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Decentralization Initiatives in Pakistan
Sharing of Experience
Presentation
for
Asia-Pacific and Latin-America Interregional Forum on
Managing for Results Decentralization and the Changing Role
of Central Finance Agencies
Manila, Philippines
November 28-29, 2012
Sequence of Presentation
 Decentralization – Pakistan Context
 Devolution of Political Power
 Devolution of Economic Power
 Decentralization to Line Ministries
 Delegated Structure of PFM
 Medium-Term Budgetary Framework
 Output Based Budgeting
 Looking Forward
Decentralization – Pakistan Context
 Transferring decision-making governance closer to the
people - Devolution of Political Power
 Transferring decision-making governance closer to the
people - Devolution of Economic Power
 Decentralization of operations to line ministries to ensure effective
implementation of government policies
 Delegation of Power to Lower Levels of Administration
Devolution of Political Power
Devolution in Pakistan – 2000
 There are three tiers of the government in Pakistan:
Federal – Provincial - Local governments
 Under Devolution of Power Plan, LGs at district and sub-districts levels
 Each LG had its mayor and deputy mayor, elected council and
administration
 The System was objected by the provinces having been bypassed
 The Initiative was blamed serving to strengthen military's power in
local politics at the cost of democratic forces
 The System could not take roots due to said controversies
Devolution of Political Power
Devolution in Pakistan – 2000
Recommendations forwarded to improve the System
 Consensus by the Political Forces
 Political Acceptance by the provincial governments
 Local government elections on party basis
 Refraining from imposing political discipline on local officials
and misusing them for political ends
 Greater control over budgetary resources
Devolution of Political Power
18th Amendments - April 2010
Strengthen Federalism: Empowerment of Provinces
 Concurrent List abolished where FG had overriding authority
 Concurrent List : provinces had semblance of ownership, FG
“leadership”
 Federal List 67 and Concurrent List 47 subjects before the
18th Amendment
 18 Ministries were devolved to Provinces
 Council of Common Interests strengthened & domain
expanded from 8 to 18 Subjects
Devolution of Economic Power
 The Constitution provides a mechanism for transfer of
resources from the divisible pool to the provinces – through
‘National Finance Commission’ (NFC)
 The Local Government Ordinance of 2001 requires provinces to
have ‘Provincial Finance Commission’ (PFC) to distribute
resources from divisible pool to local governments
Devolution of Economic Power
7th NFC Award -2010
 Provincial share in the divisible pool enhanced from 45% in 2009-10
to 57.5% in 2011-12
 Moved away from population as the sole basis for distribution of
resources
–
–
–
–
Population:
Poverty/backwardness:
Revenue collection/generation:
Inverse population density:
82.0%
10.3%
5.0%
2.7%
 Increased share of Balochistan to 9.09 percent from 5.11%
 70% of the divisible pool to the Provinces and Special Areas which
reflects greater financial empowerment of the Provinces other areas
 Compensation in lieu of Octroi and Zilla Tax
 GDS is being transferred to the province ()
 The NHP to respective Provinces by FG instead of WAPDA
Decentralization to Line Ministries
to ensure effective implementation
of Government Policies
And
Impact on Central Finance Agencies
9
Delegated Structure of PFM
Minister
Minister of
State
Finance
Division
Federal Board
of Revenue
Planning &
Development
Division
Economic
Affairs Division
Attached Departments
Other organizations (e.g. public entities)
Statistics
Division
Budget Making Process
11
Paradigm Shift in Budget Making
12

Federal Govt prepares budget as per the MTBF

In February 2009, the Cabinet approved full-rollout of
MTBF across all the Ministries in Federal Govt

Since 2009, MTBF is fully operational

The budget making process under MTBF has been
made more strategic, informed and consultative

MTBF is leading to Results based Budgeting
MTBF Paradigm
13
Traditional
MTBF
Annual Focus
Medium Term Focus
Ignores economic forecast
Based on economic
forecast
Incremental
Strategic
Dominated by Finance
Ministry empowerment
Limited ownership
Joint ownership
Concentration on inputs
(resources)
Concentration on outputs
(services)
Reactive & unpredictable
Proactive & predictable
Medium-Term Budgetary Framework
The MTBF project has two major complementary components
• Strategic ‘top-down’ component sets the overall fiscal
•
framework and provides guidance in the form of indicative
budget ceilings for each ministry.
‘Bottom-up’ component, supports line ministries to allocate
resources to their strategic priorities within the given ceilings.
It focuses on line ministries
• Implementation is led by Budget Wing. Technical support is
provided by a team of consultants
14
MTBF Objectives
Medium Term Budgetary Framework is an approach to
budgeting which focuses the budget around achieving the
government’s medium term goals
MTBF supports the three objectives of public financial
management:
15

Fiscal discipline (ability of government to live within
available resources)

Strategic prioritisation (budget preparation in
accordance with priorities)

Operational efficiency (strengthening budget
management by ministries)
MTBF Focus
Output Based Budgeting
16

The budget prepared now focuses on outcomes and
outputs in addition to inputs

Output based budgeting is a system through which Govt
can enhance its efficiency, effectiveness and economy
Output Based Budgeting
17
STEP BY STEP PROCESS OF BUDGET MAKING
18
?
Macro-Working Group:
October
December
November
1. Chair: EA
Cabinet Sub-Committee:
2. Chief Economist
1. Finance Minister
3. 2 Members from
2. ? Deputy Chairman PC
Approve BSP
Finance (SS,
3.I Governor SBP
BSP-Working Group: 2
AFS(B))
4. 2/3 Key Cabinet Ministers
1.Chair: AFS(B)
4. Reps from: PC,
nominated by the PM
2.Key members from
SBP, FBR, EAD,
5. Head of EAD
Review and
FD, PC, EAD, Prime
Approve BSP I ?
FBS
6. FS, PS
Minister’s office2
7. Provincial FMs / CSs
Discuss BSP I
START
Finance
invited
to sit in
?
Secretaries /
1c
Develop MTFF
Macro-Working
1a Group
Prepare BSP I
BSP-Working
Group
1b
Review BSP I
Finance Secretary
and Planning
1c Secretary
Strategic Reviews
Senior Management
4a
Ministers
3
Discussion Points
January
Issue MTBF
Budget Call
Circular and
Indicative
Ceilings
Identify Outputs,
Finalise Internal
Allocations
Senior
4b Management
Forward
MTBF BCC
and Ceilings
Budget, P&D
4c Sections
Compile,
Review &
Approve
4e Upto PAO
Fill Budget Call Circular
SU Forms
DDOs / Head
4d
?
1
February
March
Priorities Committee
1. Joint Chair: FD, PC
2. Additional Secretary level
chair?
3. PAO / Secretary for
presentation
4. Relevant members of PC
(Sector Chiefs), FD
(Budget wing, FAO)
April
May
Budget
Policy
Statement
11
?
June
Appropriate
Approve
BSP2, BPS
8
Review and
Approve
BSP II, BPS
8
Rec + Dev
Review &
Comment on
Additional Bids
Financial
4f Advisors
Rec + Dev
Review
Chiefs /
Members
4f
1
Rec + Dev
Review budget
estimates and
Approve &
Prioritise
Additional Bids
Priorities
5 Committee
?
Update MTFF
MacroWorking
Group
7a
Submit
Additional Bids
Principal
Accounting
Officer
6
Update &
Discuss BSP
II, Prepare
Budget
Policy
Statement
BSP-Working
7b Group
Discuss BSP II, BPS
Finance Secretaries /
Ministers
7c
Review BSP II
FS and PS
7c
Consolidate BO/NIS
Format and Prepare
Budget Books
14
Issue
Modified
Ceilings
9
?
Review &
Review &
Approve
Approve
APCC
NEC
12
12
Rec + Dev (Fed +
Prov)
Complete and Submit SU forms
1-3
Ministry Mgt
10
Complete and
Submit ‘Green
Book’
13
PAO
Review, Approve
& Submit to
Parliament
14
FM
Two Main Components
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Two Main Components
Developed by more than 10
Organisations
Approved by Cabinet
Macroeconomic forecasts
Fiscal Policy, Revenue &
Expenditure Policies
Debt Sustainability
Reforms Agenda
22
Two Main Components
Budget by Goals, Outcomes,
Outputs, Inputs
Key Performance Indicators
Tabled at Parliament
Entire Federal Govt
Forms basis of Govt wide
Monitoring
Moving towards ‘Programmatic’
approach
23
Looking Forward
•
•
•
•
•
•
•
Public Finance Administration Act
Linkages with PIFRA system are underway
MTBF linkages with Results Based Management
Monitoring of performance is being contemplated
Improved interaction with Parliamentarians
Contributory Pension Fund
Automation of Budgetary Process
24
Thank You
Important Components of Federal Budget
Actual
2011-12
1,969
1,881
456
2,424
-1,090
1,334
Budget
2012-13
2,535
2,381
699
3,234
-1,459
1,775
Expenditure:
Interest
Defence
Pensions
Federal Govt Service Delivery
Subsidies
Grants to Provinces
Grants - Other than to Provinces
PSDP
Net Lending etc.
2,664
889
507
140
227
166
55
293
317
70
2,960
926
545
145
259
237
57
382
360
50
Federal Fiscal Deficit
Provincial Deficit / Surplus
-1,330
-39
-1,185
80
Consolidated Fiscal Deficit
as % of GDP
-1,369
-6.6*
-1,105
-4.7
Rs in Million
Tax Revenue
of which; FBR Tax
Non-Tax Revenue
Gross Revenues
Transfer to Provinces (NFC Award)
Net Revenue available to Fed Govt.
* Excludes one off arrears
26
Budget Strategy
27

Consolidating Macroeconomic Stability

Acceleration of growth and employment

Continue to bring inflation down

Continued fiscal austerity

Targeted social protection

Special programmes for balancing regional development
Budget Strategy

Continue mobilizing domestic resources -tax policy and
administration reform by:





28
broadening the tax base
simplification of tax rules
predictable and transparent taxes
elimination of discriminatory tax
exemptions
Accelerating restructuring process of PSEs
Budget Strategy
29

Tariff Rationalization

Working with Provinces for better financial discipline

PSDP: Energy sector and infrastructure development
remain the focus

Focus on completion of projects

Result Based Management and selecting 3 pilot Ministries
including FBR and Power Sector
Budget Strategy
30

Expenditure review and rationalization of each Ministry

Review of pay structures for removing distortions

Monetizing non-wage allowances further

Rationalizing commodity operation

Making Pension Fund for the benefits of new employees

Offering shares of profitable PSEs to benefit general public
through stock market

Public Private Partnerships for improving PSEs
performance
Economic Forecast
Actual
Budget
Projections
2011-12
2012-13
2013-14
2014-15
GDP Growth (%)
3.7
4.3
4.8
5.3
Inflation (%)
11.0
9.5
8.5
8.0
Budget Deficit (% of GDP)
6.6 *
4.7
4.2
3.7
Public Debt (% of GDP)
60.0
56.5
53.2
50.6
* Excludes one off arrears
31
What next?
•
•
•
•
•
•
•
Federal Government is also working on a Public Finance
Administration Act
Linkages with PIFRA system are underway
MTBF linkages with Results Based Management is being
debated
Monitoring of performance is being contemplated
Improved interaction with Parliamentarians
Contributory Pension Fund
Automation of Budgetary Process
32
Thank You