What is the budget of a country?

A country's budget is a plan that outlines all the income and expenses for a specific period

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A country’s budget is the plan in which all the incomes and expenditures of a particular period is represented.

What is the concept of budget? A budget is a financial plan that accounts for income and expenditures. Essentially, it’s an estimation of the money you will earn and spend over a designated period, such as a month or a year.
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What are the three types of government budgets? According to the government, there are three types of budgets:

– Balanced budget
– Surplus budget
– Deficit budget

A government budget is an annual financial statement that outlines the projected government receipts and expenditures for the upcoming fiscal year. Depending on the accuracy of these projections, budgets can be categorized into three types: balanced, surplus, and deficit budgets. Here is a brief overview of each type:

  • Balanced Budget: When estimated receipts equal estimated expenditures.
  • Surplus Budget: When estimated receipts exceed estimated expenditures.
  • Deficit Budget: When estimated expenditures exceed estimated receipts.

Balanced Budget

A balanced budget occurs when the government’s planned spending for the year matches its expected income. This idea, supported by many traditional economists, is based on the principle of “living within your means.” They believe that the government should not spend more than it earns.

Merits of a Balanced Budget

– Promotes economic stability when successfully implemented.

– Prevents the government from making reckless expenditures.

Demerits of a Balanced Budget

– Not feasible during a recession and doesn’t address issues like unemployment.

– Not suitable for less developed countries.

Surplus Budget

A surplus budget occurs when the government’s expected revenues exceed its planned expenditures for a given financial year. This means the government earns more from taxes than it spends on public welfare. Such a budget indicates a country’s financial health. It can be used during times of inflation to decrease overall demand.

Deficit Budget

A deficit budget happens when the government’s estimated spending exceeds its expected revenue for a financial year. This type of budget is ideal for developing economies like India. It is particularly useful during a recession, as it helps create additional demand and stimulates economic growth. The government spends more to improve employment rates, increasing demand for goods and services and helping to revive the economy. The government funds this extra spending through public borrowing (by issuing government bonds) or by using its reserve surplus.

Merits of a Deficit Budget

-Addresses Public Concerns: Helps tackle issues like unemployment during economic recessions.
– Public Welfare: Allows the government to invest in public welfare programs.

Demerits of a Deficit Budget

– Encourages Imprudent Spending: May lead to reckless government expenditures.
– Debt Accumulation: Increases the government’s debt burden.

In Pakistan
In Pakistan, a budget represents the government’s fiscal blueprint detailing its suggested spending and the methods to fund them over a fiscal year running from July 1 to June 30. It acts as a strategic paper delineating the government’s focal points and goals, and is annually presented in the parliament by the federal government, with subsequent presentations by each provincial government in their respective assemblies.
The Process of Budget?

Budgeting Process in Pakistan: Six Stages
1. Setting Priorities:
– National and provincial cabinets decide on budget priorities, policies, and initiatives.

2. Preparation Phase:
– Spending departments create and submit expenditure estimates to the Ministry of Finance for review and consolidation.

3. Authorization Stage:
– Annual Budget Statement (ABS) is presented to the assembly for approval.
– The Prime Minister and Chief Ministers authenticate the budget after debate and discussion.
– The approved budget, known as ‘Schedule of Authorized Expenditure’ (SAE), is sent to the president/governor for final approval.

4. Execution Phase:
– Ministry of Finance communicates budgets to spending ministries and departments.
– Spending departments can carry out planned activities within authorized limits.

5. Monitoring and Reporting:
– Spending departments report actual expenditure and revenue to monitor progress against budget allocations throughout the fiscal year.
– Expenditure is recorded by the accountant general’s office.

6. Periodic Review:
– Financial performance and policy objectives achievement are reviewed by spending departments.
– Audit reviews are conducted by the auditor general’s office and Public Accounts Committee.
– Standing committees of national and provincial assemblies review ministry expenditures within their jurisdiction.

Annual Budget Statement (ABS)

The Annual Budget Statement (ABS) is a crucial document outlining the financial plan for the upcoming fiscal year. It details both “charged expenditures” and “voted expenditures,” along with receipts and demand-wise summaries. Following its presentation, the national assembly (NA) debates the ABS, with further review by the Standing Committee on Finance, Revenue, and Economic Affairs. The NA then passes the Finance Bill, part of the ABS. This bill undergoes scrutiny in the Senate, where changes may be proposed. If approved by both houses and signed by the President, the Finance Bill becomes law, and the budget is enacted.

Federal Consolidated Fund (FCF)

The Federal Consolidated Fund (FCF) is a fund managed by the federal government, comprising all revenues received, such as taxes and fees. All federal expenses, including debt payments and salaries, are covered by this fund. Regulated by the Constitution of Pakistan, it falls under the scrutiny of the federal parliament.

Two Categories of ABS

The Annual Budget Statement (ABS) categorizes expenditures into two types: voted and charged. Voted expenditure is discretionary and requires approval from the National Assembly (NA) during the budget process. If funds are insufficient, voted expenditure may be reduced or rejected. Examples include development projects, defense, and subsidies. Charged expenditure, on the other hand, is mandatory and drawn from the Federal Consolidated Fund (FCF) without NA approval. These expenses, predetermined by the Constitution, cover salaries and allowances of key officials. Unlike voted expenditure, charged expenditure cannot be altered and is not subject to NA approval.

Comparing Budgeting Processes

In the National Assembly (NA), budget-making leans heavily towards the Executive and federal bureaucracy. Rooted in colonial governance and Pakistan’s parliamentary democracy, this trend reflects a historical imbalance where the Executive holds greater sway than the legislature.

Unlike presidential systems like the United States, parliamentary democracies exhibit a less distinct separation of powers between the Executive and the legislature. Here, the Executive is accountable to and reliant on the legislature, fostering a closer collaboration between the two branches.

As a consequence, budgeting becomes predominantly Executive-driven, diverging from the classical Hamiltonian division where the legislature controls spending.

In British parliamentary tradition, a government’s failure to pass a budget bill signals a loss of confidence in the House, illustrating the intertwined relationship between the Executive and legislature.

Despite these differences, both parliamentary and presidential systems share similar fundamental processes. However, the role of parliamentary committees, as evident in models from the UK and the US, is pivotal in scrutinizing financial demands and expenditures.

In the US, the budget-making process involves various stages, from the Office of Management and Budget (OMB) preparing the budget to Congress’s review and approval. Committees in both the House and Senate play crucial roles in setting spending priorities and drafting spending bills.

Likewise, in the UK, the Chancellor of the Exchequer presents the budget to the House of Commons, scrutinized by the Treasury Committee before being debated and voted on.

In essence, while the mechanisms may differ, parliamentary committees serve as essential watchdogs in both systems, ensuring fiscal responsibility and oversight.

Challenges in Pakistan’s Budget Process

Despite theoretical similarities, Pakistan’s budget-making process is heavily skewed towards Executive dominance, leaving scant space for meaningful parliamentary engagement. Several formal and informal constraints hinder parliamentarians’ active participation.

Formal constitutional barriers, notably Article 63-A, threaten disqualification of members who deviate from their party’s stance on money bills. This provision severely curtails individual parliamentarians’ autonomy, effectively consolidating power within party heads’ hands.

Moreover, inadequate time allocated for parliamentary and provincial assemblies to review the budget exacerbates the issue. With just a few days often allotted, understanding and analyzing budget proposals become arduous tasks for lawmakers, hindering robust scrutiny and public feedback.

The Supreme Court ruling on Article 63-A further diminishes parliamentarians’ influence, eliminating room for dissent or negotiation. Now, any deviation from party directives not only risks disqualification but also renders their votes invalid, cementing party leaders’ control over the budget process and money bills.

Reforming the Budget Process

Amidst the current economic turmoil, urgent reforms are imperative for the budget-making process. Empowering parliamentary committees, notably the Finance Committee, to rigorously scrutinize financial demands and expenditures is paramount.

Introducing ex-ante scrutiny measures would compel the Executive to seek parliamentary approval before authorizing financial expenditure, enhancing transparency and accountability.

Amending Article 84, which governs supplementary grants, is crucial to restrict their scope. The current provision grants unchecked authority to the federal government, enabling it to bypass the budget process entirely.

Heightened parliamentary scrutiny in deciding the approval of supplementary grants is necessary to eliminate unnecessary expenses and ensure fiscal prudence. These reforms are essential for restoring public trust and ensuring effective governance amidst economic challenges.

Promoting Citizen Engagement: The Case for Participatory Budgeting

To enhance the effectiveness of reforms, active involvement of the Pakistani populace in decision-making is essential. One innovative approach is Participatory Budgeting (PB), a democratic process empowering citizens to directly influence the allocation of public funds to various projects and programs.

PB fosters transparency, accountability, and citizen engagement, epitomizing a shift towards inclusive governance. While predominantly practiced in developed nations, its adoption is steadily gaining traction in developing countries like Pakistan, albeit with inherent challenges.

Low levels of civic engagement and political awareness pose significant hurdles, as citizens often lack the requisite knowledge and skills for meaningful participation. Addressing this requires comprehensive efforts to educate citizens on the budgeting process and the significance of their involvement.

Inadequate institutional capacity further complicates implementation, with weak governance structures hindering effective execution. Strengthening the capacity of local governments, civil society organizations, and stakeholders is imperative for successful PB implementation.

Moreover, marginalized groups and minorities often find themselves excluded from the budgeting discourse, amplifying the need for proactive measures to ensure their inclusion. Facilitating their participation and amplifying their voices is essential for a truly inclusive and representative PB model.

Despite challenges, PB has showcased remarkable success in various developing nations like Brazil, Mexico, and South Africa. In Brazil, since its inception in 1989, PB has fostered social inclusion, curbed corruption, and enhanced public services. Similarly, Mexico and South Africa have witnessed improved transparency, accountability, and resource allocation through PB.

As a promising avenue for transparency and citizen engagement, PB offers a blueprint for fostering trust between governments and citizens while enhancing public service delivery. Its implementation in developing countries underscores its potential to revolutionize the budgeting process and promote inclusive governance.

How many types of budget are there in Pakistan? The national budget includes the Revenue Budget and the Capital Budget. The Revenue Budget consists of Revenue Receipts and Current/Non-development Expenditures, while the Capital Budget includes Capital Receipts and Development Expenditure.

How many times is the budget presented in Pakistan?In Pakistan, the budget is typically presented in the first week of June each year by the federal government in the National Assembly. Following this, each provincial government presents its budget in their respective Provincial Assemblies.

Here are some common abbreviations frequently used in connection with budgets: 

ABS- Annual Budget Statement
ADP- Annual Development Plan
AG- Accountant General
AGPR- Accountant General Pakistan Revenues
APCC- Annual Plan Coordination Committee
BEs- Budget Estimates
CBR- Central Board of Revenue
CoA- Chart of Accounts
DDO- Drawing and Disbursing Officer
GDP- Gross Domestic Product
GoP- Government of Pakistan
MoF- Ministry of Finance
MTBF- Medium Term Budgetary Framework
MTDF- Medium Term Development Framework
NIS- New Items Statement
PAC- Public Accounts Committee
PC- Planning Commission
PC-1- Planning Commission Pro-forma
P&D- Planning & Development Department
PRSP- Poverty Reduction Strategy Paper
PSDP- Public Sector Development Program
REs- Revised Estimates
SNE- Schedule of New Expenditure

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