1. 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.

2. © 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 2010-11 % Revised Estimate 2010-11 % Budget Estimate 2011-12 % Tax Revenue Direct Taxes Income tax633.0 26.1 602.5 23.5 718.6 26.0 Others24.7 1.0 24.4 1.0 25.0 0.9 657.7 27.1 626.9 24.5 743.6 26.9 Indirect Taxes Customs180.8 7.5 173.3 6.8 206.4 7.5 Sales tax674.9 27.9 654.6 25.6 836.7 30.2 Federal excise153.6 6.3 132.9 5.2 165.6 6.0 Petroleum Levy110.0 4.5 90.0 3.5 120.0 4.3 Others1.7 0.1 1.7 0.1 1.9 0.1 1,121.0 46.3 1,052.5 41.2 1,330.6 48.1 Total Tax Revenue:1,778.7 73.4 1,679.4 65.7 2,074.2 75.0 Macro-Economic Aspect of the Budget

3. © 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 2010-11 % Revised Estimate 2010-11 % Budget Estimate 2011-12 % Total Tax Revenue B/f : 1,778.71679.42,074.2 Non Tax Revenue632.3 26.1 556.5 21.7 658.5 23.8 2,411.0 99.5 2,235.9 87.4 2,732.2 98.8 Less Provincial Share1,033.6 42.7 997.7 39.0 1,203.3 43.5 1,377.4 56.8 1,238.2 48.4 1,528.9 55.3 Net Capital Receipts325.4 13.4 459.4 17.9 395.7 14.3 External Receipts386.6 16.0 289.8 11.3 413.9 14.9 Change in Provincial cash balance166.9 6.9 119.8 4.7 124.9 4.5 Bank Borrowings166.5 6.9 452.2 17.7 303.5 11.0 TOTAL REVENUE :2,422.8 100. 0 2,559.4 100. 0 2,766.9 100. 0 Macro-Economic Aspect of the Budget

4. © 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 2010-11 % Revised Estimate 2010-11 % Budget Estimate 2011-12 % Current Expenditure General Public Services Debt Servicing873.0 36.0 855.5 33.4 1,034.2 37.4 Grants & transfers227.2 9.4 300.0 11.7 295.0 10.7 Superannuation and pensions90.7 3.7 92.9 3.6 96.1 3.4 Subsidies126.6 5.2 395.8 15.5 166.4 6.0 Others70.2 2.9 11.4 0.4 68.3 2.5 1,387.7 57.2 1,655.6 64.6 1,660.0 60.0 Defence Affairs & Services 442.2 18.3 444.6 17.4 495.2 17.9 Economic Affairs66.9 2.8 80.0 3.1 50.3 1.8 Public Order and Safety Affairs51.3 2.1 58.7 2.3 59.6 2.2 Education Affairs & Services34.5 1.4 40.3 1.6 39.5 104 Others15.3 0.6 16.8 0.7 10.3 0.4 1,997.9 82.4 2,296.0 89.7 2,314.9 83.7 Macro-Economic Aspect of the Budget

5. © 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 2010-11 % Revised Estimate 2010-11 % Budget Estimate 2011-12 % Total Expenditure B/f : 1,997.92,296.02,314.9 Development Expenditure PSDP321.4 13.3 217.9 8.5 355.0 12.8 Others103.5 4.3 45.5 1.8 97.0 3.5 424.9 17.6 263.4 10.3 452.0 16.3 TOTAL EXPENDITURE :2,422.8 100.0 2,559.4 100.0 2,766.9 100.0 Macro-Economic Aspect of the Budget

6. © 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(-)69 100 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)

7. © 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

8. © 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

9. © 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

10. © 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.263.4 Bill. to Rs.452 Bill. Restructuring of Loss incurring PSE. Progressive elimination of untargeted subsidies. KEY OBJECTIVES FOR THE BUDGET 2011-12 Reduction of Public Debt to sustainable level.  Impact of Budget on Economy

11. © 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. 1011 September, 2015 Macro-Economic Aspect of the Budget Variance in Receipts over 2010-11 Net Capital Receipts - 63 Income Tax+117Charge to previous Balance + 5 Customs+33Net impact on Total Revenue + 233 Sales Tax+182 Variance in Expenditure over 2010-11 Federal Excise Duty+33Current Expenditure Petroleum Levy+30 Subsidies - 229 +395 Others+248 Non-Tax Revenue+102Development+189 +497 + 208 Provincial Share+206Overall impact + 25 Net impact on Revenue+291Increase in External Receipts + 124 Reduction in Bank Borrowings - 149

12. © 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. 1111 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

13. © 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. 1211 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

14. © 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. 1311 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

15. © 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. 1411 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

16. © 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. 1511 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

17. © 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. 1611 September, 2015 Macro-Economic Aspect of the Budget

18. © 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 !

19. © 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 Presenter’s contact details SYED MASOUD ALI NAQVI Country Senior Partner KPMG Taseer Hadi & Co. +92 (21) 3568 5847 mnaqvi@kpmg.comwww.kpmg.com.pk

20. © 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) 2006-072007-082008-092009-102010-11 Overall GDP6.813.691.723.76 2.39 Agriculture0.920.230.860.13 0.26 Industry2.280.38-0.032.09 -0.02 Services3.613.080.891.54 2.15

21. © 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

22. © 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 (2010-11) Budget 2010-11 Revised Estimates 2010-11 Budget 2011-12 Current WAPDA84296123 KESC34725 TCP (Wheat & Sugar)17 4 USC442 Oil Refineries / OMC / Others11 8 Others7214 TOTAL SUBSIDIES:126396166

23. © 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

24. © 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

25. © 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 Political2140.664.666.9 72.6 LT Political1852.760.3 63.862.1 ST Economy1751.253.0 54.462.5 LT Economy1942.350.1 52.358.1 Business Environment1536.740.6 45.045.1 Business and Operational Risk ratings36.740.645.045.1 Infrastructure35.5-47.3949.0 Institutions32.9-47.4647.56 Market Orientation41.7-48.6552.31 Investor Protection46.5-36.843.0 Rule of Law15.1-48.851.4 Contract Enforceability35.7-49.950.0 Corruption14.1-40.250.0 Trade Rating Protectionism16.3-47.143.5 Bureaucracy42.9-45.247.4

26. © 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

27. © 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

28. © 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

29. © 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

30. © 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

31. © 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)