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Expenditure Management & Resource Mobilization

Expenditure Management & Resource Mobilization. Pakistan Development Forum November 15, 2010 Finance Division. Reform Agenda Stabilization through Structural Reforms while protecting the Poor. Pillars of Reform. Improving Public Expenditure Management Containing Fiscal Deficit

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Expenditure Management & Resource Mobilization

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  1. Expenditure Management & Resource Mobilization Pakistan Development Forum November 15, 2010 Finance Division

  2. Reform Agenda • Stabilization through Structural Reforms while protecting the Poor

  3. Pillars of Reform • Improving Public Expenditure Management • Containing Fiscal Deficit • Elimination of General Subsidies to be replaced by Targeted Subsidies • Restructuring of Public Sector Enterprises • Improving Domestic Resource Mobilization • Introduction of Reformed General Sales Tax (RGST) • Harmonization of Tax Administration • Strengthening Risk Based Audits

  4. Containing Fiscal Deficit • What went wrong? • 07-08: Inherited • 08-09: Punjab overshot credit limit • 09-10: Additional Power Sector subsidy, enhanced security related expenditures, FBR Revenue short-fall

  5. Containing Fiscal Deficit (2010-11) Rs billion

  6. Containing Fiscal Deficit (2010-11)4.7% of GDP *Includes freezing of non-salary current expenditure at last year’s level

  7. Limits imposed on Borrowings of Federal and Provincial governments through amendments in the SBP Act Permanent Committee of Finance Ministers (Fed and Prov.) established for Budgetary Oversight through 18th Amendment Austerity Measures for expenditure control approved by Cabinet (Incl. PSEs Re-structuring, elimination of general subsidies) Maintaining Fiscal Discipline Structural Reforms (Implemented) Cont..

  8. Supplementary Grants limited to 10 percent of Budget appropriations with mandatory Cabinet approval Medium-Term Budgetary Framework with prescribed expenditure ceilings Sub-Committee of Finance Secretaries (Fed and Prov.) established for Budgetary Oversight …. Maintaining Fiscal Discipline Other Mechanisms

  9. Petroleum subsidies fully eliminated Expanding role of private sector in commodity operations Structural reduction in Public procurement of wheat- limited to strategic reserves Role of Public Sector (TCP) in sugar imports eliminated Elimination of General Subsidies Structural Reforms (Implemented)

  10. PSEs burdening the Budget – A Sample Restructuring of Public Sector Enterprises Rs. Billion

  11. Dissolution of PEPCO by 30th June 2011 Cabinet approval obtained for restructuring of 8 major PSEs Cabinet Committee on Restructuring (CCOR) headed by the Finance Minister empowered to appoint professional management Boards, and CEOs CCOR empowered to approve financial and management restructuring plans Post-restructuring some PSEs to be privatized Restructuring of Railways and Pak Steel initiated Restructuring of Public Sector Enterprises (PSEs) Structural Reforms (on-going)

  12. Power sector subsidy limited to Rs.66 b. against a demand of Rs.256 b. (FY 11) NEPRA Law amended to allow for monthly fuel adjustment Cabinet decision to cap rental power to ensure affordability Debt stock of power sector companies (Rs.301 b.) transferred to Holding Company with debt servicing borne by Budget (FY 10: Rs.30 b. FY 11: Rs.40 b.) Power Sector Reforms Structural Reforms (Implemented)

  13. Full cost recovery by June 30, 2011 Periodic increases in power tariff since March 2008 notified (60 percent cumulative increase till November 2010 achieved) Comprehensive power sector reforms with institutional, regulatory and financial restructuring initiated Privatization of DISCOs to be fast tracked Empowerment of NEPRA to notify tariffs Power Sector Reforms Structural Reforms (On-going)

  14. Resource Mobilization Improving tax to GDP ratio from existing 9% to 12% in the medium term and 15% by 2015

  15. Resource Mobilization Key Initiatives • Reformed GST on Goods and Services in integrated mode • Exemptions minimized • Domestic zero rating & special rates eliminated • Federal legislation introduced in Parliament on Nov. 12, 2010 • Harmonized provincial legislation on services being finalized by a representative Technical Committee headed by Federal Finance Secretary • Automated Expeditious Sales Tax Refund System operational

  16. Resource Mobilization Key Initiatives • Harmonization of Tax Administration by creating Inland Revenue Service • Tax administration provided with administrative structure and technology to undertake assessments of income tax, sales tax and federal excise • R-GST and Harmonization of tax administration expected to assist in improving tax-to-GDP ratio by 2.4 percent of GDP in the medium term • Re-introduction of risk based audit and enforcement • Customs modernization reforms • simplifying, standardizing and automating customs clearance procedures • strong post-clearance audit controls

  17. Resource Mobilization – Other Initiatives • Capital Gains Tax (CGT) on trade in equities • Surcharge @ 10 percent of income tax liability (Expected Revenue Rs.31 b.) • 1% point increase in special Excise on dutiable items (Expected Revenue Rs.11 b.) • FBR focusing on management by objectives and accountability through performance benchmarks

  18. Pakistan is on the path of reform; We look forward to the continued support of our development partners

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