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0 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 21 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