transfers under the NFC Award constitute the largest resource item in provincial receipts.
Provinces have the authority and power to raise taxes (other than those collected by the Federal
Government and which are covered under the NFC Award).
The Constitution allows the Parliament an authority to raise certain types of taxes. These are
broadly categorised into:
Income tax and corporation tax (excluding taxes on income consisting of remuneration
paid out of the Federal Consolidated Fund)
Taxes on the sales and purchases of goods
Export Duty on Cotton
Other export duties as may be specified by the President
Such Excise duties as may be specified by the President, and
Such other taxes as may be specified by the President.
These taxes are deposited in Federal Consolidated Fund, which is the main bank account operated
by the Federal Government. Therefore, in each financial year a share of the taxes and duties
levied and collected by the Federal Government are shared between Federation and Provinces
based on a predetermined proportion.
The following are the main types of funds transfers from the Federal Government to the
Provinces:
Revenue sharing from the Revenue divisible pool Tax collected by the Federal
Government is shared with the lower levels of the Government. The divisible pool
includes the pool of taxes that is shared
39
Straight Transfers These include transfers from the Royalties, Excise Duties,
Surcharges etc.,
Grants-in-Aid These may include special grants extended from the Federal Government
on areas such financing the deficits, arrears, emergency aid etc. ,
Loans Soft loans may be extended to Provinces by the Federal Government. The
reverse flow from the Provincial to Federal Government may include principal and
interest repayment on the soft loans,
Development Grants / Loans - specific or block development grants to Provincial

Governments either to raise the overall level of development expenditure or to increase
coverage of a particular service.
th
7 NFC Award Salient Features
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The 7 NFC Award was given effect through Presidents Order No. 5 of 2010. Salient features of the Award
include:
The divisible pool consists of all of the taxes levied and collected by the Federal Government.
These include taxes on income, wealth, capital value, sales & purchase of goods, and duties such
as on export on cotton, custom, federal excise and other taxes which may be levied by the Federal
Government
The 7 NFC Award recognises the economic problems of the Government of Khyber
Pakhtunkhwa due to war on terror and provides 1% of net proceeds of divisible pool as special
grant
The share of provinces in the divisible pool has been increased to 56% for 2010-11 and 57.5% for
the remaining years of the Award which ends in 2014-15
Multiple criteria for distribution of revenues amongst the Provincial Governments are used
including; population, poverty or backwardness, revenue collection or generation and invest
population density with the ratio of 82%, 10.3%, 5.0% and 2.7% respectively
The resources will be transferred amongst Provinces on the basis of percentage specified.
Balochistan 9.09%, Khyber Pakhtunkhwa 14.62%, Punjab 51.74% and Sindh 24.55%
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Multiple Indicators
Weight
Population
Share of provinces
Punjab
Sindh
KP
Balochistan
82.0%
57.36%
23.71%
13.82%
5.11%
Poverty / backwardness
10.3%
23.16%
23.41%
27.82%
25.61%
Revenue generation and

collection
5.0%
44.00%
50.00%
5.00%
1.00%
Inverse population
density
2.7%
4.34%
7.21%
6.54%
81.92%
100.0%
57.74%
24.55%
14.62%
9.09%
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The 7 NFC Award recognises the economic problems of Balochistan and guarantees Rs.83
Billion as the total revenue transfer (from net proceeds of divisible pool) in 2010-11
Each of the Provinces will be paid a share in the net proceeds of the total royalties on crude oil in
the proportion as the production of crude oil in the Province to the total production
Development surcharge on gas will be paid to each of the Province based on average rate per
MMBTU of the respective province. The royalty on natural gas will be distributed in accordance
with clause (1) of Article 161 of the Constitution
The development surcharge on natural gas for Balochistan with effect from 1 July 2002 will be
reworked out hypothetically on the basis of the formula given in clause (1) and the amount, subject
to maximum of Rs.10 billion will be paid in five years in five equal instalments as grants
Sindh will receive 0.66% of the province share in net proceeds as Grants-in-Aid as compensation
for losses on account of abolition of octroi and zilla tax
Sales tax on services is a Provincial subject
The 7 NFC Award recommends streamlining of the tax collection systems of both the Federal
and Provincial Government so as to increase the tax to GDP Ratio to 15% by 2014-15. Provinces
would initiate steps to effectively tax the agriculture and real estate sectors. Federal and Provincial
Governments may take necessary administrative and legislative steps
Federal and Provincial Governments would develop and enforce mechanisms for maintaining
fiscal discipline at the Federal and Provincial levels through legislative and administrative
measures
The meeting of the NFC will be convened regularly on a quarterly basis to monitor the
implementation of the award.
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3. ASSESSING PUBLIC FINANCIAL MANAGEMENT

SYSTEM IN A COUNTRY
There are two recognized methods of assessing the state of Public Financial Management
(budgetary management system) in the country:
Public Expenditure and Financial Accountability Review (PEFA)

The Public Financial Management (PFM) Performance Measurement Framework, an indicatorbased assessment tool developed by the Public Expenditure and Financial Accountability (PEFA)
initiative, was launched in 2005 and has been applied so far in over 60 countries. PEFA reports
provide detailed accounts of the performance of PFM systems along various dimensions.
41
PEFA assessment system is based on 28 indicators for the Government. Scores on these
indicators can be either A, or B/B+, or C/C+, or D/D+.
Federal Governments PEFA Assessment
The Federal Governments PEFA assessment was carried out in 2008 and in 2012. The results of
the two assessments are as follows:
Number of Indicators
Number of Indicators
2008
2012
B/B+, C/C+
15
16
D/D+
Scores
Open Budget Index (OBI)

An initiative by an international non-governmental organisation, the OBI measures budget
transparency and accountability. Through the use of ranks, the OBI provides scores of more than
100 assessed countries around the World. Scores are allotted for the following 8 areas:
1. Pre-budget statement a statement that is prepared and made public at least 2 months
before the budget should show key budget projections, policies, and macroeconomic
context
2. Executives budget proposals should follow a budget classification system, and
proposals should allow sufficient time for discussions
3. Citizens budget amongst other budget books a simple to understand book for citizens
should be prepared and made available to the public
4. Enacted budget the budget approved by the Parliament should become a law
5. In-year reports the Executive should keep the Parliament abreast of the budget
developments including budget vs. actual analysis on periodic basis
6. Mid-year report is a half-yearly report on budget developments, and any changes
made by the Executive during the year. The report should be presented in the Parliament
7. Year-end report should be prepared by the Executive and presented in the Parliament
which should state the expenditure against the enacted budget, performance targets
achievement against plan, reasons for variation, and macroeconomic outcome
8. Audit report the Auditor General should present audit reports and the Public Accounts
Committee should review them on periodic basis.
Federal Governments OBI Score

The Federal Governments score in OBI was 38 in 2008. The score increased to 58 in 2010 mainly
due to the improvement in budget transparency attained because of the Medium Term Budgetary
Framework reform.
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4. MANAGING PUBLIC DEBTS
Pakistan is amongst many other countries around the World that has promulgated a law to
introduce limits on public debts. Fiscal Responsibility and Debt Limitations Act (FRDLA), 2005
prescribed two fiscal rules:
1. Reduction of revenue deficit to nil by 30th June 2008
2. Reduction of public debt to GDP ratio to 60% by 30th June 2013.
Revenue deficit is total revenues less current expenditure. The reason for reducing revenue deficit
to nil was that the Country should be able to meet all its current expenditure from the revenues
(tax and non-tax revenues) that it generates. It should therefore, only borrow for the purposes of
development expenditure.
Public debt is the loan acquired for the purposes of financing budget deficit (budget deficit arises
when government spends more than what it receives through tax and non-tax revenues). The
loans are acquired from domestic and foreign sources. In the domestic sources, the Government
normally borrows from commercial banks, the State Bank of Pakistan, and National Savings
Organisation. The reason for imposing 60% limit was that public debt normally remains
sustainable at that level for a country like Pakistan.
However, the Government did not achieve both of the targets by June 2013. The public debts
were 62.7% (as reported in the Fiscal Policy Statement) by 30th June 2013.
In addition, the FRDLA, 2005 required:
1. Public debt will be reduced by 2.5% of GDP each year from 2003 till 2013
2. Social and poverty alleviation related expenditure would not reduce below 4.5% of GDP
3. The Government will not issue guarantees on loans greater than 2% of GDP each year
4. The Government will lay three reports in the Parliament:
a. The Medium-Term Budgetary Statement includes 3 years targets, specifies fiscal
measures, and risks, and includes ratios related to growth, inflation, revenues,
expenditure, borrowings, and public debt.
b. The Fiscal Policy Statement rationale for deviation from fiscal measures i.e.
taxation, expenditure, subsidies, etc., and provides updates on macroeconomic
indicators,
c. Debt Policy Statement presents assessment of Federal Governments debt policies

against principles.
The FRDLA 2005 also recommends formation of a Debt Policy Coordination Office within the
Finance Division.
The Debt Policy Coordination Office is responsible for preparing the above three documents, and
is currently working on Medium-Term Debt Strategy to understand how to make the debts more
sustainable and reduce interest liability to enhance space in the budget.
5. MANAGING PUBLIC PROCUREMENTS
Public Procurement Regulatory Authority (PPRA), has been constituted thorough an Act of
Parliament of Pakistan in 2004. The major objective of PPRA 2004 rules is to ensure transparent
and cost effective procurement of quality goods and services in the public departments covering
all the stages involved in the procurement process.
As per the PPRA rules the following process of procurement will be used:
1. Procuring agencies undertake procurement planning
2. After planning, the procuring agency will advertise the procurement (15 days for national
competitive bidding, and 30 days for international competitive bidding)
3. The procurement agency will invite bids on a prescribed date as mentioned in the
advertisement
4. The procuring agency will conduct pre-bid meetings that will be attended by the bidding
agency
5. The bidding agency will submit the bids
6. The procuring agency will open bids undertake evaluation of bids
7. After evaluation, the final bidder will be selected with whom contract negotiations will take
place. Upon successful negotiations, the procuring agency will issue contract
8. If there is any grievance on behalf of bidder then the procuring agency will resolve it within
15 days of submission of grievance
9. Following the above processes, the implementation of the contract will begin.
45
CHAPTER 5: BUDGETING AND

LEGISLATURE
1. BUDGETING AND LEGISLATURE EXAMPLES
OF OTHER COUNTRIES
Budget Process in Canada

Pre-budget Consultations
In Canada, public policy debate on budget related matters begins in October, prior to the
presentation of the budget in February. The Finance Committee is responsible for reviewing
overall Government finances and budget decisions. The Committee, taking into account the
results of the consultations, develops a report for the Minister. The report significantly contributes
to the formulation of budget and economic policy of the Government in general.
Presentation of the Main Estimates and Consideration by the Standing Committees
Subsequent to the presentation of the Budget and prior to March 1st each year, the President of the
Treasury Board tables the Main Estimates in the House of Commons. These Estimates of each
department are referred to the appropriate Standing Committees. The Committees have the
authority to call the Minister of the concerned department and senior officials to defend the
Estimates.
Once the Committees have completed their review, they report the Estimates back to the House.
The reports may not contain substantive recommendations. Committees that have not reported by
May 31 are deemed to have done so.
Procedure regarding Money Bills in India

Consideration of the Demands for Grants by Departmentally Related Standing Committees
Once the General Discussion on the Budget is over, the House is adjourned for a fixed period.
During this period, the Demands for Grants of the Ministries/Departments are considered by the
relevant Standing Committees. The Committees are required to make their reports to the House
within a specified period.
Once the House is resumed, the Demands for Grants are presented along with the repots of the
Standing Committees. The House proceeds to discuss and vote on the grants. At this stage cut
motions can be moved to reduce the amounts of the grants.
A Money Bill can be introduced only in Lok Sabha. After it has been passed by Lok Sabha, it is
transmitted to Rajya Sabha for its recommendations and that House is, within a period of fourteen
days from the date of the receipt of the Bill, required to return the Bill to Lok Sabha with its
recommendations, if any.
Lok Sabha may either accept or reject all or any of the recommendations made by Rajya Sabha. If
Lok Sabha accepts any of the recommendations made by Rajya Sabha, the Bill is deemed to have
been passed by both the Houses with the amendments recommended by Rajya Sabha and
accepted by Lok Sabha. If however, Lok Sabha does not accept any of the recommendations of
Rajya Sabha, the Money Bill is deemed to have been passed by both the Houses of Parliament in
the form in which it was passed by Lok Sabha without any of the amendments recommended by
Rajya Sabha.
If Rajya Sabha does not return the Bill within the prescribed period of fourteen days, the Bill is
deemed to have been passed by both the Houses of Parliament at the expiry of the period in the
form in which it was passed by Lok Sabha.
Budget and Financial Procedures in the United Kingdom

The financial procedure in the UK is entirely summed up in Sir Erskine Mays famous saying.
The Crown demands money, the commons grant it, and the Lords assent to the grant
The Sovereign, being the executive power, is charged with the management of all the revenues of
the country, and with all payments for the public service. The Crown, therefore, acting with the
advice of responsible ministers, makes known to the Commons the pecuniary necessities of the
Government; and the Commons grant such aids and supplies are as required to satisfy these
demands, and provided by taxes, and by the appropriation of other sources of the public income,
the ways and means to meet the supplies which are granted to them. But the Commons does not
vote money unless it is required by the Crown; nor impose or augment taxes unless the taxation is
necessary for the public service, as declared by the Crown, through its constitutional advisers.
Money Bills can originate only in the House of Commons. Further, since the Parliament Act of
1911, a Money Bill can neither be amended nor rejected by the House of Lords. The Lords can at
most cause a delay of one month in the passing of a Money Bill. As May observes, this
superiority in the matter of financial legislation has given the House of Commons a position of
absolute supremacy in the British political system.
Stated generally, the role of the Lords in the grant of Supply for the service of the Crown, and in
the imposition of taxation, is to agree, and not to initiate or amend. Thus, while the speech from
the throne on the opening of a session is addressed to both Houses of Parliament, the demand for
Supply is directed to the Commons; and to the financial legislation which that demand creates the
Lords must be a consenting party.
47
Financial Powers of the Two Houses in Australia

The Constitution provides for the traditional right of the Lower House, to initiate financial
matters, and limits the power of the Senate to amend certain financial bills received from the
House of Representatives. In all other respects the Constitution gives the Senate equal power with
the House of Representatives in respect of all proposed laws.
The effect of the financial powers of the respective Houses expressed in the Constitution is that
bills appropriating revenue or moneys or imposing taxation must originate in the House. The
Senate may not amend in any way bills imposing taxation or bills appropriating revenue or
moneys for the ordinary annual services of the Government, and may not amend other bills
appropriating revenue or money in such a way as would increase the proposed appropriation.
However, the Senate may request the House to make such amendments as the Senate itself is
unable to make, the House may, if it thinks fit then make the amendment.
2. TIMEFRAME FOR BUDGET PASSAGE IN OTHER

COUNTRIES
The UK does feature a rather extensive committee stage lasting several weeks of a 3 month
parliamentary budget process. Germany allows 4 months for the Budget deliberations including
several weeks allocated to the Budget Committee stage in the Bundestag. In Romania the
Parliament Budget season lasts for 3 months with no less than 3-week committee deliberation
period. The Finnish Parliament has 4 months out of which 2 are spent in the Finance Committee.
In Sweden 2 out of total 3 months available to the Parliament are dedicated to the committee
discussions. In India and Australia also the House Committees get sufficient time for Budget
Scrutiny and in Canada as already discussed, the total time spent on Budget consultation and
scrutiny comes to 8 months.
3. PARLIAMENTARY REVIEW AND APPROVAL
Analysis of modern parliamentary democracies reveals that Parliaments generally review the
following at the time of budget submissions:
1. Debt Strategy in case where debts occupy most of the budget, the Parliament should review
the medium-term debt strategy
2. Macroeconomic framework macroeconomic assumptions underlying the budget projections
especially medium-term debts are important to understand the budget strategy of the
Government
3. Revenue projections the Ministry of Finance normally overestimates revenue projections.
Therefore, its methodology and underlying assumptions such as new revenue measures and
their impact on revenue generation are important
4. Performance budgets the Parliament should consider reviewing performance targets
together with budget numbers.
4. ROLE OF PARLIAMENTARY STANDING

COMMITTEES
Standing Committees have an important role to play in a parliamentary democracy. In the UK,
much of the work of the House of Commons (lower house) and the House of Lords (upper house)
takes place in Committees. These Committees examine issues in detail, from government policy
and proposed new laws, to wider topics like the economy.
Standing Committees in Pakistan can suggest legislation or make recommendations to the
Assembly.
A system of checks and balances is created in the Constitution where the Executive branch has
certain responsibilities and performs under the direction of the Cabinet of Ministers.
The Rules of Procedure and Conduct of Business in the National Assembly provide guidance on
the role of Standing Committees. Rule 198 to 201 include:
Rule 198
Committees of the National Assembly
Rule 199
Reference to Standing Committees
Rule 200
Composition
Rule 201
Functions
49
Lately, the following rule has been added in the Rules of Procedure and Conduct of Business in
the National Assembly.
Rule (201) Sub-Rule(6)

Each Standing Committee shall scrutinize and suggest amendments, if necessary, and
recommend Ministrys Public Sector Development Program (PSDP) for the next financial year
before the same is sent to the Ministry of Finance for inclusion in the Federal Budget for the next
financial year.
Each Ministry shall submit its budgetary proposals relating to Public Sector Development
Program (PSDP) for the next financial year to the relevant Standing Committee not later than the
31st January of preceding financial year and the Standing Committee shall make
recommendations thereon not later than the 1st March of the preceding financial year.
Provided that where such recommendations are not made by the 1st March, the same shall be
deemed to have been endorsed by the Standing Committee.
It would be important to decide the method of review of PSDP, however general guidelines can
be:
Government policies should be kept in perspective
Understand macroeconomic and sectoral policy priorities
Recommendations should not result in budget beyond ceilings
The Executive should be allowed to decide which recommendation to take.
Rule (201) Sub-Rule(4)

The committee may examine the expenditures, administration, delegated legislation, public
petitions and policies of the Ministry concerned and its associated public bodies and may
forward its report of findings and recommendations to the Ministry and the Ministry shall
submits its reply to the Committee [N.A Rule 201 (4)].
This rule allows all standing committees to review expenditures of their relevant ministries.
However no institutional mechanism is in place to undertake this function.
The Public Accounts Committee

The Public Accounts Committee 2 (PAC) signifies one of the essential constituents of
Parliamentary Dominion which is the culpability of Public money. The examination of the
Auditor Generals Reports for the Ministries, Divisions, Corporations and other Independent and
Semi- Autonomous bodies, is one of the main functions of the PAC.
www.pac.na.gov.pk
The PAC is one of the statutory organs of the National Assembly of Pakistan. According to
Article 171 of the Constitution of Islamic Republic of Pakistan, the Report of the Auditor General
(AG) relating to the accounts of the Federation shall be submitted to the President, who shall
cause them to be laid before the Majlis-e-Shoora (Parliament). The AG Report so laid in the
National Assembly (N.A) shall be referred to the Public Accounts Committee [N.A Rule 177 (2)].
It is only through the Public Accounts Committee that the objective of Transparency and
Accountability is ensured.
5. PROCESS OF CUT-MOTIONS
The members of the National Assembly can propose reduction in the budget presented by the
Federal Government through the process called cut motions.
Disapproval of the policy underlying a Demand for Grant

If a Member of the National Assembly disagrees with the policy underlying a Demand for Grant,
then a motion called Disapproval of Policy Cut can be raised by recommending that the amount
of the Grant may be reduced by Re.1.
In this instance, the member should present a notice that specifies in precise terms the particulars
of the policy that he/she propose to discuss.
Speeches will confine to the specific points mentioned in the notice.
Members can advocate alternative policy.
Proposal for reduction in amount of a Demand

If a Member of the National Assembly wants to propose a reduction in the amount of a Demand
then he/she will raise notice of Economy Cut.
The notice will indicate briefly and precisely the particular matter on which discussion is to be
raised. Speeches will confine to discussion as to how economy can be affected.
Ventilation of Grievance
If a Member wants to ventilate a specific grievance, which falls under the sphere of the
Government, then a notice of Token Cut can be raised.
On the notice the Member will present that the amount of the demand be reduced by Rs.100.
Speeches will be confined to a particular grievance.
51
Forms for Raising Cut Motions

For each of the cut motion, a specific form is available. On the form three types of information is mandatory:
1.
Name of the Demand this can be found in a budget book called Demands for Grants and
Appropriations the name of the Demand is mentioned on the top of the page.
2.
Demand Number this can be found in the same book as mentioned in point 1 above.
3.
Page Number the page number is mentioned on the bottom of the book mentioned in point 1 above.
4.
The matter
a.
for Disapproval of Policy Cut precise indication of particulars of the policy is required
b.
for Economy Cut specific matter that will affect the economy is required
c.
for Token Cut specific grievance is required to be mentioned.
Conditions for admissibility of cut motions

Criteria for cut motions is:
It will relate to one Demand only
It will not seek to increase a grant or alter destination of the grant
It will not relate to expenditure charged (as per Article 81 of the Constitution) upon Federal
Government
It will be clearly expressed. It will not contain arguments, inferences, ironical expressions,
imputations, epithets or defamatory statements
It will confine to one specific matter
It will not reflect on the character or conduct of any person
It will not make suggestions for amendment or repeal of any existing law
It will not refer to matters that are not primarily the concern of the Government
It will not relate to a matter which is under adjudication by a court of law having jurisdiction
in any part of Pakistan
It will not raise question of privilege
It will not revive discussion on a matter which has been discussed in the same session and on
which a decision has been taken
It will not anticipate a matter which has been previously appointed for consideration in the
same session; nor shall it relate to a trifling matter
It shall not relate to any matter which is pending before any court or other authority
performing judicial or quasi-judicial functions.
How to perform Budget Analysis?
Review goals, outputs (service delivery), and outcomes (affects of services on target population) of
each Ministry as mentioned in the budget book called Federal Medium Term Budget Estimates for
Service Delivery
Review performance indicators and targets together with budgets as mentioned in the budget book
called Federal Medium Term Budget Estimates for Service Delivery
Review changes in the budget by comparing current years budget with the proposed years budget
as mentioned in the budget book called Demands for Grants and Appropriations for each Demand
separately
Review taxation proposals as mentioned in the Finance Bill their underlying assumptions
Review macroeconomic framework, policies and targets as mentioned in the budget book called
Annual Plan
Review projects and their allocations as mentioned in the budget book called Public Sector
Development Programme
Review supplementary Demands as mentioned in the budget book called Supplementary Budget
Statement
53
GLOSSARY OF TERMS
Accountant General
The officer responsible for the Governments overall accounting operations and performing preaudit of financial transactions within their jurisdiction. Accountant Generals office is established
in each Province and the Federal Government. Accountant General at Federal Government level
it is called Accountant General Pakistan Revenues (AGPR). (See also Auditor General of
Pakistan)
Actual Expenditure
Amount expended by a spending division/department/ unit out of the funds allocated against a
particular account head.
Account Number
Account Number is five numeric character sub-elements. This sub-element defines the detailed
natural accounts to which transaction will be classified (e.g. salaries, utilities etc). The account
number contains a further internal structure (i.e. Major object, Minor object and Detailed object).
Appropriation Accounts
Appropriation Accounts refer to a comparative statement of actual expenditure against respective
budget allocations separately for each grant. These Accounts are published annually by Auditor
Generals office (through the office of the Controller General Accounts and its subordinate
offices i.e. Accountants General) and are prepared according to Function and Object
classification.
Annual Development Plan

This document is issued by Planning Commission and includes yearly targets as given in Medium
Term Development Framework (MTDF). The key sectors covered include Growth, Saving and
Investment; Balance of Payments; Fiscal and Monetary Development; Poverty Reduction and
Human Development. (See also Medium Term Development Framework)
Annual Development Program (ADP)

This refers to a statement of on-going development schemes and those proposed to be launched
by a provincial government in a fiscal year. The ADP is similar to the Public Sector Development
program (PSDP) at the Federal level. (See also Public Sector Development Program)
Appropriation
Appropriation refers to an allocation of funds to a spending department. It is an Act of the
Parliament that enables the department to spend money for specific purposes.
Annual Plan Coordination Committee

Another high-level budget review authority with representation from Planning Commission,
Ministry of Finance, Line Ministry and Economic Affairs Division.
Auditor-General
The Auditor-General is responsible for keeping the accounts of the Federation and of the
Province in specific forms and according to principles and methods as prescribed by the AuditorGeneral with approval of the President. Auditor-Generals office performs functions in
collaboration with office of the Controller General of Accounts and its sub-ordinate offices i.e.
Accountants General. (See also Accountants General)
Budget Call Circular

This represents an official notice issued by the Ministry of Finance (or Finance Department in
case of a Province) to line Ministries / Departments inviting them to prepare and submit budget
estimates for the following fiscal year. This also includes budget forms, instructions and
guidelines for preparing budget estimates and calendar of activities leading to final presentation
of budget in the Parliament.
Budget Deficit
The amount by which a government's spending exceeds its income over a particular period of
time is called deficit or deficit spending.
Budget Estimates (BEs)

Budget Estimates are demands prepared for the next fiscal year submitted to the Parliament for
approval. (See also Actual Expenditure; Revised Estimates; Expenditure)
Budget Resolution
This refers to the annual framework within which the Parliament makes its decisions about
spending and taxes. This framework includes targets for total spending, total revenues and the
deficit as well as allocations, within the spending target, for discretionary and mandatory
spending.
Budget Surplus
The amount by which a government's, income exceeds its spending over a particular period of
time.
55
Capital Receipts
Capital Receipts in the context of government budget refer to receipts obtained from sources of
finance other than Revenue. Examples include loans, advances, grants, etc. (See also Revenue
Receipts)
Capital Expenditure
This refers to expenditure met from capital receipt. For example, research and development
activity met from loan obtained from domestic sources. This can be both Development and NonDevelopment (or Current) Expenditure. (See also Revenue Expenditure)
Cash & Work plan

A system of budget control whereby funds are released to spending units on the basis of activities
planned to be carried out in a fiscal year. Currently, this system is applicable to Federal
Development Projects only.
Charged Expenditure
This refers to certain expenditures met from the Consolidated Fund, which, under the
Constitution, must be discussed, but are not submitted to the vote of the National or Provincial
Assemblies. (See also Voted Expenditure)
Chart of Accounts (CoA)

Refers to a scheme of systematically recording, aggregating, consolidating, summarizing and
reporting government financial transactions. Chart of Accounts prescribes various codes for
Function, Object, Entity, Fund, Project, etc. Budget allocations in all budget books (including
Annual Budget Statements) use codes prescribed under the CoA.
Consolidated Fund
Consolidated Fund is the bank account of the Government.
Demand Number
This is a unique number assigned to each demand under a specific Ministry / Department.
Development Project
A development project is an activity undertaken to acquire, build or improve physical assets or
develop human resources and is provided within the development expenditure grant.
Development project usually has a finite life and a specific source of funding.
Direct Tax
A tax imposed directly on the income or capital of a person or organization, rather than as part of
the price of goods or services. Tax on an individuals income, referred to as Income Tax, is an
example of Direct Tax.
DDO Code (Spending Unit Code)

The DDO Code is a six digit unique code allotted to each spending department and is published
in Budget Books along with names of spending departments / projects.
Expenditure
This includes current and development expenditure on Revenue Account and current and
development expenditure on Capital Account. The term Expenditure as used in Annual Budget
Statement and related documents usually covers Budget Estimates, Revised Estimates and Actual
Expenditure.
Economic Survey of Pakistan

A publication containing the overall economic performance and vital statistics of the key sectors
of the economy. This is published every year and is usually issued before the announcement of
the Federal Budget
Fiscal Year
Refers to the accounting period of the Government. It is a 12-month period starting from 1st July
of the current year and ends on 30th June of the succeeding year.
Function Code
Function Code is one of the five components of the Chart of Accounts used to identify purpose
for which a budget allocation is utilized. Some of the common functions (and their relevant
codes) are: Health (07), Education affairs and services (09), Economic Affairs (04), etc.
Fiscal Transfer
Fiscal Transfers means the share of the Province out of Divisible Pool Taxes, transferred in
accordance with the National Finance Commission (NFC) Award to the relevant account of the
Provincial Governments by the Federal Government on the last working day of each month.
Grant
This refers to funding approved to a ministry or department against their Demands through the
Schedule of Authorized Expenditure.
Gross Domestic Product (GDP)

GDP is the standard measurement of the size of the economy. It represents the total value of
goods and services produced during a fiscal year, including those of the private sector and the
Government.
57
Inter-Ministerial Priorities Committee

A budget review and approving forum that usually consists of officials from Planning
Commission, Finance Division, Line Ministry and Economic Affairs Division.
Medium Term Budgetary Framework (MTBF)

An MTBF is a framework aimed at forecasting revenues, expenditure, borrowings and debts of
the Government. Through the MTBF the Government prepares a medium-term macro fiscal
projections and review underlying policies that will shape up the economy.
Mid-Year Budget Review

A review of budget allocations and actual expenditure during a fiscal year. For development
projects, budget review is carried out on quarterly basis with a detailed review in the middle of
the year and usually involves both financial performance and physical progress of the projects /
schemes.
New Item Statement (NIS) / Budget Order (BO)

NIS refers to a pro-forma used by Federal Government Departments for preparation of
Development budget estimates. It is also used for preparation of non-development estimates of
temporary nature, while BO is used for preparation of non-development (or current) budget
estimates of permanent nature.
Non-tax Revenue
Non-tax Revenue means the income, other than tax levied through a statue, accrued against the
service provided by the government, as user charges.
National Economic Council (NEC)

It is a high-level economic decision-making body at the federal level and is chaired by the Prime
Minister
Object Code
One of the five components of Chart of Accounts used to identify economic classification of a
budget allocation. Examples include Pay & Allowances (Code A01), Repairs & Maintenance
(Code A13), Operating Expenses (A03). (See also Chart of Accounts)
PC-1
A pro-forma prescribed by Planning Commission for creation of development projects. Prior to
initiating any project a PC-1 document is prepared.
Planning Commission
National authority responsible for economic planning and monitoring of development activity in
Pakistan.
Public Sector Development Program (PSDP)

The Federal and Provincial Governments combined expenditure relating to development projects
/ schemes. The PSDP document includes project wise allocations for federal projects separately
for each Ministry / Division for a particular fiscal year.
Public Account
Public Account consists of those specific purpose moneys for which Federal and Provincial
Governments have a statutory or other obligation to account for, but which are not available for
appropriation against the general operations of the Governments. For example, inflows into and
disbursements from savings schemes launched by the Government from time to time.
Public Accounts Committee

The body constituted from the members of the assembly having principle functions to examine
appropriations of Government expenditure, the annual finance accounts of the Government, the
report of the Auditor-General of Pakistan and such other matters as the Minister for Finance may
refer to it.
Re-appropriation
Transfer of allocated amount from one unit of appropriation to another such unit is called Reappropriation. This is done to utilize saving of budget allocation in a unit / head of
appropriation, for example, if it is anticipated that budget allocation for utilities could not be fully
utilized during the fiscal year, the spending department can request for transfer of un-utilized
amount to another account head, e.g. repairs & maintenance. Certain restrictions apply on Reappropriations.
Revenue Expenditure
Expenditure met from revenue receipts.
Revenue Receipts
These represent receipts that are collected during the normal operations of the Government and
make up the largest proportion of the Governments total receipts in a fiscal year. For example,
income tax, sales tax, capital value tax, etc. collected by or on behalf of Federal Board of
Revenue (FBR) are part of Revenue Receipts.
Revised Estimates (REs)

Budget Estimates adjusted for any Supplementary grant, Surrenders or Re-appropriations are
called Revised Estimates.
59
Revenue Account
Revenue Account is the account of the income derived from taxes and duties, fees for services
rendered, land revenue from government estates, fines, penalties, other miscellaneous items,
and the expenditure met there from.
Savings and Surrenders

Amount un-utilized out of budget allocation is called Saving. Relinquishment of allocated funds
by a spending department is called Surrender. This generally happens when the allocated funds
are not likely to be spent by that spending department in a fiscal year.
Supplementary Budget
Additional funds not provided in the original budget. Supplementary budget is prepared and
approved during the year of execution.
Tax-Revenue
Tax-Revenue is compulsory financial contribution imposed by the government to raise revenues,
levied on income or property, on the prices of goods and services.
Voted Expenditure
Voted Expenditure means such expenditure as is submitted to the vote of the Assembly, with
reference to Article 82 (2) of the Constitution. Under the requirements of the Constitution,
expenditure in Annual Budget Statement (ABS) is separately shown for charged expenditure
and voted expenditure).
NOTES
This publication has been produced with the assistance of the European Union. The contents of this publication are the sole responsibility of
IP3 and can in no way be taken to reect the views of the European Union.
This project is funded by

the European Union
Improving Parliamentary Performance in Pakistan (IP3), Islamabad, Paksitan

Budget Process Pakistan

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Understanding the

This project is funded by

Improving Parliamentary Performance in Pakistan

Improving Parliamentary Performance in Pakistan (IP3), Islamabad, Paksitan

What is a Governments Budget? ........................................................................................................ 4

Why is the Governments budget important? ...................................................................................... 4

Principles of a good Budgeting System ............................................................................................... 5

Budget Transparency .......................................................................................................................... 9

Budgetary Management Processes .................................................................................................. 10

CHAPTER 2: LEGAL REQUIREMENTS AND ROLES ................................................................................ 11

Role of the Executive and Legislature in Budgeting .......................................................................... 11

The Constitution of Pakistan and Budget Management System ....................................................... 12

Rules and Regulations of the Federal Government .......................................................................... 17

Rules of Procedure of the National Assembly and Senate ................................................................ 18

CHAPTER 3: BUDGET MANAGEMENT ...................................................................................................... 20

Budgetary Management Processes .................................................................................................. 20

Spending reviews .............................................................................................................................. 20

Strategy, policy and formulation of plans ........................................................................................... 21

Budget preparation processes ........................................................................................................... 21

Presentation of the budget The Budget Books ............................................................................... 25

Presentation of the budget The Budget Classification System ....................................................... 30

Budget Execution Processes ............................................................................................................. 34

Accounting, reporting and audit ......................................................................................................... 35

CHAPTER 4: BUDGET RELATED MATTERS ............................................................................................. 37

Macroeconomic framework ............................................................................................................... 37

Intergovernmental fiscal relations ...................................................................................................... 39

Assessing public financial management system in a country ............................................................ 41

Managing Public Debts ...................................................................................................................... 44

Managing Public Procurements ......................................................................................................... 45

Budget Guide for Parliamentarians

CHAPTER 5: BUDGETING AND LEGISLATURE ........................................................................................ 46

Budgeting and Legislature Examples of other countries ................................................................ 46

Timeframe for Budget passage in other countries ............................................................................. 48

Parliamentary review and approval ................................................................................................... 48

Role of Parliamentary Standing Committees ..................................................................................... 49

Process of Cut-Motions ..................................................................................................................... 51

GLOSSARY OF TERMS ............................................................................................................................... 54

2 Budget Guide for Parliamentarians

PURPOSE OF THIS GUIDE

Budget Guide for Parliamentarians

CHAPTER 1: THE BASICS

2. WHY IS GOVERNMENTS BUDGET IMPORTANT?

4 Budget Guide for Parliamentarians

3. PRINCIPLES OF A GOOD BUDGETING SYSTEM

Government should maintain a sustainable fiscal discipline

Effective allocation of resources to departments, sectors, and services

Efficient provision of public services

Alignment of policy planning, budgeting and monitoring systems

Budget Guide for Parliamentarians

Policy / performance based budgeting

Primary health care services

Secondary health care services

Tertiary health care services

Repairs and maintenance

Medium-Term budgeting and predictability of resources

Harmonised Recurrent and Development Budgets to focus on delivery of

6 Budget Guide for Parliamentarians

Delegation of financial authorities and straightening of internal control

Laws and regulations are adhered to

Financial information is analysed and reported on a regular basis

Organisational assets are safe guarded.

Budget Guide for Parliamentarians

Control over Supplementaries

Transparency and public participation