Key Takeaways: Impact of Covid-19 and Stimulus Package Budget Philosophy and Strategy Sectoral Allocations Developmental Objectives and Measures Key Statistics and Comparison with India

1. Insights on Budget of Pakistan,
2020
CA Divakar Vijayasarathy

2. Research Credits
Vigneesver P
CA Jugal Gala

3. Legends used in the Presentation
BISP Benazir Income Support Programme
DLTL Drawback of Local Taxes & Levies
EXIM Export and Import
FATA Federally Administered Tribal Area
FATF Financial Action Task Force
FBR Federal Board of Revenue
FDI Foreign Direct Investment
GDP Gross Domestic Product
HEC Higher Education Commission
IMF International Monetary Fund
NFC National Finance Commission
NHA National Highway Authority
PSDP Public Sector Development Program
Rs. Pakistani Rupee
SBP State Bank of Pakistan
SEZ Special Economic Zone

4. Presentation Schema
Introduction
Economic
Progress in 2019-
20
Major Fiscal
Policies
Structural
Reforms in
Various Sectors
Challenges faced
Owing to COVID-
19
Corona Stimulus
Package
Budget at a
Glance
Budget 2020-21:
Philosophy &
Strategy
Highlights of the
Budget
Sectoral
Allocations
Developmental
Objectives and
Measures
Summary of
Budgeted
Receipts and
Expenditure
Key Macro-
economic
Indicators:
Rolling Targets
Some Relevant
Statistics

5. Introduction
• Pakistan is world’s fifth most populous country. During 1950–2012, Pakistan's urban population
expanded over sevenfold, while the total population increased by over fourfold.
• The majority of southern Pakistan's population lives along the Indus River. Karachi is the most populous
city in Pakistan.
• In the northern half, most of the population lives about an arc formed by the cities of Faisalabad, Lahore,
Rawalpindi, Sargodha, Islamabad, Multan, Gujranwala, Sialkot, Nowshera, Swabi, Mardan and Peshawar.
• There are around 75 to 80 known Pakistani languages although, in practice, there are primarily six major
languages in Pakistan spoken by 95% of the population: Punjabi, Pashto, Sindhi, Saraiki, Urdu, and
Balochi.
• The national currency of Pakistan is Pakistani Rupees.
• The agenda of this webinar is to understand the rationale, scope and strategies adopted while delivering
the budget of Pakistan
• The third budget of Pakistan for the financial year (July –June) 2020-21 was presented on June 12, 2020.

6. Recap of Performance in
2019-20

7. Economic Progress in 2019-20
In the first three quarter of the FY
2019-20 [July-March], Current
Account Deficit has plummeted
by 73% to $3 bn from $10 bn in
2018-19.
Trade Deficit has decreased by
31% from $21 bn to $15 bn
whereas the fiscal deficit has
been reduced from 5% to
3.8%.
Primary surplus of 0.4% has been
witnessed for the first time in the past 10
years. Primary surplus (deficit) refers to
the component of the fiscal surplus
(deficit) that is comprised of current
government spending less current
income from taxes, and excludes interest
paid on government debt.
The revenue of ‘Federal Board of
Revenue’ has increased by 17%
from Rs. 3,828.5 bn in 2018-19
and was on track to reach the set
target of Rs.4,800 bn.
Whereas the annual target was
Rs.1,161 bn, the non-tax revenue
is expected to reach Rs.1,600 bn
as there has been an increase by
134%. The non-tax revenue
comprises Income from Property
& Enterprise, Receipts from Civil
Administration & Other
Functions, and Miscellaneous
Receipts.
In 2018-19, forex reserves with
the SBP had declined from $18
bn to below $10 bn, bringing the
country to the brink of default.
However in 2019-20, having forex
reserves intact, higher foreign
debts of $6 bn have been repaid
against $4 bn in 2018-19.

8. Contd.
The interest payments in the last
two years on heavy loans of the
past amounted to Rs.5,000 bn.
Historic Package of Rs.152 bn
have been sanctioned to the
merged district of Khyber
Pakhtunkhawa [KPK] (one of the
4 administrative provinces of
Pakistan)
The current ruling government
claims that over 1 million
overseas job opportunities have
been created which boosted the
remittances from $16 bn to $17
bn.
FDI into Pakistan almost doubled
from $0.9 bn to $2.15 bn
predominantly in the IT, Oil &
Gas and Financial Business
sectors.
Debt management has been
improved by shifting 74% of the
domestic debt portfolio to long
term which resulted in reduction
of domestic borrowing rates from
14% to 10%.
Due to the reforms introduced by
the government, Extended Fund
Facility of $6 bn was approved by
IMF.
In December 2019, Bloomberg
has ranked Pakistan Stock
Exchange as one of the top
performing markets of the world.
Moody’s ratings upgraded from B3 [-ve]
to B3 [+ve]. It ranks the creditworthiness
of borrowers using a standardized ratings
scale which measures expected investor
loss in the event of default.

9. Major Fiscal Policies
No borrowing has been availed from SBP to finance the budget
proposals
Exchange rate regime was freed from unrealistic government
control and shifted to a flexible market oriented, which
stabilized the market which addressed the problem of non
availability of foreign exchange
No supplementary grants (additional grants required to meet
the government’s expenditure) were allowed
PSDP spending was facilitated by removing the restrictions
Debt management was improved which saved Rs.240 bn
Existing stock of public guarantees was capped.

10. Contd.
Structural reforms in public entities were introduced to
improve efficiency and reduce losses, and where unavoidable,
their privatization in a transparent manner
National Tariff Policy was approved in November 2019 with the
objective to improve competitiveness, increase employment
and remove anomalies in the tariff structure
“Make in Pakistan” is the identity of Pakistan in international
markets
Reforms in energy sector were undertaken to improve
efficiency and cut losses
Refunds of direct taxes amounting Rs. 254 bn were issued to
the business community which are 125% more than Rs.113 bn
issued last year. Moreover an amount of Rs.35 bn was
provided to Ministry of Commerce for payment of DLTL
claims.

11. Structural Reforms in Various Sectors
Public Finance Management Act 2019 has
been promulgated under which, the
Government has laid Mid-year Budget Review
Report in the National Assembly and
published Budget Manual, Budget Strategy
Paper and a statement of contingent
liabilities.
Treasury Single Account rules and procedures
have been finalized.
Reforms in pension system have been
initiated which will save Rs.20 bn.
Public Finance Management
The task force for Austerity (difficult economic conditions) &
Restructuring set by the PM submitted its report with the
recommendations to privatize 43 organizations, wind up 8
organizations, transfer 14 organizations to provincial
governments and merge 35 organizations.
This restructuring would lessen financial burden on the federal
government.
Data Pakistan Portal has been launched which enhances
transparency in the disbursement system of ‘Ehsaas’ program.
As a result, 8,20,000 ineligible beneficiaries have been
removed from the list of beneficiaries.
2 Regasified Liquefied Natural Gas (RLNG) plants which were
near to closure, have been revived with the help of
professional management.
Improved performance of critical organisations
such as NHA, Pakistan Post and Karachi Port Trust
have increased the revenue by 70%, 50% and 17%
respectively.
Austerity & Restructuring
of Government
A statement of fiscal risks will be part of this
year’s Annual Budget Statement.
‘Ehsaas’ program is a federal unconditional cash transfer
program for poverty reduction

12. Contd.
Consequent to the reforms initiated relating to
EODB such as measures to facilitate the
businesses and attract foreign investments,
Pakistan’s Doing of Business (DB) Ranking has
been improved from 136 to 108 out of 190
countries worldwide.
Ease of Doing Business
In June, 2018 Pakistan was placed under “Grey
List” and required to comply with 27 Actionable
Points (addressing strategic deficiencies,
demonstrating risks posed by terrorists group,
conducting supervision on a risk-sensitive basis,
demonstrating remedial actions in case of AML
and TF)
A comprehensive process of legislative, technical
and operational improvements has been initiated.
Within a period of one year, out of 27 items
included in FATF action plan, 14 items have been
largely addressed and 11 partially addressed
whereas in 2 areas, concerted efforts are being
made for implementation.
Anti Money Laundering
/Terror Financing reforms

13. Impact of COVID-19

14. Challenges faced owing to COVID-19
Economy was paced
down due to
protracted lock
down, business
closures, travel bans
and social
distancing, thereby
negatively
impacting the
growth patterns,
fiscal and current
account projections
and investments.
Economic growth
has reduced by
Rs.3,300 bn which
brought down
GDP growth
projection from
3.3% to -0.4%.
Projection of
overall budget
deficit has been
revised upward
from 7.1% to
9.1% of GDP.
FBR revenue loss
has been
projected at
Rs.900 bn while
the Non tax
revenue of the
federal
government has
been reduced by
Rs.102 bn.
Exports &
remittances have
been adversely
affected;
Unemployment &
poverty has
increased.

15. Corona Stimulus Package
The Government has approved a Stimulus Package of more than Rs.1,200 bn out of which Rs.875 bn has
been funded through the federal budget.
Rs.75 bn allocated for purchase of medical equipment, protective kits and payments to health workers.
Rs.150 bn allocated for 16 million vulnerable families and Panagah (shelter homes)
Rs.200 bn allocated for cash transfer to daily wage workers/employees
Rs.50 bn allocated for Utility Stores for provision of subsidized goods
Rs.100 bn allocated for FBR and Ministry of Commerce for issuance of refunds to exporters.
Rs.100 bn allocated for deferral of power and gas bill payments due from industries
Rs.50 bn for payment of electricity bills of 3 months of 3 million small businesses
Rs.50 bn allocated for farmers for fertilizer subsidy, loan remissions and other relief
Rs.100 bn allocated for establishment of Emergency Fund to be used in case of contingencies
Relief in indirect taxes of Rs.15 bn on food and health items
Payment of Rs.280 bn to farmers for wheat procurement
Price of petrol reduced by Rs.42 per litre and Diesel by Rs.47 per litre which provided relief of Rs.70 bn to
the people.

16. Contd.
No withholding of tax on payments made to builders and developers (except steel & cement purchases).
Capital Gains tax on one family house exempted & 90% exemption in capital gains tax for income arising
on properties under affordable housing.
Big cut in policy rate by 5.25% from 13.25% to 8%
Payroll loan of Rs.96 bn has been given on subsidized interest of 4% for 3 months
Principal amount of loan to the tune of Rs.491 bn has been deferred and loans of Rs.75 bn rescheduled in
775,000 cases
For households and business, banks have been allowed to lend additional Rs.800 bn with increased
borrowing limit and repayment of principal amounts deferred for one year
Extension in time period for meeting performance requirements and for shipment of goods in case of EXIM
Relaxation in conditions for Long Term Financing Facility.
Time limit for realization of export proceeds extended to 270 days from erstwhile 4 months.
Exporters can directly dispatch the shipping documents without routing it through bank
Limits on advance payments for imports increased.

17. Analysis of Federal Budget
2020-21

18. Budget at a glance

19. Budget 2020-21: Philosophy & Strategy
For providing relief to the
people, no new tax levies or
increase in existing levies
have been made.
Striking a balance
between corona
expenditure and fiscal
deficit
Keeping primary balance at
sustainable level. It is the
government net borrowing or
net lending, excluding interest
payments on consolidated
government liabilities.
Protection of social spending
under the Ehsaas Program to
support the vulnerable
segments of the society
Resource mobilization
without unnecessary changes
in tax structure
Successful continuation of
IMF program
Carrying forward of Stimulus
Package
Keeping development budget
at adequate level to inject
economic growth.

20. Contd.
Defence and internal security
of the country has been given
due importance.
Housing initiatives including
Naya Pakistan Housing project
have been funded
Funding for special areas i.e. erstwhile FATA, Azad Jammu and Kashmir, Gilgit
Baltistan to ensure development. FATA consisted of seven tribal agencies
(districts) and six frontier regions, and bordered Pakistan's provinces of KPK,
Balochistan, and Punjab to the east, south, and south-east respectively, and
Afghanistan's provinces of Kunar, Nangarhar, Paktia, Khost and Paktika to the west
and north.
The special initiatives led by the
PM like Kamyab Jawan
(understanding youth needs),
Sehat Card (medical health care),
Billion tree Tsunami (afforestation
initiative), etc. have also been
protected.
Austerity and rationalization
of expenditures will be
ensured.
Subsidy regime will be
rationalized to provide
targeted subsidy to the
deserving segments of the
society.
NFC award will be revisited.
Moreover, the provinces will
be asked to fulfill its funding
commitment made at the time
of merger of erstwhile FATA.

21. Highlights of the Budget
Total revenues are projected at Rs.6,573
bn including FBR revenue of Rs.4,963 bn
and non tax revenue of Rs.1,610 bn.
Transfer to provinces
under the NFC Award is
estimated at Rs.2,874 bn
Net Federal revenue is
estimated at Rs.3,700 bn
Total federal expenditure has
been estimated at Rs.7,137 bn
Budget deficit is projected at
Rs.3,437 bn which is 7 % of the
GDP with primary balance at -
0.5%

22. Sectoral Allocations
• ‘Ehsaas’ – Budget allocation for this flagship program has been increased from
Rs.187 bn to Rs.208 bn, which includes various social safety initiatives including
BISP, Pakistan Bait-ul-Mal and other departments.
• Subsidies – An amount of Rs.179 bn has been allocated to provide various
subsidies in energy, food and other sectors
Protection of
Vulnerable Segments
• Higher education has been adequately funded and allocation for HEC has been
increased from Rs.59 bn during 2019-20 to Rs.64 bn.
Higher Education
• With a view to provide low cost housing units to the masses, an amount of
Rs.30 bn has been provided to Naya Pakistan Housing Authority. Moreover, an
amount of Rs.1.5 bn has been allocated for low cost housing through scheme of
Qarz-e-Hasna of Akhuwat Foundation.
Housing Sector
• A sum of Rs.55 bn has been allocated for Azad Jammu and Kashmir and Rs.32
bn for Gilgit Baltistan to fulfil their financial needs. For merged district of KPK,
Rs.56 bn have been allocated. Moreover, special grant of Rs.19 bn has been
provided to Sindh and Rs.10 bn to Balochistan over and above their NFC share.
Grants to Special
Areas & Provinces

23. Contd.
• Under various initiatives to improve foreign remittances through banking
channels and build up foreign exchange reserves, an amount of Rs.25 bn
has been allocated.
Remittance Initiatives
• A grant of Rs.40 bn has been allocated to Pakistan Railways in order to
provide cheap transportation to the public.
Transportation
• An allocation of Rs.2 bn has been made for Kamyab Jawan Program
which is a flagship project of the government to utilize the untapped
abilities of the youth.
Kamyab Jawan
• Funds amounting to Rs.13 bn have been provided to Ministry of National
Health Services for Federal Government hospitals i.e. Sheikh Zaid
Hospital, Jinnah Medical Centre, National Institute of Cardiovascular
Diseases, National Institute of Child Health, College of Nursing and Basic
Medical Sciences Institute.
Federal Government
Hospitals

24. Contd.
• Ministry of IT has prepared a plan to electronically integrate all the Federal
Ministries and Divisions to improve public service delivery through e-
governance initiatives and an amount of Rs.1 bn has been allocated for
implementation of this project.
E-governance
• For the welfare and financial help of Artists, the allocation for Artist Welfare
Fund established under the Cabinet Division has been increased from Rs.250
mn to Rs.1 bn.
Artists’ Welfare
• Under public private partnership, Viability Gap Fund with an amount of
Rs.100 mn, Technology Upgradation Fund with an amount of Rs.400 mn
and Pakistan Innovation Fund with an amount of Rs.100 mn has been
established.
Special Funds
• To provide relief to the Agri sector and withstand the threat of Locust
(swarms attacking crops), Rs.10 bn have been allocated.
Agriculture

25. Developmental Objectives
To recover from
negative growth of -
0.4% to 2.1 % of the
GDP
To maintain Current
account deficit at
$4.4 bn
To reduce inflation
from 9.1 % to 6.5 %
To increase FDI by
25%

26. Development Measures
Public Sector Development Programme
• Owing to financial crunch caused by
COVID, 73% funds have been allocated for
on-going projects to avoid any cost
escalation and 27% for new projects.
• However, special focus is on social sector
projects for which allocations have been
increased from Rs.206 bn to Rs.249 bn.
Corona Responsive and Other Natural
Calamities Program
• To neutralize the negative impact of
corona and other calamities on human
life and to improve quality of the
people, a special development
program has been formulated for
which funds amounting to Rs.70 bn
have been allocated.
Energy/Power
• Over Rs.80 bn has been
allocated to finance the
projects for supply of power to
SEZs and foreign funded
projects, targeting to bridge
the gap between the electricity
demand & generation.
Water Resources
• Special emphasis has been
placed on water related
projects to address the acute
water crisis being faced by
Pakistan, and Rs.69 bn has
been allocated for the same.

27. Contd.
National Highways & Railways
• The government is allocating Rs.118 bn to
NHA, and Rs.24 bn to Railways for the
development of their infrastructure including
ML-1 (one of the four main railways lines in
Pakistan). For other communication projects,
an amount of Rs.37 bn has been allocated.
Health & Population
• Rs.20 bn have been allocated to provide
improved health services, prevention and
control of communicable diseases, production
of medical devices and capacity enhancement
of health institutions.
Education
• Rs.5 bn has been allocated for improvement
of education system through development of
uniform curriculum, standard examination
system, establishment of smart school and
mainstreaming of madaris.
• An amount of Rs.30 bn has been allocated to
achieve excellence in education in the fields
of research and other advanced areas like
artificial technology, robotics and automation,
space technology.
Science & Information Technology
• For projects relating to e-governance, IT enabled
services and start ups and launching of 5G cellular
services, allocation of Rs.20 bn has been made
• Under Public Private Partnership, projects in the
field of chemicals, electronics and Precision
Agriculture (farming management concept based
on observing, measuring and responding to inter
and intra-field variability in crops) will be
implemented and the linkage between R&D and
industry will be strengthened.

28. Contd.
Climate Change
• Rs.6 bn has been allocated for climate
change initiatives which triggers. Shift in
trends of crop yields, off-season rains
and heavy flooding.
Food & Agriculture
• For food security and
agriculture, an amount of Rs.12
bn has been allocated.
Other Areas
• The government has allocated development funds of Rs.40 bn for projects in
Azad Kashmir and Gilgit Baltistan. Moreover, an amount of Rs.48 bn is allocated
for projects in merged district of Khyber Pakhtunkhwa [KPK].
• To achieve Sustainable Development Goals, an amount of Rs.24 bn has been
allocated in the development budget.
• In addition to the allocations under PSDP, special funds amounting to Rs.20 bn
have been allocated for management of Trade Development Programmes
(TDPs) in merged districts of KPK. Whereas for rehabilitation of Afghanistan, an
amount of Rs.2 bn has been allocated.

29. Summary of Budgeted Receipts

30. Summary of Budgeted Expenditure

31. Key Macro-economic Indicators: Rolling
Targets

32. Some Relevant Statistics

33. Trade Deficit (in %)

34. Public Debt and Debt to GDP (in %)

35. Tax revenue to GDP (in %)

36. Direct & Indirect Taxes Collection

37. Thank You!
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