Budgets are an important tool to discipline governments because the services they

provide are not subject to market competition as are those supplied by private businesses. While
in the private sector most organizations have profit maximization as their key goal, the public
sector’s main objective is to improve the welfare of the population.
A budget is an estimate of income and expenditure for a set period of time. It also reflects the
country’s social, economic, fiscal and financial responsibilities. It tells government’s future
policies for the country. It is also a starting point towards generating economic activities
throughout the fiscal year. The practice of presenting budgets and fiscal policies to parliament
was initiated by Sir Robert Walpole as Chancellor of the Exchequer of United Kingdom.

Functions of Budget:
In the public sector, budgets have three broad functions

 Economic
 Political
 Legal

Economic Function
Economic, because they are an exercise of planning, controlling, and administering
activities, intended to balance revenues and expenditures, and to allocate available resources
efficiently in order to maximize social welfare. Budgets help officials to check if the flows of
revenues and expenditures during the fiscal period materialize as planned, and if operational
adjustments are necessary. At the end of the fiscal period, comparisons of budgets with
accounting final reports allow an evaluation of whether the flows of revenues and expenditures
were in accordance with expectations or not.

Political Function
The political function of the budget results from the fact that budget proposals offered by
the executive body of government have to be approved by committees that are usually elected.
Furthermore, during the implementation of the budget and at the end of the fiscal period,
officials have to present reports that require approval by legislative bodies.
Legal Function:
Finally, since budgets are regulated by laws, rules and regulations and, in some cases,
they have a legal status; they carry out a legal function. They establish limits to managerial
decisions and actions of governments, and officials violating them may be subject to penalties.

Budget Cycle
Public budgeting varies considerably across the world. It depends on the countries legal
framework, as well as on the organizational structure of government. The budgeting process
involves interaction among numerous participants, from citizens to firms, and includes officials
from various levels of government. Although budgets are usually set for a fiscal year, the
budgeting process extends for a considerably longer period and is best understood as a cycle with
overlapping phases, as
Four key general phases of the budgeting system can be identified.

Formulation and submission

In most cases, the executive body of government prepares and submits the budget for
approval. The initial phase of the budget involves flows of information on spending requests and
estimates of the resources available, as well as decisions on how scarce resources should be
allocated among numerous public demands to attain the community’s goals and objectives. The
budget formulation is both a technical and a political process. Once finished, the budget proposal
is submitted to the legislative body.

Debate and Approval:

The legislative branch analyzes, debates, and proposes changes to the budget proposal.
During this stage, the budget proposal is also frequently disclosed to the wider public. After
being approved by the legislative body, the amended budget is officially adopted by the
legislature and is put into effect.
Execution:
The executive body implements the budget by operationalising plans, collecting revenues
and spending money. Frequently, several control mechanisms are adopted during the budget’s
implementation, including cash management, audit-systems, appropriation and allotment rules,
and transfers of authority. Accounting and reporting procedures are implemented to guarantee
that revenues and expenditures are continuously monitored and stay on track with the amounts
that have been estimated and authorized. The executive branch has discretionary power to
implement small budget adjustments, but substantial changes often require the approval by a
higher level of government or by the legislative branch.
Reporting, auditing and evaluating
Public officials should be accountable to citizens for how they raise public monies and
how they spend them. To guarantee accountability and keep stakeholders informed, frequent
evaluation and reporting are critical. Although most citizens lack the time or knowledge to read
governments’ financial reports, they are often exposed to debates during electoral periods, which
are used by opposition parties to attack the incumbent. Before, during and after the budget
execution, several types of audits are implemented.
Fiscal audits are intended to verify the accuracy of expenditure and revenue records, to
determine if actual financial results are in accordance with the legally adopted budget, and to
assess whether financial transactions comply with finance-related laws, rules and regulations.
Operational and management audits review how specifically programs are carried out and
evaluate the efficiency and effectiveness of management.
Performance audits verify if the outputs and outcomes are in accordance with the benchmarks
previously defined. Audits can be internal or independent.

Budget with reference to Pakistan

Budget is used as a tool to manage various activities that include providing of
information, avoid duplication of activities and information on expenditures and performance. It
also envisages socioeconomic changes by way of progressive taxation, promoting certain
economic activities. It is put under scrutiny of legislature and after thorough debate and
discussion approval is accorded.
 In Pakistan, the budget shows receipts and payments of the government under three
heads:
1. Consolidated fund, including all revenues and loans and receipts by the government
2. Public accounts, which consists of all receipts and payments in the nature of deposit accounts
3. Contingencies fund which are placed to meet unforeseen expenditure
The budget is divided into two sections: revenue budget and capital budget. The revenue part
consists of defense, debt, repayment of loan, running of government and other activities financed
through taxation, duties and miscellaneous receipts. The capital budget is designed to create
material assets meant to add into capital assets.
The budget process in Pakistan
A government budget is a government document presenting the government’s proposed
revenues and spending for a financial year that is often passed by legislatures, approved by the
chief executive or president and presented by the finance minister to the nation. The budget is
also known as the Annual Financial Statement of the country. This document estimates the
anticipated revenues and expenditures of the government for the ensuing financial year. The
budget presented in any country is according to the governing law covered by various articles of
constitution of that country. In Constitution of Pakistan there are various provisions relating to
budget.
The budget when proposed is a bill before the parliament and once accepted is an act of
parliament. The procedure for general bills establishes that a bill can originate either in National
Assembly or in Senate. But the money bill can only be originated in National Assembly.
Articles of the constitution of Pakistan relating to the budget are:
Article 73: procedures with respect to money bills “when a Money Bill, including the Finance
Bill containing the Annual Budget Statement, is presented in the National Assembly, a copy
thereof shall be transmitted to the Senate which may, within fourteen days, make
recommendations thereon to the National Assembly; and] 35[(1A) The National Assembly shall
consider the recommendations of the Senate and after the Bill has been passed by the National
Assembly with or without incorporating the recommendations of the Senate, it shall be presented
to the President for assent.”
Article 77: tax to be levied by law only. “No tax shall be levied for the purposes of the
Federation except by or under the authority of Act of Majlis-e-Shoora (Parliament)”.
Article 80: annual budget statement: “The federal government shall, in respect of every financial
year, cause to be laid before the National Assembly a statement of the estimated receipts and
expenditure of the Federal Government for that year, in this Part referred to as the Annual
Budget Statement”.
Article 81 tells us about the expenditure charged upon Federal Consolidated Fund
Article 82 relates to expenditure charged upon the Federal Consolidated Fund may be discussed
in, but shall not be submitted to the vote of, the National Assembly. Article 83 is about
Authentication of schedule of authorised expenditure by the Prime Minister Article 84 is about
the Supplementary and Excess and the procedure of it to be laid down before National Assembly
for approval.
The fiscal year in Pakistan starts from 1st July and ends on 30th June. All the budget-related
activities are being done in between these two dates. The budget preparation starts as early as
October when Budget Call Circular sent to various ministries and divisions asking them to
submit their tentative for the upcoming financial year by the Ministry of Finance and
Planning Commission. From November to February, these ministries and divisions submit
their budget proposals to the concerned quarters. In March and April, these proposals are
thoroughly scrutinised by the Finance Ministry. After the scrutiny, the formulation of
budget proposal is being done. Consideration and approval of these budget proposals are
done during the months of May and June which after the finalisation become the part of
Annual Budget Plan. The budget after approval of Cabinet presented in the National
Assembly, which being debated by Parliament and finally passed by National Assembly
and with the assent of President of Pakistan it becomes Act of Parliament. If the
government is failed to get the approval of budget from National Assembly it get dissolved
automatically. The annual budget generally presented in the National Assembly during the
2nd week of June and is passed by the beginning of last week of June. This process
generally takes 12 to 17 working days for the various stages in budget debates.
Budget once passed by the National Assembly is transmitted to the President for approval. The
President must give his approval within 30 days. Once it receives presidential approval, it
becomes a law.
Since 2003, it had been made essential that the budget statement is copied to the Senate at the
same time as its presentation to the National Assembly. The Senate which is upper house of the
Parliament can discuss the budget proposals and make recommendations to the National
Assembly. These recommendations are not binding upon the federal government to be accepted.
The role of parliamentary parties is not as significant as it is supposed to be either ruling parties
or parties in the opposition. In Western democracies the opposition parties have a shadow
cabinet which makes their recommendations related to their ministries and critically analyses the
working of the government. The parliamentary parties don’t make organised advance preparation
for budget debate. The parliamentary parties hold meetings before presentation of budget and
during two days break between presentation and debate but these are formal meetings only in
which some financial experts might give them briefing. Budget-making takes place within an
institutional framework that is supposed to govern the budgetary process, and the strength of that
framework determines how successful a government’s fiscal policy is likely to be in achieving
longer-term objectives. While Pakistan has introduced some reforms in public financial
management such as the introduction of a medium-term budgetary framework (or MTBF), its
overall framework falls short of best practice in a number of significant ways.
Steps of budget cycle with reference to Pakistan
Steps in the formulation stage

•Modeling of the economy (macroeconomic forecast: GDP, growth, inflation, deficit,

unemployment, etc.)

•Estimation of revenue (tax & non-tax, grants & loans, etc.)

•Determining expenditure ceilings for ministries/ departments/agencies (MDAs then draw up

budgets)

•Release of the Pre-Budget Statement (parameters of upcoming budget proposal –budget

priorities & policies)

•Formulation & negotiation of ministry/department/agency expenditure budgets

•Cabinet approval

Steps in the approval stage

•Budget tabled in national & state legislatures by Minister of Finance

•Committees review and scrutinize budget & revenue proposals and report to the full legislature

•Amendments made (in countries where legislatures have amendment power)

•Budget voted into law by legislature

Steps in the execution stage

Funds transferred to spending agencies, e.g., the Ministry of Health

•Delivery of goods and services as per budget

•Ministries/departments/agencies produce in-year reports on spending of allocated funds

•Ministries/departments/agencies produce year-end reports on spending of allocated funds

Steps in audit Stage

 Year-end reports submitted to the Supreme Audit Institution (SAI) (Auditor General of
Pakistan)
 SAI conducts audits of spending agencies
 SAI prepares audit reports and submits reports to legislature.
 National/State legislatures submit reports to the Public Accounts Committee (PAC)
 PAC makes recommendations to the full legislature about the SAI’s findings
 THE FEDERAL BUDGET PROCESS AT A GLANCE

Budget Call Circular October

Taxes Principle head of

revenues Revenu Detailed Estimates Expenditu Nov to Feb
es re
Foreign Aid Revenue and Recommendations Feb/Mar
ch
Debt deposit of March
Detailed Scrutiny
remittances

Other Revenue capital Detailed Scrutiny April

receipts
Formulation of Budget Proposals Mar/June

Consideration and approval of May/Ju

budget proposals ne

Consideration and submission

of recommendations as per
article of the constitution and
rules of procedure and conduct
of the business of the national
assembly
Debate and Assent to the Finance
June/Jul
Bill as per Article 80 to 85 of the
constitution and the rules of y
procedure and conduct of the
business of the national assembly

Authentication of the schedule of June/July

authorized expenditure

Schedule of authorized expenditure

sent to each ministry/ division
Annual Development Programme Formulation Process at a Glance

Ministry of Finance / Ministry of Planning & Dev.

October
BUDGET CALL CIRCULAR

Ministries/Divisions/Departments
NOVEMBER
Development Requirement To
FEBRUARY

Planning & Development Division

MARCH
SCRUTINY

Priorities Committee in Min of Finance

APRIL
SCRUTINY & FORMULATION OF RECOMMD.

Annual Plan Coordination Committee

APRIL/MAY
CONSIDERATION

National Economic Council

MAY/JUNE
CONSIDERATION & APPROVAL

Ministry of Finance
JUNE
INCLUSION IN BUDGETARY PROPOSALS
References:
The budget process in Pakistan Mirza Tauseef
http://iportal.riphah.edu.pk/?s=Budget%20process
https://arynews.tv/en/explainer-the-budget-making-process-in-pakistan/
Budgeting Process in Pakistan-I Written by: Muhammad Ramzan on July 5, 2014
http://jworldtimes.com/jwt2015/magazine-archives/jwt-2014/july2014/budgeting-process-in-
pakistan-i/
The federal budget process in Pakistan

http://siteresources.worldbank.org/PAKISTANEXTN/Resources/pdf-Files-in-Events/Federal-Budget-
Process/FBPinPakistan.pdf