ECONOMY OF PAKISTAN: Presentation by Prof. Dr. Khawaja Amjad Saeed Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan ( ), Member Governing Council, International Federation of Accountants (IFAC), New York ( ), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan ( ), President, Association of Management Development Institutions of South Asia (AMDISA) ( ), Pro Vice-Chancellor University of the Punjab, Lahore ( ), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore ( ) & Senior Faculty Member of Hailey College of Commerce, University of the Punjab, Lahore ( ). Earlier he served in Corporate Sector in Pakistan for eight years ( ). Main Focus 1.Economy of Pakistan 2.Federal Budget: Economic Challenges: Fiscal Policy 5.Suggested Charter of Economy 1

WELCOME TO OUR PROGRAM PRESENTATION FRAME 1.Economy of Pakistan 2.Constitution of Pakistan 1973: Economic Matters 3.Federal Budget: Pakistan: Economic Challenges: Economic Management Matrix 6.Fiscal Policy 7.Suggested Charter of Economy 2

1: ECONOMY OF PAKISTAN 3 S. No.Components 1.Agriculture 2.Manufacturing 3.Services Components

1-1: AGRICULTURE 4 S. No.Components 1.Livestock 2.Crops: 1. Major 2. Minor 3.Fishing 4.Forestry Components

1-2: MANUFACTURING 5 S. No.Components 1.Industry: High Tech LSM SME Cottage 2.Minerals 3.Electricity 4.Construction Components

1-3: SERVICES 6 S. No.Components 1.Physical 2.Social 3.Financial 4.Intellectual Components

2: C ONSTITUTION OF P AKISTAN 1973: E CONOMIC M ATTERS 7 ArticleEmphasis 03Exploitation: Eliminate 18Freedom: Trade, Business or Profession 37Promotion: Social Justice and Elimination of Social Evils 38Well Being: Social and Economic of People

3: F EDERAL B UDGET : MASTER CHART (F EDERAL B UDGET ) ParticularsRs. b% N EEDED 1. Current Expenditure2, ADP: A VAILABLE 3, Net Federal Revenue1,77551 S HORTFALL 1,428*49 3, F INANCING P ATTERN 1.Capital Receipts (Net) Bank Borrowings External Receipts Estimated Provincial Surplus8005 1,428*100

3-1: FEDERAL REVENUE BUDGET: F EDERAL R EVENUE B UDGET ParticularsRs. b% C URRENT R EVENUE 1. Indirect Taxes1,572*49 CompositionRs.b% Sales Tax 1,07769 Custom Duties24815 Federal Excise12508 Others (Plus Petroleum Levy) ,572* Direct Taxes , Non-Tax Revenue ,234100

3-1: FEDERAL REVENUE BUDGET: Rs. B% 4. Less: Transfer to Provinces1,459 Net Federal Revenue1,775 C URRENT E XPENDITURE 1. Debt Servicing1, Defence Affairs & Services Cost of Running Govt Grants & Transfer to Provinces Subsidies , Less: Deficit in Revenue Budget837 1,775

3-2: F EDERAL A NNUAL D EVELOPMENT P LAN A NNUAL D EVELOPMENT P LAN ParticularsRs. b% D EVELOPMENT E XPENDITURE 1. Federal Govt: Departments (rs. 207b), Corporations (Rs. 80b) Special Programs (Rs. 27b) Special Areas (Rs. 36b) and ERRA* Rs. (10b) Other Developments Expenditure Provincial Governments *Earthquake Rehabilitation & Reconstruction Authority

3-2: F EDERAL A NNUAL D EVELOPMENT P LAN F INANCING P ATTERN Rs.b% 1. Bank Borrowings External Receipts Estimated Provincial surplus Net Internal Resources(359)*(61)

3-2: F EDERAL A NNUAL D EVELOPMENT P LAN B REAK UP OF I NTERNAL R ESOURCES Rs. b 1. Deficit in Revenue Budget for Less: Net Capital Receipts (478) (359)*

3-3: P ROVINCIAL A LLOCATION : 7 TH N ATIONAL F INANCIAL A WARD 14 ProvinceAllocated % Population* % Punjab Sindh KPK Balochistan *Based on Population Census of 1997.

4: PAKISTAN: ECONOMIC CHALLENGES: A: Economy Challenges Business Environment: Deteriorating 2.Foreign Investment: Declining 3.Exchange Rate: Depreciating 4.Inflationary Pressure: Building Up 5.Foreign Exchange Reserves: Depleting 6.Industrialists relocating their Industries Abroad 7.Electricity and Gas Shortages: Aggravating 8.Relations with International Financial Institutions Including IMF: Deteriorating 9.Exports Growth: Turning Negative 10.Mysterious Growth in Remittances: Continuing 11.Economy Remaining the off radar Screen of the Government

4: PAKISTAN: ECONOMIC CHALLENGES: B: Measures with Question Mark 7 th NFC Award 1.New NFC Award diverted bulk of Federal Government Resources to Provinces at a time when they were needed more: a.To Finance Growing Interest Payment b.Security Related Expenditure c.Bailing out of PEs with losses d.Paying WAPDA/PEPCO to Finance their Inefficiencies 2.Tax System: Failure to Reform Taxation System and Broadening Tax Base to Generate more Tax Revenues.

4: PAKISTAN: ECONOMIC CHALLENGES: B: Measures with Question Mark 3.Petroleum Products These are doubly taxed: a.Exchange rate depreciation has increased the landed cost of oil. b.Petroleum Development Levy (PDL) is levied on Inflated basis to mobilize more resources.

4: PAKISTAN: ECONOMIC CHALLENGES C: 2013 Outlook Outlook for 2013 is Likely to Further Deteriorate. 1.Political uncertainty with adverse consequences on the economy. 2.Fiscal indiscipline hallmark of the Government during election year. 3.Mobilization through taxation will take the back seat. 4.Reliance on Non-Tax Revenues would increase further. 5.Expenditure is expected to rise further with budget deficit likely to be in the range of 6% 6.5% of GDP. 6.Economy will remain out of focus of the political leadership. 7.Energy shortage (electricity and gas) to aggravate further. 8.Politics is likely to dominate economics.

4: PAKISTAN: ECONOMIC CHALLENGES: D: Expected Trends GDP Trend:3-4% 2. Domestic Investment:Not expected to Pick up 3. Unemployment and Poverty are likely to rise further 4. Inflationary pressure to rise on account of senseless increase in government administered prices 5. External balance of payments to come under pressure due to following: a. Flat, even negative export growth b. Search in payment to the IMF c. FDI to witness a sharp decline d Sharp depreciation of exchange rate e. Public debt is likely to worsen on account of large fiscal deficit.

4: PAKISTAN: ECONOMIC CHALLENGES: E: Consequences 1.National Security at Stake 2.Miss-Governance to Continue 3.In Search of a Direction

5: ECONOMIC MANAGEMENT MATRIX 21 Economic Dimension Management Dimension Consumption ProductionExchangeDistributionPublic Finance Planning Organizing Staffing Leading Controlling

6: FISCAL POLICY 22 1.Objectives a.Full Employment b.Resource Mobilization c.Resource Allocation d.Maintenance of Economic Stability e.Income Re-Distribution 2.Canons of Taxation: Adam Smith a.Equity b.Certainty c.Convenience d.Economy 3.Other Canons a.Flexibility b.Situation

6: FISCAL POLICY 23 4.Income Tax Rates Individuals - Non-Salaried - 5 brackets (10% %) - Salaried – 5 brackets (5.0% %) - Exempt upto Rs. 4 Lac 2.Companies - Public, Private& Banking Companies35% - Small companies 25% 3.Dividend received by all tax payers 10% and 20% on banking company from its assets management company 4.Property income - Rs. 150,000 exempt - Rates 5% % 5.Capital gains -With holding period less than six months10% -More than six month but less than 12 months8%

7: SUGGESTED CHARTER OF ECONOMY 1.Domestic Resource Mobilization 2.Income Tax by All 3.Self Reliance for Financing 4.ADP Financing 5.Provincial Govt Budgets 6.Public Enterprises Losses 7.Good Governance & Corporate Governance 8.Inflationary Impact: Salary increase 9.CBA----PSA 10.NPLs 11.Professionals Role 12.Holistic approach to Economic Development with equitable distribution of wealth and income across the board 24