Budget 2004-05 and Economic Analysis of Pakistan

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TABLE OF CONTENTS

  • Preface
  • Acknowledgements
  • Introduction to Budget ………………...………………..… .……1

  • Budget     1
  • Purpose of Budget     1
  • Role of The Budget     1
  • Objectives of Budget Preparation     1        

  • Budget 2004 – 2005   ………..……………………………….......2

  • Challenges     2
  • Salient Features     3
  • Comparative Budgetary Position 2003-04 & 2004-05     5

  • Resource Position 2004-05     6
  • Internal Resources     7
  • External Resources    11
  • Provincial Share In Federal Receipts     12        
  • Province-Wise Share     13
  • Current Expenditure     14

  • Budget At A Glance  ..……… …….……………………………21

  • Receipts     21
  • Expenditure     22

  • Provincial Budget 2004-05     …………...………………..…..... 23

  • Punjab Budget – Highlights     23

  • Economic Analysis 2003 – 2004……..………...….……….....…24

  • The Economic Survey - Highlights     24
  • Economy - Summary     30

  • Conclusions………..  ………………………………………….. 34
  • Bibliography ………………………………………..…………...35

PREFACE

Macro-Economics is the study of the behavior of the economy as a whole. It it examines the forces that effect many firms, consumers, and workers at the same time. Macro-Economics deals with many challenges and to meet those challenges certain policies are to be made. Governments use budgets to plan and control their fiscal affairs.

The Budget is an important policy document through which the government establishes its economic and social priorities and sets the direction of the economy. It reflects the fundamental values underlying the government's economic policies and objectives.

This report is assigned to me by Mr. Mohammad Ali Wallana, the course instructor of Macro-Economics. This report is benificial in the sense that it will help in understanding the fiscal problems of our country and will help us in finding the ways to disolve those problems.

I have put my best efforts to make this report.  In this report I have discussed the economic conditions for the fiscal year 2003-04, the targets, the acheivements. The Challenges that Fedral Budget 2004-05 will have to meet, its major features have been discussed briefly. I have also included the comparaison between previous and current fiscal year’s budget.

I hope that this report will enhance the knowledge of the common reader as well as it will provide benefit to my juniors in understanding the status of Pakistan with respect to its fiscal policies and their performance.

BUDGET

Budget is an annual exercise of revision and redefining of fiscal policies aiming at fixing of revenue targets by the government. Budget is announced before the commencement of next financial year for the information of tax payers.

PURPOSE OF BUDGET

The annual budget reflects income and expenditures related to the operations of the country. As such, it is the financial outline of the Country’s planned expenditures for the fiscal year. The ultimate purpose is to manage a balanced budget with expenditures staying within overall budgeted figures.

ROLE OF THE BUDGET

The Budget is an important policy document that sets forth the priorities of the government and the directions that the economy is desired to be taken towards. It has far reaching impact on all sectors of the economy and on all sections of the population. It allocates and reallocates resources from one sector to another and from one set of pockets to another. It determines the efficiency of resource use and has profound distributional impacts.

OBJECTIVES OF BUDGET PREPARATION

During budget preparation, trade-offs and prioritization among programs must be made to ensure that the budget fits government policies and priorities. Next, the most cost-effective variants must be selected. Finally, means of increasing operational efficiency in government must be sought. None of these can be accomplished unless financial constraints are built into the process from the very start. Accordingly, the budget formulation process has four major dimensions:

  • Setting up the fiscal targets and the level of expenditures compatible with these targets. This is the objective of preparing the macro-economic framework.
  • Formulating expenditure policies.
  • Allocating resources in conformity with both policies and fiscal targets. This is the main objective of the core processes of budget preparation.
  • Addressing operational efficiency and performance issues.

THE  BUDGET 2004 - 2005

The Budget, 2004–05 was presented in the evening of June 12, 2004 in the National Assembly by Mr. Shoukat Aziz, Minister of Finance.

The major thrust of the budget for 2004-05 would be on the improvement of facilities for:

  • Healthcare
  • Education
  • Technical Education
  • Agriculture
  • Irrigation
  • Hydel Power Generation
  • Agriculture Research
  • Housing and Construction, Etc.

CHALLENGES FOR THE FEDRAL BUDGET 2004-05

The budget for 2004-05 plans to address some very pressing challenges and take measures to overcome them. These include:

  • The need to push the growth rate 8% and above so as to have meaningful reduction in poverty. For this purpose significant increase in investment is required especially in the private sector.

  • The need to improve human development indicators which will fall for substantial increase in social planning.

  • Public sectors enterprises continue to bleed the budget and limit the fiscal space needed for social sector spending. An accelerated privatization of such units coupled with restructuring to reduce their losses is essential to contain this menace.

  • Significant evidence is emerging indicating that the country's growth potential is being seriously undermined by lack of adequate infrastructure of roads, water, power, gas and telecommunications. The need for major increase in development spending aimed at rehabilitating and expending the economic and social infrastructure is there for extremely pressing. Lack of desired capacity in the system to fully absorb available investment resources, implementation and governance bottlenecks thus need to be removed with concerted efforts.

  • Law and order are clearly interrelated challenges. A lot has been done to tackle these issues and more needs to be done.

  • Since reforms lie at the core of the country's economic turn around this process has to continue for a long time.

  • So far the focus reforms were to achieve macro-economic stability. Now there is need to adopt more radical approach to make a quantum leap into high growth trajectory. The incremental approach has to make room for this transition.

  • For this purpose the process of reforms will have to be accelerated and advanced to the level of second generation. The second generation reforms will focus on building the institutional and governance capacity and improving the competitive environment to the country. Civil services, police, judiciary and devolution will be the key areas of governance that would need reforms.

  • In the face of emerging wto challenges the country's exports should be able to compete with global competitors.

  • Thus the focus will be on reducing the cost of doing business in Pakistan, especially in such areas as government regulations, tax distortions, efficiency of public utilities and removal of infrastructure bottlenecks.

SALIENT FEATURES OF BUDGET

2004 - 2005

The budget 2004-2005 has the following salient features:

  • The total outlay of budget 2004-2005 is Rs 902770 million. This size is 12.1% higher than the size of budget estimates 2003-2004.

  • The resource availability during 2004-2005 has been estimated at Rs 842620 million against Rs 767298 million in the budget estimates of 2003-2004.

  • Net  revenue receipts for  2004-2005  have  been  estimated  at  Rs  557165 million indicating an increase of  8.5%  over  the  budget estimates of 2003-2004.

  • The capital receipts (net) for 2004-2005 have been estimated at Rs 64439 million against the budget estimates of Rs 36677 million in 2003-2004.

  • The external receipts in 2004-2005 are estimated at Rs 156355 million. This shows an increase of 8.0% over the revised estimates for 2003-2004.

  • The  overall  expenditure   during   2004-2005  has  been  estimated  at Rs  902770 million of  which  the  current  expenditure  is  Rs  700770 million  and development expenditure Rs 202000 million. Current expenditure shows a decline of Rs 13249 million from revised estimates of 2003-2004. Development expenditure will increase by 31% in 2004-2005 over the revised estimates of 2003-2004.

  • The  share  of  current  expenditure  in  total  budgetary  outlay  for 2004-2005 is 77.62% as  compared  to 82.22%  in revised  estimates  for 2003-2004.

  • The  expenditure  on General Public Services(inclusive of debt servicing, transfer payments  and  superannuation  allowance) is  estimated  at Rs 423836 million  which is 60.5% of the current expenditure.

  • The provincial share in federal receipts is estimated at Rs 239157 million during 2004-2005 which is 13.12% higher than the revised estimates for 2003-2004.

  • The size of Public Sector Development Programme for 2004-2005 is Rs 202000 million. This shows an increase of 26.25% over the budget estimates for 2003-2004 and 31% over the revised estimates 2003-2004.

COMPARATIVE BUDGETARY POSITION

2003-2004 AND 2004-2005

The comparative position of 2003-2004 (budget & revised) and 2004-2005 (budget) is given in Table below:

               (Rs. in Million)

                                                                   2003-2004          2004-2005

Classification                                                   Budget   Revised      Budget

  • RESOURCES (a + b)                                       767298      783356      842620
  • Internal Resources                                           608169      638536      686265

Revenue Receipts(Net)                                    513536      549572      557165

Capital Receipts(Net)                                      36677        39789        64439

Financing by Provinces for PSDP                   29990        34845        33110

Change in Provincial Cash Balance                27967        14331        31551

  • External Resources                                         159129      144820      156355
  • EXPENDITURE                                             805234      868392      902770

Current Expenditure                                        645234      714019      700770

Dev. Expenditure(PSDP)                                160000      154373      202000

Privatization  proceeds                                    10000        11000        15000

Bank borrowing                                               27936        74036        45150

RESOURCE POSITION

2004 - 2005

Resources are generated both internally and externally. The internal resources comprise of revenue receipts, capital  receipts, financing  of  PSDP  by  the  provinces and change in the Provincial Cash Balance, while the external resources come from loans and grants.

The overall  comparative resource  position for the year 2003-2004(budget  and  revised) and  2004-05(budget) is given in Table below:

(Rs.in Million)

                                                            2003-2004         2004-2005

Classification                                            Budget    Revised      Budget

  • INTERNAL (I+II+III)                               608169      638536      686265
  • Revenue Receipts (Net)                             513536      549572      557165
  • Capital Receipts (Net)                               36677        39789        64439

Total  (a + b)                                              550212      589361      621604

Self-financing of PSDP by Provinces       29990        34845        33110

Change in Provincial Cash Balance          27967        14331        31551

  • EXTERNAL                                              159129      144820      156355

TOTAL RESOURCES (A + B)              767298      783356      842620

INTERNAL RESOURCES

REVENUE RECEIPTS

  • The revenue receipts in budget 2004-2005, on gross  basis, are  estimated at Rs 796323 million  showing  an  increase  of  4.64%  over  the  revised  estimates  2003-2004. The provincial share  in  taxes  for  2004-2005  has  been  estimated  at  Rs 239157 million which  is 13.1% higher than the revised estimates of 2003-2004.

  • Tax  revenue  (CBR) is projected  at  Rs 580000 million  in the budget  estimates 2004-2005 against Rs 510000 million in the revised  estimates  2003-2004.  Tax revenue, other than CBR is budgeted at  Rs 74806 million which shows  an increase of 6.7%. Non-tax  revenue  have been  projected at   Rs 141517 million  in 2004-05 as compared  with Rs 180875 million  in  revised estimates 2003-2004.

  • Detailed information  on  various  components  of  tax revenue  and non-tax revenue is given in following Tables.

   (Rs.in Million)

                                                                           2003-2004         2004-2005

     Classification                                          Budget     Revised    Budget

  • Tax Revenue(CBR)                                      510000      510000      580000

Direct Taxes                                                 161100      161500      181900

Indirect Taxes                                               348900      348500      398100

Tax Revenues(Other than CBR)                  67560        70108        74806

  • Non-Tax Revenue                                        150811      180875      141517

Property & Enterprise                                  92432        101361      95326

Receipts from Civil & Others Function       33145        45312        15332

Miscellaneous                                              25234        34202        30859

Revenue Receipts - Gross                          728371      760983      796323

Less: Provincial Share                                 214835      211412      239157

Revenue Receipts(Net)                               513536      549572      557165

   

TAX REVENUE

      (Rs.in Million)

                                                                  2003-2004         2004-2005

     Classification                                              Budget     Revised    Budget

  • TAX REVENUE - CBR (I + II )                      510000      510000      580000
  • Direct Taxes                                                     161100      161500      181900

Income Tax                                                      154200      154638      174362

Other Taxes                                                      6900          6862          7538

  • Indirect Taxes on Commodities

and Transactions                                              348900      348500      398100

Customs                                                            78100        86600        103200

Sales Tax                                                          223100      218400      249200

Federal Excise                                                  47700        43500        45700

  • TAX REVENUE (Other than CBR)                67560        70108        74806

Workers Profit Participation Tax                     3000          3000          4000

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Foreign Travel Tax                                           2500          2088          4216

Petroleum Development Levy                          46135        46400        47506

Gas Development Surcharge                            15000        14226        15023

Arrears (Surcharges)                             ...

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