11 September, 2015 Macro Economic Aspects of the Budget Syed Masoud Ali Naqvi Southern Regional Committee The Institute of Chartered Accountants of Pakistan Friday, 10 th June 2011 Convention Centre, Defence Authority Country & Golf Club, Karachi.

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 (Rupees in Billions) REVENUE Budget Estimate % Revised Estimate % Budget Estimate % Tax Revenue Direct Taxes Income tax Others Indirect Taxes Customs Sales tax Federal excise Petroleum Levy Others , , , Total Tax Revenue:1, , , Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 211 September, 2015 (Rupees in Billions) REVENUE Budget Estimate % Revised Estimate % Budget Estimate % Total Tax Revenue B/f : 1, ,074.2 Non Tax Revenue , , , Less Provincial Share1, , , , , Net Capital Receipts External Receipts Change in Provincial cash balance Bank Borrowings TOTAL REVENUE :2, , , Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 311 September, 2015 (Rupees in Billions) EXPENDITURE Budget Estimate % Revised Estimate % Budget Estimate % Current Expenditure General Public Services Debt Servicing , Grants & transfers Superannuation and pensions Subsidies Others , , , Defence Affairs & Services Economic Affairs Public Order and Safety Affairs Education Affairs & Services Others , , , Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 (Rupees in Billions) EXPENDITURE Budget Estimate % Revised Estimate % Budget Estimate % Total Expenditure B/f : 1,997.92,296.02,314.9 Development Expenditure PSDP Others TOTAL EXPENDITURE :2, , , Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 511 September, 2015 Macro-Economic Aspect of the Budget Revenue Tax Revenue Direct(-)31 Indirect(-) Non-Tax Revenue(-)76 Total Revenue : 176 Provincial share reduced(+)37 Net impact on revenue(-)139 Capital Receipts(+)134 Change in Provincial balance(-)47 Net impact on Total revenue(-)52 (Rupees in Billions)

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 611 September, 2015 Macro-Economic Aspect of the Budget (Rupees in Billions) Expenditure Current Subsidy(+)268 Others(+)30 Development(-)161 Net impact on Expenditure(+)137 Overall impact189 Shortfall in External Receipts(-)97 Overall Shortfall represented by : Increase in Bank borrowings286

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 711 September, 2015 Protect the economic recovery by reinforcing the fiscal austerity.  Check inflation and restrict borrowings from the State Bank.  Reform and enhance social protection regime by innovative schemes, better targeting of the subsidies for the needy and eliminating waste.  Achieve a measure of self reliance through better domestic resource mobilization and to reduce reliance on borrowings. KEY OBJECTIVES Reduce the burden of public sector enterprise. Generate employment opportunities. Make country fertile for investment by improving governance & markets and emphasizing on productivity & efficiency. Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 811 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 911 September, 2015 Further reduction Fiscal Deficit from 5.5% to 4%. Reduction of inflation to single digit from 15.5% to 12%. Develop a broad equitable and stable Revenue Mobilization system. Maintaining and further developing safety nets. BISF Rs.35 Mill. to Rs.50 Mill. (65M) Focus on PSDP on infra- structure and Human Resource Development. Rs Bill. to Rs.452 Bill. Restructuring of Loss incurring PSE. Progressive elimination of untargeted subsidies. KEY OBJECTIVES FOR THE BUDGET Reduction of Public Debt to sustainable level.  Impact of Budget on Economy

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget Variance in Receipts over Net Capital Receipts - 63 Income Tax+117Charge to previous Balance + 5 Customs+33Net impact on Total Revenue Sales Tax+182 Variance in Expenditure over Federal Excise Duty+33Current Expenditure Petroleum Levy+30 Subsidies Others+248 Non-Tax Revenue+102Development Provincial Share+206Overall impact + 25 Net impact on Revenue+291Increase in External Receipts Reduction in Bank Borrowings - 149

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget Increase in Poverty   Continued Power Crisis   Security situation and war against terrorism   High inflation   Social Distortions   Low domestic resource mobilization Low and declining productivity Lower growth Inadequate investments and savings rate Reduction in FDIs

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget Increasing reliance on external and domestic borrowings – sustainability Struggle with macro-economic stabilization due to unsustainable fiscal policies Legacy of Economic Distortions Pressure of Demography Ailing Public sector Enterprises External shocks on natural disasters Earthquake, Floods, High Petroleum prices, high commodity prices

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget 1)Diagnosis of coverage, quality and efficiency 2)Assessment of long-term targets for physical infra- structure 3)Institutional mechanism for improved services delivery 4)Financing arrangements 5)Cost of doing business

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget Organization of institutions Incentives Markets Cities and Countries in line with global experience Innovation in use of resources and assets to generate greater productivity Policies to manage resources that align with global standards and best practices Innovation and entrepreneurship at all levels in all sectors and in all regions

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget Pakistan has no choice but to move in this new direction because the traditional growth model with its emphasis on public investment and government involvement in economic activity has not yielded the high growth rates the country needs to absorb the expanding young labour force. Furthermore, the government faces domestic and foreign financing constraints and it simply cannot afford any longer to undertake large-scale capital expenditures. If adopted, the New Growth Framework has the potential to transform the Pakistan economy into one that can compete effectively with the other high-growth developing economies of the world. --- Dr. Mohsin S. Khan, Former Director, IMF

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 THANK YOU !

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© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 Macro-Economic Aspect of the Budget Sectoral Contribution to the GDP growth (% Points) Overall GDP Agriculture Industry Services

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 Macro-Economic Aspect of the Budget Components of Inflation

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 Macro-Economic Aspect of the Budget Subsidies ( ) Budget Revised Estimates Budget Current WAPDA KESC34725 TCP (Wheat & Sugar)17 4 USC442 Oil Refineries / OMC / Others11 8 Others7214 TOTAL SUBSIDIES:

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 411 September, 2015 Macro-Economic Aspect of the Budget Trends in Public Debt

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget BMI RatingsRankPakistanEmerging Markets AverageGlobal AverageRegional Average ST Political LT Political ST Economy LT Economy Business Environment Business and Operational Risk ratings Infrastructure Institutions Market Orientation Investor Protection Rule of Law Contract Enforceability Corruption Trade Rating Protectionism Bureaucracy

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget

© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. 111 September, 2015 Macro-Economic Aspect of the Budget Shortfall in External Resources External Loans(-)32 External Grants(-)65 Overall Shortfall(-)97 External LoansExternal Grants Project Loans(+)30Tokyo Pledge(-)23 Program Loans(-)41Kenya Long(-)41 Tokyo Pledge(-)45Others(-)1 IDB(-)43 IMF(+)69 Others(-)2 32(-)65 (Rupees in Billions)