In Pakistan, the fiscal year is from 1st July to 30th June.
The National Assembly and Provincial Assemblies approve national and provincial budgets respectively.
Budget making process:
The Ministry of Finance sends Budget Call Circulars to the ministries. (in October)
All the ministries prepare and scrutinize their budget proposals. (Nov-March)
The Standing Committees send recommendations to the Ministries. (by 31th March)
Ministry of Planning and Reform approves Development Budget (April-May)
Cabinet approves Budget (May)
Budget is presented in the National Assembly/copy is sent to the Senate for Recommendations. (in early June)
President approves Budget (before 1st July)
The Budget is divided into two sections:
Recurring/Revenue/Current/Non-development Budget: This includes all expenditures related to the administration, foreign debt, national defense, etc. If revenue receipts are more than current expenditure, the surplus amount goes to the Capital Budget to meet the developmental expenditures. In other cases, the government has to borrow to meet the deficit.
Development Budget/Capital Expenditure: Development budget is used to enlarge material assets of the state i.e. to enlarge/improve the physical resources, improve education and skills of people, development programs, etc. Development expenditure is also called capital expenditure, which is met from surplus revenue and reserve funds. Development expenditure is allocated in the budget and is prepared by the Planning & Reform Commission with consultation with the Finance Ministry and provincial governments.
Every year, in October, the Budget Wing of the Ministry of Finance issues a Budget Call Circular to all the federal ministries/agencies to prepare and submit next fiscal year’s budget estimates. Giving proper attention to the past and current expenditures, budget estimates are prepared by the ministries in advance, and the Budget Orders are sent to the concerned accounts offices. The Auditor General of Pakistan sends copies of the approved budget orders to the Budget Wing of the Ministry of Finance.
The Budget Wing also issues an Office Memorandum in October to all the ministries to submit their development expenditures to the Ministry of Planning. Moreover, defense budget estimates are submitted to the secretary of the Ministry of Defense. The remaining process is the same.
Country’s resources are estimated for the coming fiscal year. Moreover, available resources and additional taxes are also included in the available revenue.
After complete scrutiny by the Ministry of Finance, this financial bill seeks Cabinet approval. Then it goes to the NA and at the same time a copy of the bill is sent to the Senate for her recommendations, to which NA is not bound. At the end it gets presidential assent before 1st of July. After approval, the Finance Minister reads the Budget in the National Assembly.
Weakness in Budget system in Pakistan:
Short discussion time (Average 10-12 working days). Whereas, in India discussion time is 75 days.
Limited role of the Standing Committees.
Supplementary or Excess Budget (Executive control over budget making and approval).
Non-interference of state-holders and civil society.
No questionnaire over budget performance in the NA.
Performance-based Budget: In this type, resources are allocated to achieve a certain result. Funds allocation is based on expected results rather than past estimates and political priorities. Free primary education, tree plantation, etc. like projects are funded on the basis of performance. The idea of performance budget lies beneath the word ‘result’, because performance budget prioritizes results/outcomes rather than resource allocation. Moreover, we can not say that it is cost-effective.
According to Segal and Summers, it has three elements:
Ultimate outcome of a particular performance
Different strategies to achieve a result
Activities performed to achieve a certain result
Advantages:
Better Cost Estimates
Finds Areas for Improvement
Clear Purpose
Improvement in Performance
Disadvantages:
Subjective
Strong system of Evaluation
Easy to Manipulate
Difficult for long-term
Costly
Zero-based Budget: In this type, all expenses are justified and approved for a new period according to the current needs rather than previous records & previous budget. Zero based budgeting is a different approach rather than traditional budgeting methods, where the previous budget is often used for next budget estimates. Moreover, all unnecessary spending is eliminated.
Advantages:
Accuracy
Efficiency
Cost-efficiency
Disadvantages:
Managerial Time
Slower Response Time
Time consuming
Incremental Budget: In this type, little changings are done to the previous budget.
Advantages:
Simplicity
Easy to Implement
Easy to see Impact of Change
Funding Stability
Reduces Internal Rivalry
Disadvantages:
Incremental Nature
Risk-Taking
Extra Spending
Discourage Innovation
Balanced Budget: In this type, revenues collected are equal to the expenditures. Means neither surplus nor deficit.
An incumbent government shall allocate resources to program A instead of program B according to the following types:
If the government has a little time, it will apply Incremental Budgeting.
If an increase in the performance of a program is required, it would go for Performance Budgeting.
If a thorough review is required, Zero Budgeting could be implied.
If some programs have priority over others, then Priority Based Budgeting is best.
To increase public participation and transparency, Participatory Budgeting is implemented.
I think performance based budgeting is the most appropriate for public administration, because it is the best tool to achieve a certain result, using multiple strategies. Moreover, with this type performance could easily be improved.
Budget Deficit: When Government spending exceeds over total revenue generated through taxes and through other means.
Consequences:
Bad impact on economic development
human development index level decreases
Increase in debt
Inflation increases
Investors have no confidence
Decrease foreign investment
Political instability
Strategies employed by the governments to manage deficit:
Loans/borrowings from IMF, World Bank and friendly countries
Increase tax network
Privatization of public assets
Fiscal austerity measures
Decrease funds and freezing special allowances of government employees
Reduction in government spendings
Slow pace development work
Increase duty or ban on luxury import items
Increase interest rate
This article is the answer to the following questions of Competitive Examination in Pakistan i.e. CSS and PMS:
Q3. A Great deal of political debate in the last two decades has focused on strategies for controlling the federal budget deficit (spending exceeds revenue). Why is this an important issue for the government and what strategies have been employed by governments to manage the deficit? Give examples. (CSS 2023)
Q4. “On what basis shall we allocate resources to program A instead of program B,” is the perennial statement in public sector budgeting. Identify and discuss at least five attempts, found in the budgeting literature, used to answer V.O. Key’s famous budgeting question. Which type of budgeting system is most appropriate for public administration? Why do you feel this way? (CSS 2022)
Q7. Governmental budgets remain an area of general concern as well as controversy. Considerable attention is given to taxation and other sources of governmental revenues. Discuss the federal budget process in Pakistan paying special attention to its ability to find governmental activity and help to regulate the economy’s business cycle. (CSS 2022)
Q5. The idea of performance-budget lies beneath the word ‘result’. In the light of this statement examine the elements of performance-based budgeting with reference to Pakistan. (CSS 2021)
Q7. Discuss in detail the budgeting process of Pakistan. Are you satisfied with the process? Discuss with practical examples. (CSS 2019)
Q8. Zero based budgeting (CSS 2017)
Q5: Governmental budgets remain an area of general concern as well as controversy. Considerable attention is given to taxation and other sources of governmental revenues. Discuss the federal budget process in Pakistan paying special attention to its ability to find governmental activity and help regulate the economy`s business cycle. (CSS 2016)
Q8: Write a detailed note on the following: (CSS 2016)
Incremental budgeting
Planning programming budgeting system
Dissensus budgeting
Q8. Performance budgeting (CSS 2013)
Q5. What is performance budgeting? Bring out its merits, limitations and difficulties. (CSS 2012)
Q6. What is the role of politics in the budgetary process? Explain several concerns such as representation, consensus, coalition building, and locus of power in allocating funds. (PMS 2021)
Q4: Line item budgeting is conventionally used for provincial and federal government budgets of Pakistan. Suggest an alternative public budgeting approach for government budgets in Pakistan. Discuss why the suggested approach would be more suitable and effective for achieving the current political and economic objectives of the government. (PMS 2020)
Q3: Financial management is an important part of government activities. Discuss some of the concerns a budget planner deals with Capital budgeting, Debt management and Risk management. (PMS 2019)
Q2: Budgeting is an important aspect of financial management. Discuss its role as policy and management tool in public organizations, critically evaluate the salient principles of budgeting and suggest ways for improvement to increase performance of public sector organizations. (PMS 2017)