5 Fiscal Policy

Target

Actual

10
8

6
4
2
0
FY11
FY12
Source: Ministry of Finance

FY13

FY14

FY15

Figure 5.2: Deviations from Target

Taxes
Development expenditures
450
375
300
225
150

FY15

FY14

FY13

FY12

FY11

75
FY10

Sluggish tax collection, in turn, squeezed the

space for development expenditures: in order
to consolidate fiscal account and to keep
overall deficit within target, the government
could increase public sector development
expenditures by 14.1 percent instead of the
target of 35.8 percent.2 In fact, a shortfall in
revenue has a direct bearing on development
expenses, as shown by Figure 5.2. As public
development expenditure are key to stimulate
overall investment and growth, the shortfall in
tax revenues eventually hurts economic
growth.

Figure 5.1: Fiscal Deficit - Target and Actual (percent of GDP)

Rs billion

5.1 Overview
The budget deficit during FY15 was 5.3
percent of GDP, which was lower than 5.5
percent witnessed during the last year (Figure
5.1). If compared with the target for the year,
the deficit was slightly higher.1 While the
fiscal consolidation during the year was
challenged by lower than expected tax
revenues, expenditures remained under
control. The budget FY15 envisaged a growth
rate of 30.1 percent in total taxes major part
of which was to be collected by FBR;
however, actual growth rate of taxes realized
during the year was 17.7 percent. Key factors
affecting tax revenues were: (i) sharp decline
in oil prices, which adversely affected sales tax
collection; (ii) continuing issues with tax
enforcement; and (iii) subdued manufacturing
activity.

Source: SBP calculation based on MoF data

Despite taking several measures to raise tax collection, FBR could not achieve its target.3 This
indicates structural problems in the taxation system, including: (i) large informal economy and lack of
documentation, (ii) low social and economic cost of tax evasion, (iii) complexities involved in
voluntary tax payments; and (iv) administrative issues in tax collecting authority. These issues cannot
be addressed by makeshift measures to increase revenues. This needs a national campaign for
1

The FY15 target for the budget deficit was Rs 1,421.8 billion; whereas actual deficit turned out to be Rs 1,456.7 billion.
Although the government maintained a high pace of development expenditures up to the third quarter of FY15 with a
growth rate of above 27 percent (SBP 3rd Quarterly Report FY15), it had to hold them back in the last quarter as revenue
shortfall continued.
3
Revenue measures introduced in the budget FY15 included: expanding the scope of withholding tax; introducing
differential tax rates for filer and non-filer; increasing sales tax rate on petroleum products; imposing regulatory duties on
certain import items (which also had revenue implications); sending notices to prospective taxpayers, etc.
2

State Bank of Pakistan Annual Report 201415

taxation by taking all segments of the society on board. Further delay in such an all-inclusive
campaign may impede the growth momentum of the economy.
Another factor making fiscal consolidation difficult in FY15 was low level of provincial surplus. The
provinces could not show targeted amount of the budget surplus: actual surplus was only Rs 87.3
billion in FY15, against the target of Rs 289 billion. One reason was that they did not receive
budgeted amount from divisible pool due to revenue shortfall; and second, their current expenditures
also increased sharply with a growth rate of 18.2 percent in FY15 (see Section 5.4 for details).
However, it is encouraging that the federal government was able to contain its current expenditure
with 7.3 percent growth in FY15, compared with 10.4 percent in the year before (Table 5.1). In fact,
federal current expenditure, excluding interest payment and defence, declined during the year.
Table 5.1: Summary of Fiscal Operations
Rs billion
FY14
Total Revenue
Tax revenue
Non-tax revenue
Total Expenditure
Current
Federal
Interest payments
Defence
Other federal
Provincial
Development
PSDP
Others
Net lending
Statistical discrepancy
Overall Budget Deficit
Revenue deficit
Primary deficit
Source: Ministry of Finance

3,637.3
2,564.5
1,072.8
5026.0
4,004.6
2,831.2
1,147.8
623.1
1,060.4
1,173.3
1,135.9
865.5
270.5
100.6
-215.1
1,388.7
367.3
240.9

FY15
Target
Provisional
4,220.6
3,931.0
3,337.2
3,017.6
883.3
913.4
5,642.4
5,387.8
4,462.3
4,424.7
3,097.3
3,037.6
1,325.2
1,303.8
700.1
697.8
1,072.0
1,036.0
1,365.0
1,387.2
1,180.1
1,113.2
1,175.0
987.8
125.5
27.4
-177.6
1,421.8
1,456.7
241.7
493.7
96.6
153.0

% of GDP
FY14
FY15
14.5
14.4
10.2
11.0
4.3
3.3
20.0
19.7
16.0
16.2
11.3
11.1
4.6
4.8
2.5
2.5
4.2
3.8
4.7
5.1
4.5
4.1
3.5
3.6
1.1
0.5
0.4
0.1
-0.9
-0.6
5.5
5.3
1.5
1.8
1.0
0.6

% Growth
FY14
FY15
22.0
8.1
16.6
17.7
37.0
-14.9
4.7
7.2
9.4
10.5
10.4
7.3
15.8
13.6
15.3
12.0
2.6
-2.3
7.1
18.2
46.2
-2.0
24.5
14.1
229.8
-53.6
-72.3
-72.8
-24.3

4.9

Financing mix of the fiscal deficit

After a considerable improvement in the financing mix of the fiscal deficit in FY14, when external
receipts financed 36.8 percent of the deficit, FY15 witnessed lower level of external inflows
financing only 12.4 percent of the budget deficit. While large amounts under Pakistan Development
Fund and through Eurobonds were mobilized during the last year, the current year could not maintain
the same pace. Receipts under
Table 5.2: Financing of the Budget Deficit
both the project aid and program
Rs billion
loans were lower in FY15,
FY11
FY12*
FY13
FY14
FY15
compared with the last year.
Budget Provisional
External sources
107.7
128.7
-1.7
511.7
508.0
181.0
Moreover, US$ 1 billion were
Domestic sources
1,086.7 1,632.1 1,835.5
877.0
913.9
1,275.7
mobilized through issuing Sukuk
Banks
615.1 1,102.7 1,457.5
323.7
227.9
892.1
SBP
505.9
159.9
0.0
-434.3
in the international market in
Commercial banks
951.7
163.9
227.9
1,326.4
FY15 half the amount mobilized
Non-bank
471.6
529.4
378.0
553.3
686.0
366.1
through Eurobond in FY14. Total
Privatization
17.5
Total
1,194.4 1,760.8 1,833.9 1,388.7 1,421.9
1,456.7
external financing (net of
*: The deficit in FY12 includes the one-off payment of Rs 391 billion for PSEs debt
repayments) stood at Rs 181.0
settlement.
billion during the year, compared
Source: Ministry of Finance
with the target of Rs 508 billion
(Table 5.2).

60

Fiscal Policy

As a result, the pressure of budget financing increased on the banking system. However, within the
banking system, government relied more on commercial banks and retired the central banks debt (see
Chapter 4 for detail). Domestic non-bank is the third source of financing the budget deficit, which
should be preferred over banks as it also reflects savings trend in the economy. There are two main
sources of non-bank financing: national saving schemes (NSS) and private sectors investment in
government securities. While mobilization of funds through national saving schemes increased
sharply from Rs 140.0 billion in FY14 to Rs 260.2 billion in FY15, mainly on the back of institutional
investment, private sectors investment in government securities declined following the reduction in
interest rates.
5.2 Revenue
The total revenue receipts (tax and non-tax) stood at Rs. 3,931.0 billion in FY15, showing a growth of
8.1 percent half the growth targeted in the
budget. This was entirely due to a shortfall of
Table 5.3: FBR Tax Collection
Rs 319.6 billion in tax revenues from their
Rs billion
FY 15
target. The non-tax revenues, on the other
% Growth
FY 14
hand were more than the target, mainly due to
Budget Actual
FY14 FY15
high SBP profit and receipts under coalition
Direct tax
884.1 1,180.0
1,029.2
18.0
16.4
support fund.
Sales tax
1,002.1 1,171.0
1,088.8
18.3
8.6

Total

281.0

306.1

1.4

27.0

139.1

178.0

164.0

14.1

17.9

2,266.3

2,810.0

2,588.2

15.8

14.2

Source: Ministry of Finance

Figure 5.3: FBR Tax-to-GDP

8.9

8.5

8.7

9.0

2013-14

9.4

8.8

2012-13

9.5

2010-11

9.2

2009-10

9.4

2008-09

10

2007-08

12

2006-07

9.5

8
6
4

2014-15

2011-12

Although FBR takes a number of measures

every year to increase tax collection, it could
not improve its achievements. As structural
problems in the taxation system persist, the
FBR tax-to-GDP ratio remained stagnant in the
range of 8.5 percent to 9.5 percent over the last
ten years (Figure 5.3). The government has
envisaged this ratio to increase to 11.3 percent
in FY18 by taking various measures to
document the economy, and to broaden the tax
base. Significant structural tax measures are
needed to bolster the tax to GDP ratio.

241.0

Federal excise

2005-06

(Table 5.3). The FBR target was subsequently

revised downward to Rs 2,605 billion.
However, actual collection still could not get
to the mark.

Customs duty

percent

Within tax revenues, FBR taxes were Rs

2,588.2 billion in FY15, compared with the
original target of Rs 2,810 billion for the year

Source: Federal Board of Revenue

Direct tax
Direct taxes posted a growth of 16.4 percent in FY15, compared to 18.0 percent in FY14.
Withholding tax, having largest share in direct taxes, grew by 20.9 percent.4 Main economic activities
contributing to the withholding tax are international trade and contracts. Withholding tax from
international trade showed a growth of 15.6 percent in FY15 lower than the last year, mainly due to
sharp fall in commodity prices. Meanwhile, tax collection from contracts showed a considerably high
growth rate of 36.1 percent in FY15 more than double the growth in the last year (Table 5.4).
4

Withholding tax has the share of above 60 percent in total direct taxes.

61

State Bank of Pakistan Annual Report 201415

Voluntary payments, constituting one fourth of

the total income tax, recorded a growth of 9.5
percent, compared to 7.2 percent during the
previous year, which is quite encouraging. On
a positive note, collection on demand recovered
radically by reflecting a growth rate of 43.3
percent in FY15, which was negative during the
previous year. FBR has started issuing notices
to potential tax payers, identified through
NADRA data base and other information. If
this campaign succeeds, the collection on
demand can be a promising head of income tax
collection.5
Sales tax
Sales tax collection showed a modest growth of
9.3 percent in FY15, compared to 18.3 percent
in FY14. Despite the increase in sales tax rate,
the growth rate of sales tax collection on
domestic goods & services was only 6.0
percent in FY15, compared to 23.6 percent in
FY14. Likewise, the growth rate of sales tax
collection on imports also fell from 15.3
percent in FY14 to 12.4 percent in FY15
(Table 5.5).
Main factors adversly affecting sales tax
collection were: (a) an overall decline in the
inflation rate largely due to sharp fall in prices
of petroleum products, which are the largest
source of sales tax collection;6 and (b) decline
in sales tax collection on fertilizers and natural
gas due to lower supplies. Moreoever, lack of
documentation in retail trade activites
continued to be a source of concern.

Table 5.4: Break-up of Direct Taxes*

Rs billion
Growth (%)
FY 14
FY 15
Voluntary payments
262.6
287.6
7.2
9.5
Collection on demand
80.6
115.5
-9.8
43.3
Withholding tax
571.7
691.2
31.1
20.9
Imports and exports
150.2
173.6
18.8
15.6
Contracts
129.9
176.8
16.5
36.1
Salary
64.6
79.5
28.9
23.1
Interest & securities
40.7
49.8
15.3
22.4
Cash withdrawal
19.1
23.9
54.0
25.1
Dividends
24.2
29.4
26.0
21.5
Electric bills
19.8
27.5
23.8
38.9
Telephone
52.0
44.7
91.9
-14.0
Others
71.4
86.1
163.5
20.6
Miscellaneous
4.0
10.0
-28.6
150.0
Gross Income tax
918.9 1,104.3
18.4
20.2
Other direct taxes
22.1
24.3
6.3
10.0
Total direct taxes (gross)
941.0 1,128.6
18.1
19.9
*: Break-up is based on provisional data; overall numbers may not
tally with Table 5.3.
Source: Federal Board of Revenue
FY14

FY15

Table 5.5: Sales Tax on Domestic and Import Stage*

Rs billion
Growth (%)
FY 14
FY 15
FY 14
FY 15
Domestic
POL Products
230.7
233.2
29.9
1.1
Natural Gas
31.6
22.8
-12.9
-27.8
Fertilizers
24.0
22.5
53.8
-6.3
Cement
20.1
23.3
84.4
15.9
Electrical energy
19.7
23.8
121.3
20.8
Cigarettes
17.7
21.0
22.1
18.6
Aerated waters/bev.
8.8
8.8
-18.5
0.0
Sugar
9.2
10.9
10.8
18.5
Motor Cars
3.8
9.3
18.8
144.7
Other sectors
135.4
155.6
13.7
14.9
Total
501.1
531.2
23.6
6.0
Imports
POL Products
169.6
166.0
8.5
-2.1
Iron and Steel
27.6
41.9
26.9
51.8
Mech. machinery
26.1
38.0
33.6
45.6
Elec. machinery
18.8
35.4
29.5
88.3
Vehicles
26.0
34.3
-3.0
31.9
Plastic resins etc.
27.8
30.7
35.0
10.4
Edible Oil
33.9
16.6
5.1
-51.0
Fertilizers
12.8
13.7
21.3
7.0
Org. chemicals
13.3
13.0
33.5
-2.3
Others
139.5
167.0
18.7
19.7
Total
495.4
556.6
15.3
12.4
*: Break-up is based on provisional data; overall numbers may not
tally with Table 5.3.
Source: Federal Board of Revenue

Customs and federal excise duties

In FBR taxes, the importance of customs and
federal excise is declining overtime, as sales tax
(on domestic goods & services and imports) is
replacing them. The two taxes together
contributed 18.2 percent in total FBR tax collection duirng FY15, compared with, for example, 33.8
percent in FY00.7
5

According to Ministry of Finance, in order to increase the tax net, existing database of 3.6 million individuals holding the
National Tax Number (NTN) is to be merged with the Computerized National Identity Card (CNIC) data comprising
information of 150 million people.
6
Domestic sale of POL products contribute more than 40 percent of the domestic sales tax collection; while contribution of
imported POL products is about 30 percent to sales tax collected at imports stage.
7
Once customs duty alone used to be the largest source of tax revenues, like 1990 when its share was 45 percent in total
taxes. However, following the policies of increasing trade liberalization, the tariff rates were reduced significantly. A
number of imported items are subject to zero rates. Currently, more than 60 percent of Pakistans imports are non-dutiable.

62

Fiscal Policy

The customs duty is concentrated in few items,

i.e., vehicles, machinary and petroleum
products, which contributed around one third
of the total duty collection in FY15. On the
other hand, 80 percent of the federal excise
duty comes from only five items: cigarettes,
beverages, natural gas, cement and edible oil.
Going forward, the share of these sources of
taxes is expected to decline further as the
coverage of sales tax by federal and provincial
governments is expanding.

Table 5.6: Non-tax Revenues

Rs billion

Profits PO/PTA*
Mark-up
Dividend
SBP profit
Defence
Royalities on oil and gas
Citizenship/passport fee
Discount retained on crude oil
Windfall levy on crude oil
Foreign grants
Others
Total
*: Including 3G/4G fee
Source: Ministry of Finance

FY14
94.8
67.0
65.9
326.2
117.2
76.4
19.0
40.7
14.6
12.3
238.6
1,072.7

Budget
70.7
26.0
82.0
270.0
140.0
81.4
20.0
20.0
17.0
35.0
121.2
883.3

FY15
Provisional
3.7
14.2
74.1
399.0
157.1
74.1
18.7
9.7
12.2
21.9
128.8
913.4

Non-tax revenue
The non-tax revenue collected during FY15
were higher than the target set for the year
(Table 5.6). This was backed by sharp
increases in SBP profit and defence related receipts (essentially CSF), which more than compensated
shortfall in other accounts, like 3G/4G auction fees.
Table 5.7: Break-up of Current Expenditures
Rs billion
FY14

FY15
Budget target

% growth
Actual

Target

Actual

Overall

4,004.6

4,462.3

4,424.7

11.4

10.5

Federal

2,831.2

3,097.3

3,037.6

9.4

7.3

1,991.3

2,177.4

2,105.4

9.3

5.7

Debt Servicing

1,147.8

1,325.2

1,303.8

15.5

13.6

Domestic

1,072.8

1,224.6

1,208.1

14.1

12.6

75.0

100.6

95.7

34.1

27.6

Pension

180.2

215.0

185.2

19.3

2.8

Subsidies

305.7

203.2

241.6

-33.5

-21

Grants

283.2

338.0

288.1

19.4

1.7

General public services

Foreign

74.4

96.0

86.7

29.0

16.6

623.1

700.1

697.8

12.4

12.0

Public order & safety

86.2

86.5

83.3

0.3

-3.4

Economic affairs

43.4

47.6

53.0

9.7

22.2

Education

65.4

64.0

73.2

-2.1

11.9

Health

10.1

10.0

10.9

-1.0

7.6

Others

11.7

11.7

13.9

0.0

19.1

1,173.3

1,365.0

1,387.2

16.3

18.2

Others
Defense

Provincial

* Provisional estimates taken from 2015-16 Budget Documents

Source: Ministry of Finance

Similarly, the FEDs share also declined due to removal of items eligible for FED. However, such items were brought under
sales tax net..

63

State Bank of Pakistan Annual Report 201415

Moreover, energy related receipts, i.e., royalities on oil and gas, discount retained and windfall levy
on crude oil also declined during the year, mainly due to reduction in global oil prices. Similarly, the
Mark-up income (PSEs and others) also fell short of target due to declining interest rate scenrio.
5.3 Expenditures
During FY15, total expenditures (federal and provincial) grew by 6.2 percent, compared with 9.5
percent last year.8 This was mainly due to sharp reduction (53.6 percent) in development spending
outside PSDP, and lower net lending to public sector enterprises (PSEs). Expenditures on PSDP also
could not maintain the growth momentum witnessed during the last year: they showed a growth of
14.1 percent in FY15, compared with 24.5 percent last year; and remained considerably lower than
the target set for the year.
Although current expenditures also were slightly lower than the target, they increased by a growth of
10.5 percent in FY15, against 9.4 percent last year (Table 5.7). This was mainly due to growth in
provincial current expenditures, which increased sharply with a growth of 18.2 percent in FY15,
compared with 7.1 percent in FY14. This is indicates their enhanced role envisaged under the 18th
amendment of the constitution (reduction in the concurrent list), as well as higher expenditure for law
and order by the provinces.
Regarding the federal governments current expenditures, their growth in FY15 was considerably
lower than that in FY14, as mentioned earlier. Major portion of federal current expenditure is interest
payments, having a share of more than 40 percent. Running down large fiscal deficits over the years
by successive governments have substantially increased interest payments, which in FY15 has
reached Rs 1,303.8 billion (4.8 percent of GDP). However, reduction of 350 basis points during
FY15 in the policy rate helped reduce the pace of interest expense on governments domestic debt,
which increased by 12.6 percent in FY15, compared with 16.6 percent last year. 9
Table 5.8: Break-up of Development Expenditures
Rs billion
FY15
FY14

Budget target

% growth FY15
Actual

Target

Actual
-7.8

Development expenditures &. net lending

1,236.5

1,344.1

1,140.6

8.7

Development expenditures

1,135.9

1,336.8

1,113.2

17.7

-2.0

865.5

1175

987.8

35.8

14.1

20.7

12.4

PSDP
Federal*

434.9

525

488.9

Provincial

430.5

650

498.8

51.0

15.9
-53.6

270.5

161.8

125.5

-40.2

BISP**

63.9

97.2

91.8

52.1

43.6

Others

206.6

64.7

33.7

-68.7

-83.7

27.4

-2.6

-72.8

Other development expenditures

Net Lending

100.6

7.2

* Net (excluding Rs. 13.258 billion development grants to provinces)

** Provisional estimates taken from 2015-16 Budget documents
Source: Ministry of Finance

Total expenditure discussed in this section does not include statistical discrepancy.
In FY15, the weighted average yield on T-bills has come down to 8.76 percent from 9.70 in FY14. Similarly, weighted
average yield on PIBs fell to 10.78 percent compared to 12.26 percent in FY14.
9

64

Fiscal Policy

Encouragingly, subsidies have declined by

21.0 percent over last year to reach Rs 241.6
billion in FY15 (0.9 percent of GDP) 10
especially electricity subsidies. Instead,
electricity tariffs for commercial and industrial
users were revised upwards through the
imposition of surcharges. Defense spending
also slowed down in FY15 with a growth of
12.0 percent, compared with 15.3 percent
growth witnessed last year.

Figure 5.4: Expenditures under BISP

100

Rs billion

80

60
40
20

Historically, defense expenditures are the

second largest item in the federal current
0
outlays, which remained broadly in line with
FY11
FY12
FY13
FY14
FY15
the FY15 budget: Rs 697.8 billion versus the
Source: Provisional estimates taken from budget documents
budget target of Rs 700.1 billion. Similarly,
growth in pension also declined significantly from 4.4 percent in FY14 to 2.8 percent in FY15.
Development expenditures & net lending to PSEs11 fell by 7.8 percent in FY15, compared to the last
year (Table 5.8). 12 Specifically, development outlays other than PSDP and lending to PSEs witnessed
negative growth rates during the year. However, expenditure under Benazir Income Support Program
a part of development spending outside PSDP continued to show a robust growth (Figure 5.4).
Although expenditures under PSDP, both by the federal government and provincial governments,
were 14.1 percent higher than the previous year, they remained short of their respective targets. As
discussed earlier, main reason for this shortfall was underperformance of tax revenues, which
adversely affected the availability of resources for both federal and provincial government.

Punjab

Sindh

KPK

Balochistan

150
100
50

FY15

FY14

FY13

FY12

-50

FY11

FY10

As usual, the provinces continued to rely

mainly on transfers from federal revenues.
Despite significant untapped potential of
resource mobilization, provinces are still
struggling with capacity and procedural

Figure 5.5: Provincial Balances

Rs billion

5.4 Provincial Fiscal Operations

Unlike FY14, the budget surplus target
assigned to provinces was missed by a wide
margin in FY15. Against the target of Rs
289.3 billion, the actual balance stood at only
Rs 87.3 billion during the year (Figure 5.5).13
This decline was brought about by fall in tax
revenues as well as healthy growth in current
expenditures.

Source: Ministy of Finance & Budget Documents

10

This was in line with the commitment made to IMF to bring down the subsidies to 0.8 percent of GDP.
Net lending is a part of overall development expenditure. This includes development loans and advances to Provinces,
Government of Azad Jammu & Kashmir, Public Sector Enterprises (PSEs), Financial / Non-Financial Institutions, District
Governments / TMAs, and Others to assist them in carrying out their development programs.
12
However, last year an amount of Rs 157.2 billion was included in Other development expenditure. If we adjust for this
amount, the growth in total development expenditure comes out 5.7 percent.
13
The gap between provincial revenue and expenditures is Rs 3.6 billion; however, as per practice by the Ministry of
Finance, the provincial fiscal balance is defined as the outstanding balances of provinces with the banking system.
11

65

State Bank of Pakistan Annual Report 201415

Figure 5.6: Provincial Revenue & Spending Growth

Development expenditures Federal transfer
Current expenditures
Tax revenue
70
60
50

percent

issues in collecting their own taxes on sales of

services and agriculture. As provinces have
higher fiscal responsibility and resources after
18th amendment and 7th NFC award, they have
to move fast to increase their capacity of
taxation and handling large public projects.

40
During FY15, taxes collected by provinces
30
themselves showed a growth rate of 8.4
percent a five years lowest level (Figure
20
5.6). Only Sindh has shown a robust growth in
10
its own tax collection. Although the standard
0
rate of GST on services was lower in Sind
-10
compared to Punjab, improved tax collection
FY11
FY12
FY13
FY14
FY15
by Sindh was based on relatively wider tax
Source: Ministry of Finance
base and low level of exemptions.14 Apart
from Sales tax on services, the provinces are required to raise more revenue through untapped areas
like agriculture income tax.15 Such efforts will not only help to fill the revenue gap of the provinces
but could also lift the low tax-to-GDP ratio in the region.
Table 5.9 : Provincial Fiscal Operations
Rs billion

A. Total revenue

Punjab
FY14
FY15
803.6
892.1

Sindh
FY14
FY15
490.6
533.7

KPK
FY14
FY15
302.8
288.7

Balochistan
FY14
FY15
170.6
187.9

All Provinces
FY14
FY15
1767.4
1902.4

Share in divisible pool

Taxes
Non-taxes
Federal loans & grants
B. Total expenditure
Current*
Development
C. Overall balance (A-B)

646.3
96.5
23
37.8
748
551.7
196.3
55.6

383.7
79.1
5.4
22.4
449.1
328.2
120.9
41.4

234.4
11.7
16.8
39.8
259.7
187.1
72.6
43

141.9
2.8
4.2
21.7
161.1
120.4
40.7
9.5

1406.3
190
49.4
121.8
1617.9
1187.4
430.5
149.5

726.9
98.1
45.3
21.9
872.9
662.9
210
19.3

406.2
93.8
8.4
25.3
516.5
383.4
133
17.2

250.7
11.4
18.4
8.2
326.9
221.8
105.1
-38.2

154.9
2.6
3.5
26.9
182.7
131.9
50.7
5.3

Financing#
-98.5
-43.0
-37.7
-27.5
-40.4
7.9
-20.4
-24.7
-196.9
*: Overall provincial current expenditures in this table does not tally with those in Table 5.1, which give consolidated federal and
provincial numbers. The consolidated numbers exclude fiscal transactions among federal and provincial governments.
#Balance of provincial accounts with the banking system
Source: Ministry of Finance

1538.7
205.9
75.6
82.3
1899
1400
498.8
3.6
-87.3

Another important development on the provincial revenue side was the 26.2 percent increase in nontax revenue in FY15, compared with 7.0 percent decline last year. Grants from the federal
government, was the major contributory factor to this increase in non-tax revenues. It is important to
note here that the federal grants which are the part of federal PSDP are utilized through provinces; and
about 60 percent of these grants were spent in the Punjab.
Coming to expenditure side, the growth in provincial expenditures was 17.4 percent in FY15
compared to 9.2 percent last year. This growth was primarily due to current expenditures, as their
development budget was underutilized in FY15. They utilized Rs 498.8 billion during the year,
14

Standard rate of GST was reduced to 15 percent in Sindh, whereas it stood same at 16 percent in Punjab in Budget 201415. Further, the exemption provided by Sindh government to property developers and on insurance premium (below
threshold of Rs 500,000) was withdrawn in budget 2014-15.
15
Although the provinces set targets for agriculture income tax, actual realization is much lower than its capacity, measured
in terms of its contribution in GDP.

66

Fiscal Policy

compared with the target of Rs 650.0 billion set for provincial PSDP (Table 5.9). The main factor
behind this shortfall was: (i) understanding between federal and provincial to generate surpluses; and
(ii) the timing of the federal transfer of funds to the provinces. Specifically, the pattern of federal
transfers to provinces suggests that the amount equivalent to 70.0 percent of PSDP shortfall was
transferred on 29 and 30th June 2015, and that, in turn, reflected as the major part of the surplus
recorded in FY15 (Figure 5.7).
Figure 5.7: Provincial PSDP
Target
Actual
900

Federal Transfer to Provinces

Balochistan KPK Sindh Punjab
180

160

750
600
450

300

Rs billion

Rs billion

140
120
100
80
60
40
150

0
FY10 FY11 FY12 FY13 FY14 FY15 FY16
Source: Ministry of Finance

20
0
April
May
Source: State Bank of Pakistan

June(1-28) June(29th &

30)

During FY15, the provincial current expenditures increased by 17.9 percent, compared with 7.0
percent last year. This was broadly driven by increase in social sector spending and public order &
safety by all provinces. The province-wise composition of current spending suggests that Punjab
spent the most on social sector, mainly on account of rehabilitation of flood affected population in
September 2014.16
Distribution of development outlays:17
Punjab spent a significant portion of development budget on economic affairs (including mainly
construction) and housing & community amenities (Table 5.10). Interestingly the Punjab government
spent more than budgeted amount on construction of roads, which also included rehabilitation of flood
damaged roads.18 On the contrary, the share of health and education constitutes about 15.0 percent of
total development spending for FY15, which was the lowest among provinces.
Like Punjab, expenditure on infrastructure development remained priority area for other three
provinces. On positive, both Sindh and KPK spent higher amounts on education, health, and social
protection during the year, compared with the last year. Furthermore, spending on agriculture and
irrigation (a part of economic affairs head) also represents major share of Sindh development outlay.
In addition, Balochistan spent a large portion of development outlays on education, health, housing
and community amenities.

16

The Government of Punjab allocated Rs. 18.9 billion for the rehabilitation of flood affected population of the province
(Source: PUNJAB: White Paper Budget 2015-16).
17
The sectoral distribution of development expenditures by provinces has been taken from their respective budget
documents. Since there is no standard format of presenting details in these documents, we face difficulties in getting
comparable numbers under different heads. Therefore, there may be some difference in our calculations regarding shares of
different sectors.
18
During 2014-15, Rs 2.8 billion was allocated for rehabilitation of flood damaged roads.

67

State Bank of Pakistan Annual Report 201415

Table 5.10: Composition of Development Spending
Percent Share

Rs billion
Punjab
41.9

Sindh
35.4

KPK
20.3

Balochistan
3.9

Punjab
14.4

Sindh
24.4

KPK
15.1

Balochistan
6.1

1.0

17.6

0.4

1.1

0.3

12.1

0.3

1.7

111.8

31.0

44.3

28.9

38.5

21.4

32.9

45.4

0.0

1.1

6.0

5.2

0.0

0.8

4.5

8.2

Housing and
community amenities

86.2

1.1

16.4

8.3

29.7

0.8

12.2

13.0

Health
Recreation, culture and
religion
Education affairs and
services

25.7

13.7

10.1

3.8

8.8

9.4

7.5

6.0

1.2

1.6

1.9

2.3

0.4

1.1

1.4

3.6

19.1

32.5

30.3

10.0

6.6

22.4

22.5

15.7

General public services

Public order and safety
affairs
Economic affairs
Environment protection

Social protection
Total

3.6

11.0

4.9

0.2

1.2

7.6

3.6

0.3

290.5

145.0

134.7

63.7

100.0

100.0

100.0

100.0

Source: Provincial Budget Documents

68