Budgeting in Pakistan’s Public Sector: An Introduction
This article provides an overview of the budgeting process in Pakistan’s public sector to help you craft and implement budgets that achieve key strategic priorities. We explore the legal framework that governs public sector budgeting, including the roles and responsibilities outlined in the Constitution of Pakistan and the Public Finance Management Act of 2019. We analyze the key steps in the annual budget cycle, from budget formulation to approval, execution, and auditing. Finally, we highlight examples of innovative practices from high-performing public sector organizations that have strengthened budget discipline and financial performance.
With the right knowledge and tools, you can develop budgets that drive efficiency, accountability, and optimal outcomes for citizens. This introduction to public sector budgeting in Pakistan aims to provide the foundation and insights you need to achieve that goal.
The Budgeting Process in Pakistan
The annual budgeting process in Pakistan follows a top-down approach under the Ministry of Finance. The process begins around 6-8 months before the start of the new fiscal year on July 1st.
- The Ministry of Finance issues a Budget Call Circular to all federal ministries and divisions, detailing the macroeconomic framework and budget priorities for the upcoming year based on the government’s manifesto and policy objectives.
- Ministries and divisions then prepare their budget proposals and estimates for both recurring and development expenditures. These are submitted to the Ministry of Finance for review and approval.
- The Ministry of Finance holds consultations and discussions with the ministries and divisions to scrutinize their budget proposals before finalizing the budget. The ministry aims to strike a balance between the resource availability and expenditure needs.
- The finalized budget is then presented in the National Assembly, debated and approved before the start of the new fiscal year. The approved budget is published in the Finance Bill and the Budget Speech.
- Budget implementation and monitoring are carried out during the fiscal year by the Ministry of Finance to ensure funds are utilized as approved. Quarterly budget reviews and cash management also help in keeping expenditures within the budget.
The budgeting process in Pakistan’s public sector aims to make the best use of limited resources to achieve key national objectives and improve service delivery to citizens. With increasing fiscal pressures, improving budget planning and implementation has become crucial. Overall, budgeting in Pakistan follows internationally recognized principles of comprehensiveness, budget unity, annuality, universality, and balance.
Key Steps in the Budget Cycle
As a public sector organization in Pakistan, your budgeting process follows some key steps in the annual budget cycle:
- Strategic planning. At the start of the fiscal year, determine your organization’s priorities and strategic goals to guide budget allocation. Review your mandate, vision, and mission to ensure proper resource distribution.
- Budget formulation. Estimate the costs of strategic plans and current operations. Account for inflation and cost increases. Project revenue from government funding, taxes, fees, and other sources. Create a draft budget balancing expenses and income.
- Budget approval. Present the draft budget to oversight bodies, government agencies, and legislative groups. Address any questions or required changes. Secure official approval and authority to execute the budget.
- Budget execution. Implement the budget by spending allocated funds and collecting projected revenue. Continuously monitor expenses and income, making adjustments as needed to account for changes while staying within approved budget limits.
- Auditing and evaluation. Conduct internal audits to ensure funds were utilized properly. Prepare reports on budget outcomes, variances, and performance metrics. Review what worked and didn’t work to improve next year’s budget process.
Following these key steps with diligence and accountability will enable your organization to make the most of its budget and achieve maximum value for public funds. Careful planning, prudent spending, and regular oversight are the foundations of a successful budget cycle.
Roles and Responsibilities of Key Departments
Ministry of Finance
The Ministry of Finance plays a central role in the budgeting process. It is responsible for preparing the annual budget in consultation with other ministries and departments. The Ministry determines budget ceilings and allocates resources to different ministries and departments based on their demands and the government’s priorities. It also monitors budget utilization during the financial year and ensures funds are utilized according to the approved allocations.
The Planning Commission works closely with the Ministry of Finance to determine development priorities and sectoral allocations in the budget. It assesses the demands from different ministries and provides recommendations to the Ministry of Finance regarding resource allocation keeping in view the government’s development vision and priorities. The Commission also monitors development projects to ensure timely completion and optimal utilization of funds.
Ministry of Planning, Development and Reform
The Ministry of Planning, Development and Reform coordinates with the Planning Commission and the Ministry of Finance to align the development budget with the government’s development agenda and vision. It reviews and evaluates development schemes and projects proposed by different ministries and provides recommendations to the Planning Commission and the Ministry of Finance regarding their inclusion and prioritization in the budget. The Ministry also monitors implementation of development projects to ensure they are completed on time and within the approved cost.
Line Ministries and Departments
The line ministries and departments prepare budget proposals regarding their current and development expenditures for the next financial year. They defend their budget proposals and demands during budget hearings in the Ministry of Finance and the Planning Commission. The ministries and departments are responsible for ensuring optimal utilization of allocated resources for the purposes they were granted during the financial year. They report to the Ministry of Finance and the Planning Commission on budget utilization and progress of development projects.
Challenges in Public Sector Budgeting
Lack of Technical Capacity
The public sector in Pakistan often lacks the technical skills and expertise required for effective budgeting and financial planning. Budget officers frequently do not have formal education or training in finance, accounting or economics. They rely primarily on learning through experience, which can lead to perpetuation of weak practices. Limited technical capacity also makes public sector organizations overly reliant on external consultants for budget preparation, limiting ownership and sustainability.
Inadequate Information Systems
Modern, integrated financial management information systems are rare in Pakistan’s public sector. Most budgeting and planning is done using basic spreadsheets, which are prone to errors and make analysis and reporting difficult. Lack of information systems also makes it challenging to link policy, planning and budgeting, as there is no mechanism to track the financial implications of policy decisions or monitor performance.
Public sector budgeting in Pakistan tends to be focused on the short-term, often only looking ahead 6-12 months. There is little medium-term expenditure planning, and budgets are prepared annually with little continuity from year to year. This short-term focus makes it difficult to plan and allocate resources effectively for policy implementation or public service delivery. Multi-year budgeting frameworks could help establish stronger links between policy, planning and budgeting.
Lack of Transparency
The budget process in Pakistan’s public sector is typically not very transparent. Budgets are prepared internally with little external consultation. Limited information is shared publicly on budget allocations, expenditures or performance. This lack of transparency and accountability reduces public trust in the system and opportunities for external oversight and feedback. Greater transparency through public consultations, open data and performance reporting could help strengthen the budget system.
In summary, significant challenges remain to be addressed to improve public sector budgeting and financial planning in Pakistan. However, by building technical capacity, improving information systems, adopting a longer-term focus and increasing transparency, the public sector can work to establish a stronger, more effective budgeting framework.
Importance of Transparency and Accountability
Transparency Builds Trust
As a public sector organization in Pakistan, transparency and accountability are crucial. Taxpayers and stakeholders expect visibility into how funds are allocated and spent. By providing clear insight into your budgeting and spending processes, you build trust in how responsibly you manage public funds.
Engage in open communication about your budget by publishing budget reports, holding public meetings, and sharing details on your website and social media channels. Explain complex budget topics in an easy to understand way. Respond to questions and feedback from citizens and media to demonstrate your commitment to transparency.
Independent audits and oversight committees help ensure funds are used properly and as intended. Regular audits by reputable third-party firms like Usman Rasheed & Co Chartered Accountants, provide an objective assessment of your financial controls and use of funds. Oversight committees with members from outside your organization offer an independent review.
Develop key performance indicators (KPIs) to track how well your programs and initiatives meet stated goals. Then report on your progress against these metrics. For example, measure the percentage of citizens with access to public services like healthcare clinics or education facilities. Or report on metrics like reduced traffic congestion or improved air quality from infrastructure investments.
Consequences for Misuse
Enforce strict consequences when public funds are misused to deter fraudulent behavior. Require paybacks, issue penalties, or pursue legal action against those responsible. Publicize the results of investigations and disciplinary actions taken to demonstrate there are real consequences for violating rules around appropriate use of funds.
Transparency and accountability build trust between citizens and public sector organizations. By openly sharing details about your budget, oversight processes and performance, you enable stakeholders to understand how you work to serve the public good. And by enforcing consequences when funds are misused, you show your commitment to responsible stewardship of taxpayer money.
As you have seen, budgeting in Pakistan’s public sector is a complex process with many actors and factors to consider. Creating and implementing a budget that serves the needs of citizens requires careful planning, oversight, and accountability at all levels of government. While the challenges are significant, understanding the basics of public budgeting and how funds are allocated is crucial for citizens and organizations to advocate for improved governance and push for reforms. With knowledge and perseverance, positive change can happen. Though the road ahead is long, maintaining transparency and civic participation will be key to ensuring budgets are crafted and spent in a way that benefits all Pakistanis. Staying informed and raising your voice is how you can make a difference.
Usman Rasheed & Co Chartered Accountants is a leading financial advisory and audit firm in Pakistan, having offices in Islamabad, Quetta, Lahore, Karachi, Peshawar & Gilgit. The firm is providing Audit, Tax, Corporate, Financial, Business, Legal & Secretarial Advisory services and other related assistance to local and foreign private, public and other organizations working in Pakistan