Public Finance Management - Handbook by Government of Sindh

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Disclaimer
This Handbook has been developed as a training support resource for an EU funded program PFM - SPP (Public
Financial Management Support Programme for Pakistan). It is not an exhaustive or official document. Although it
explains processes of government, it is not issued or endorsed by government. Effort has been made to accurately
represent information as much as possible, however PFM-SPP accepts no liability of any error or inaccuracy in the
document.
Fundamentals of Public Financial Management
A training handbook for officials of Government of Sindh 3
Preface
The Government of Sindh embarked on a Public Financial Management (PFM) Reforms Action Plan in 2015,
following approval of a PFM Reforms Strategy by the Cabinet a year earlier. One of the pillars of reform agenda is
enhancing the capacity of government functionaries in the field of public financial management. This is also in line
with vision of the then Finance Minister (current Chief Minister, Syed Murad Ali Shah) for improving governance.
For this purpose a comprehensive PFM manual or handbook was required which specifically covered the processes
in Government of Sindh. The task was taken up with the partnership of an EU funded PFM Support Programme for
Pakistan (PFM-SPP)-Sindh and Economic Reforms Unit (ERU) of Finance Department Sindh. The ‘Fundamentals of
Public Financial Management’ is the product of that partnership. Finance Department acknowledges the work and
we hope that this handbook will serve as a guide to those wishing to enhance their understanding of PFM.
Officials from across the government departments and spending units are encouraged to review and use the book
as a guide for enhancing their understanding of financial management systems of Government of Sindh.
Najam Ahmed Shah

Secretary
Finance Department
August, 2019
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Table of Contents
Introduction to Handbook 09 5.3 Role of the Executive in
Financial Management 33
Chapter 1 - Key Concepts & Definitions 11
Chapter 6 - Budget Cycle 38
Chapter 2 - Introduction to Public Finance 17 6.1 What is Budget Cycle? 38
2.1 Definitions of Public Finance 17 6.2 Brief Description of the Budget
2.2 Elements of Public Finance 17 Cycle Phases 37
2.3 Public Expenditure 17 6.3 Budget Cycles 40
2.4 Public Revenue 17 6.4 Legislative Framework for Budgeting
2.5 Public Debt 18 in Sindh Government 42
2.6 Need for Public Finance 18
2.7 Three objectives of Public Finance Chapter 7 - Strategic Planning 46
Management (PFM) 19 7.1 Strategic Planning 46
2.8 PFM is an instrument 19 7.2 Planning at Finance Department 46
7.3 Strategic Planning at Administrative
Chapter 3 - Budget Concepts, Objectives and Departments 47
Principles 21
Chapter 8 - Budget Formulation 49
3.1 Origin and evolution of Budget 21
8.1 Non Development Budget Process 49
3.2 What is Budget? 21
8.2 Development Budget 50
3.3 Budget Principles 22
8.3 PC Documents 50
3.4 Budget Methodologies 22
8.4 Summary of PC-1 preparation, review
Chapter 4 - Administrative Structures of and approval process 52
the Government 25 8.5 Formulation of Development
4.1 What is a Government? 25 Budget (ADP / PSDP) 53
4.2 Functions of a Modern Government 26 8.6 Budget Forms 54
4.3 Structures of the Government in Pakistan 26 8.7 Analysis and Review of Budget at
4.4 Typical Organogram of a Finance Department 54
Provincial Government 27 8.8 Analysis and Review of Development
4.5 Sindh Rules of Business 27 Budget at Planning & Development
4.6 Typical Administrative Structures within Department 56
a Provincial Department 30 8.9 Budget Finalization and Approval 57
4.7 Example of an Organizational Chart – 8.10 Use of SAP System / IFMIS for
Sindh Health Department 31 Budget Consolidation 58
Chapter 5 - Roles and Responsibilities of 8.11 Printing of Budget Books 58
Different Institutions in Public 8.12 Budget Books Matrix 59
Finance Management 32 8.13 Pre-budget Session of the Sindh Assembly 62
5.1 Key Stakeholders 32 8.14 Cabinet Approval of the Budget 62
5.2 Role and Responsibilities of the Sindh 8.15 Presentation of the Budget before
Assembly, Cabinet and Public Accounts the Sindh Assembly 63
Committee in Financial Management and 8.16 Budget Authorization by Sindh Assembly 65
Control 33
8.17 Communication of Authorized Budget 12.3 Budget Oversight Role of Public

Estimates to Administrative Departments 65 Accounts Committee 108
12.4 Brief Description of Financial Statements,
Chapter 9 - Structure of Receipts & Expenditure 70
Appropriation Accounts and Commercial
9.1 Consolidated Fund and Public Account 70
Accounts 109
9.2 Classification of Receipts 72
12.5 Financial Irregularities 109
9.3 Account No. 1 - Non-Food Account 73
12.6 Audit of Accounts 110
9.4 Revenue Receipts 73
12.7 Audit Process 112
9.5 Capital Account 74
12.8 Accountability Laws 112
9.6 Account No. 2 - Food Account 75
9.7 Types of Debt 75 Chapter 13 - Policy Review and PFM
9.8 Debt Servicing 76 Diagnostic Tools 115
9.9 Debt Ceilings 76 13.1 Policy Reviews 115
9.10 Debt Management Unit of Finance 13.2 PFM Diagnostic Tools 115
Department 76 13.3 Public Expenditure and Financial
9.11 Issues with Public Debt 77 Accountability (PEFA) Assessment 116
9.12 Expenditure Types and Classification 77 Chapter 14 - Resource Transfers under
Chapter 10 - Budget Execution 82 National Finance Commission Award 119
10.1 Budget Execution - Procurement of 14.1 18th Amendment to the Constitution 119
Goods & Services 82 14.2 Re-assignment of functions under
10.2 Funds Release Process 83 the Constitution 119
10.3 Modes of Release of Funds 84 14.3 Re-assignment of Taxing Powers 121
10.4 Re-Appropriations 88 14.4 Why Fiscal Transfers? 121
10.5 Revised Estimates, Excesses / Savings 14.5 Transfers from the Federal Government
and Surrenders of Budget Estimates 89 under NFC Award 121
10.6 Supplementary Budget 90 14.6 Divisible Pool Taxes 123
10.7 Budget Execution Report 91 Chapter 15 - Service Delivery under Public Private
10.8 Delegation of Financial Power Rules 91 Partnership Arrangements 126
Chapter 11 - Accounting and Reporting 93 15.1 What is PPP? 126
11.1 Accounting System and Role of DDOs in 15.2 PPP Models 126
monitoring and controlling of expenditure 93 15.3 PPP in Sindh Government 127
11.2 Expenditure Reporting 93 15.4 PPP Process 127
11.3 IFMIS in Public Finance Management 94 15.5 Key PPP Projects in Sindh 128
11.4 Financial Accounting and Chapter 16 - Local Government Structures
Budgeting System (FABS) 95 and Financial Management 129
11.5 IFMIS Architecture 95 16.1 Local Government System 129
11.6 IFMIS Modules 95 16.2 Local Government Structures in Sindh 129
11.7 International Public Sector 16.3 Financial Powers of the Local Government 132
Accounting Standards (IPSAS) 97 16.4 Local Government Structures and
11.8 What is Chart of Accounts? 99 Functions 135
11.9 Explanation of the Structure of the
Chart of Accounts 101 Case Study: Preparing Non-Development/
Chapter 12 - Accountability for Public Funds 106 Current Budget Estimates 137
12.1 Internal Audit 106
12.2 Auditor-General of Pakistan 107
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ANNEXURES: Annex H: Budget Form BCC-X -Proposal for

Annex A: Budget Form BCC-II - Estimates of Regular Development Budget Re-appropriation 159
Expenditure and MTBF 152 Annex I: Budget Form BCC-VII - Revised
Annex B: Budget Form BCC-III - Details of Sanctioned Estimates / Final List of Excesses & Surrenders 160
Posts for Regular Expenditure Estimates 153 Annex J: Budget Form BCC-VIII - Submission of
Annex C: Budget Form BCC-IV - Proposal for Surrender of Savings 161
Schedule of New Expenditure 154 Annex K: Budget Form BCC-VI - Proposal for
Annex D: Budget Form BCC-X -Estimates of Supplementary Budget 162
Annual Development Programme (ADP) 155 Annex L: Summary of International Public Sector
Annex E: Budget Form BCC-IX - Performance Accounting Standards (IPSAS) 163
Indicators and Targets 156 Annex M: Public Expenditure and Financial
Annex F: Budget Form BCC-I - Estimates of Regular Accountability (PEFA) Pillars, Indicators and
Receipts and MTBF 157 Dimensions 167
Annex G: Budget Form BCC-V - Proposal for

Budget Re-appropriation 158
CFAA Country Financial Accountability
List of Acronyms CGA

Assessment
Controller General of Accounts
CM Chief Minister
CoA Chart of Accounts
CVT Capital Value Tax
DAO District Accounts Officer
DB Design-Build
AB Advisory Board
DBFO Design-Build-Finance-Operate
ABS Annual Budget Statement
DDO Drawing & Disbursing Officer
ACS Additional Chief Secretary
DDWP Departmental Development Working Party
ADB Asian Development Bank
DIAC Departmental Internal Audit Committee
ADP Annual Development Programme
DS Deputy Secretary
AFS Additional Finance Secretary
DG Director-General
AG Accountant-General
DMU Debt Management Unit
AGP Auditor-General of Pakistan
ECNEC Executive Committee of National
AGPR Accountant-General Pakistan Revenues
Economic Council
AIIB Asian Infrastructure Investment Bank EDO Executive District Officer
APCC Annual Plan Coordination Committee EMO Education Management Organizations
APPM Accounting Policies and Procedures ERP Enterprise Resource Planning

Manual
ETO Excise & Taxation Officer
AS Additional Secretary
FABS Financial and Budgeting System
BBO Buy-Build-Operate
FD Finance Department
BCC Budget Call Circular
FPA Foreign Project Assistance
BE Budget Estimates
FS Finance Secretary
BER Budget Execution Report
GDP Gross Domestic Product
BLOT Build-Lease-Operate-Transfer
GFS Government Finance Statistics
BOO Build-Own-Operate
GP Fund General Provident Fund
BOOT Build-Own-Operate-Transfer
GST General Sales Tax
BOR Board of Revenue
HR Human Resource
BSP Budget Strategy Paper
IA Internal Audit
CCI Council of Common Interest
IAS International Accounting Standard
CDL Cash Development Loan
IASB International Accounting Standard Board
CDWP Central Development Working Party
IASC International Accounting Standards
CF Consolidated Fund
Committee
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IBRD International Bank for Reconstruction and PAO Principal Accounting Officer
Development
PBB Performance-Based Budgeting
ICAP Institute of Chartered Accountants of
Pakistan PDWP Provincial Development Working Party
IFRS International Financial Reporting Standard
PEFA Public Expenditure and Financial
IDA International Development Association Accountability
PER Public Expenditure Reviews
IDPC Inter-Departmental Priority Committee
PETS Public Expenditure Tracking Survey
IFAD International Fund for Agriculture
Development PFC Provincial Finance Commission
IFMIS Integrated Financial Management
PFM Public Finance Management
Information System
IMF International Monetary Fund PIAC Provincial Internal Audit Committee
INTOSAI International Organization of Supreme PIFRA Project to Improve Financial Reporting and
Audit Institutions Auditing
IPSAS International Public Sector Accounting PLA Personal Ledger Account
Standards
POL Petroleum, Oil & Lubricants
LIBOR London Inter Bank Offered Rate
PPP Public Private Partnership
LG Local Government
PPRA Public Procurement Regulatory Authority
MFDAC Memorandum for Departmental Accounts
Committee PSDP Public Sector Development Programme
MIS Management Information System
ROBs Rules of Business
MTBF Medium Term Budgetary Framework
SAE Schedule of Authorized Expenditure
NAB National Accountability Bureau
SBP State Bank of Pakistan
NACS National Anticorruption Strategy
SCARP Salinity Control and Reclamation Project
NAM New Accounting Model
SDGs Sustainable Development Goals
NAO National Accountability Ordinance
SNE Schedule of New Expenditure
NBFI Non Banking Financial Institution
SO Section Officer
NBP National Bank of Pakistan
TO Treasury Officer
NEC National Economic Council
UNDP United Nations Development Program
NFC National Finance Commission
VGF Viability Gap Fund
O&M Operation & Maintenance
WAN Wide Area Network
OAGP Office of the Auditor-General of Pakistan
WAPDA Water and Power Development Authority
OBB Output-Based Budgeting
XEN Executive Engineer
OECF Overseas Economic Cooperation Fund
ZBB Zero-Based Budgeting
OFID OPEC Fund for International Development
P&D Planning & Development
PAC Public Accounts Committee

Introduction to Handbook
Purpose What to expect in this Handbook?
The purpose of this Handbook is to provide a The Handbook presents a brief overview of all aspects
comprehensive source for Public Finance Management of the PFM processes prevailing in the Government
(PFM) literature to PFM practitioners in Pakistan. The of Sindh with specific focus on the laws, rules and
Handbook provides a simplified description of PFM procedures of Sindh Government. References for
processes, procedures, rules and regulations including further readings are also provided, where required, at
practices followed, in specific context of Provincial the end of each chapter to encourage the readers/users
Government of Sindh. of the Handbook to seek detailed knowledge of the
relevant topic from multiple sources.
The content has been explained with the help of
examples using real life scenarios. In addition, Activities The contents on PFM processes have been set out in
and Case Studies have also been included to help a logical sequence from theoretical to more practical
readers/practitioners practically apply the concepts aspects with coverage of practical exercises / activities
discussed. and case studies on different topics.
Users of the Handbook Similarly key processes in various chapters are further
elaborated with the help of process flow diagrams,
where necessary. The contents of the Handbook are
This Handbook is intended to be used by a variety of arranged with reference to subject under discussion.
users in government departments/organizations. Some The users are encouraged to refer to the table of
of the users may include: contents to locate relevant topics / processes of their
•• Officials newly inducted into the Provincial Civil interest before detailed reading.
Service;
The Handbook has been divided into 16 chapters as
•• Officials serving in the administrative departments
explained below:
in planning, budget and accounts functions and
requiring capacity building on PFM concepts and •• Chapter 1 briefly defines and explains key concepts
practices; and terminologies used in this Handbook;
•• Officials performing planning and budget related •• Chapter 2 introduces Public Finance Management
activities in Finance Department and Planning & and explains its key components and objectives;
Development Department and requiring capacity •• Chapter 3 briefly explains the evolution of
building on PFM concepts and practices; budget and relevant constitutional and legal
•• All others directly or indirectly involved with budget provisions governing the budget in Pakistan. It also
preparation, approval, execution and monitoring describes various methodologies used for budget
activities in administrative departments and preparation/management;
Finance Department; •• Chapter 4 defines administrative structures of
The Handbook may also be used as part of training a provincial government in the context of the
material for effective budget management and control provincial Rules of Business;
in the public sector training institutes. The Handbook •• Chapter 5 describes roles and responsibilities of
may be useful to all those interested in getting insight various stakeholders involved in Public Finance
into the budgetary management system of the Management;
Provincial Government. •• Chapter 6 gives an overview of key elements /
phases of a typical budget cycle.
The Handbook may also be used for academic or •• Chapter 7 emphasizes the need for strategic
research purposes. planning in the budget cycle and introduces key
components of strategic planning at Finance / P&D
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Departments and administrative departments; •• Chapter 13 describes PFM diagnostic tools

•• Chapter 8 describes the process followed in including discussion on World Bank’s Public
the Sindh Government for preparation, review, Expenditure and Financial Accountability (PEFA)
analysis and final approval of Non-Development framework;
and Development budgets. Use of various Budget •• Chapter 14 briefly explains the functions and
Forms as prescribed under the Budget Call Circular taxing powers conferred upon the Federal and
is also explained; Sindh Government by the Constitution. The chapter
•• Chapter 9 provides overall structure of Provincial also provides guidance on mechanism used for
Receipts and Expenditure and gives brief resource transfer from Federal Government to Sindh
description of each; Government under National Finance Commission
•• Chapter 10 describes in detail the execution Award;
stage of budget and among other topics, also •• Chapter 15 introduces Public Private Partnership
discusses various modes of release of funds for as a modern type of funding arrangement for
development budget, procurement rules of the undertaking large development projects in public
Sindh Government and process for supplementary sector with the help of private partners;
and revised budgets; •• Chapter 16 briefly explains Local Government
•• Chapter 11 discusses accounting and reporting structures and public finance requirements in
requirements. The chapter also introduces Sindh.
Government’s Chart of Accounts and provides •• Case Studies: Two case studies have been included
details on the structure and individual components in the Handbook. These are aimed at helping the
of the Chart of Accounts. Some activities are also readers to practically apply the concepts discussed
included to help the readers in practically applying in the Handbook.
the concepts discussed. The chapter also explains
the use of an Integrated Financial Management Structure of the Handbook
Information System (IFMIS) during various stages of
budget cycle. Brief notes on IPSAS are also given in The contents of this Handbook are structured along the
this chapter; following four levels:
•• Chapter 12 describes constitutional and legal
aspects of accountability for the public funds by Chapter Title
discussing Government audit requirements and Main Topic
key legal provisions under National Accountability
Sub Topic
Bureau law. Besides, internal audit requirements
under Sindh Internal Audit Charter are also briefly Detailed Topic
mentioned;
Chapter 1. Key Concepts and Definitions

Accountant General: As defined in Accounting Policies Parliament that enables the department to spend
and Procedures Manual (APPM), Accountant-General is money for specific purposes.
the head of an office of accounts. Accountant-Generals
are established in each Province and the Federal Appropriation Accounts: Appropriation Accounts
government and each reports to Controller General refer to a comparative statement of actual expenditure
of Accounts. These officers are responsible for the against respective budget allocations separately for
overall operations of accounting offices within their each grant/demand. These Accounts are published
jurisdiction (e.g. a Province) and deal with matters of annually by the Accountant-General.
accounting policy and procedure in those areas.
Assignment Account: A Government bank account
Accrual Accounting1: A method of accounting that established with the National Bank of Pakistan (NBP),
recognises expenses when economic benefits have to provide independent payment facility for certain
been consumed and revenues when economic benefits priority projects or for government entities.
have been generated even if cash is not paid or
Auditor-General: Auditor-General is appointed by
received.
the President of Pakistan and performs such functions
Actual Receipt / Expenditure: Actuals of receipts, or and exercises such powers and prepares such reports
expenditure relating to a financial year are the figures in relation to the expenditure and accounts of the
of actual receipts, or expenditure, respectively, for that Federation and Provinces as are determined under
financial year, as recorded by the Accountant General in Auditor General’s (Functions, Powers and Terms and
the accounts. Conditions of Service) Ordinance, 2001.
Annual Budget Statement: Annual Budget Statement Budget: A Budget is government’s annual financial
is a constitutional document prepared under the plan describing the proposed expenditure and the
requirements of Article 120 of the Constitution of the means of financing them.
Islamic Republic of Pakistan. This document provides
Budget Call Circular: This represents an official notice
function-wise classification of accounts; estimates of
issued by Finance Department to line departments
revenue receipts and expenditure on revenue account;
inviting them to prepare and submit budget estimates
capital receipts and disbursements on capital account
for the following financial year. This also includes
and various transactions including debt and grants.
budget forms, instructions and guidelines for preparing
ABS is a summary of the budget estimates and is
budget estimates and calendar of activities leading to
prepared for a financial year.
final presentation of budget in the Provincial Assembly.
Annual Development Programme (ADP): This refers
Budget Deficit: The amount by which government’s
to a statement of on-going and new development
spending exceeds its income in a fiscal year.
schemes of a provincial government for a financial year.
This is also referred to as Public Sector Development Budget Estimates (BE): Budget Estimate, in relation to
Programme (PSDP). expenditure, means the expenditure proposed for the
financial year and, in relation to receipts, the receipts
Annual Financial Statements: A set of financial
expected to be realized during a financial year.
reports, produced after the close of the financial year
by the Controller-General of Accounts/Accountant- Budget Execution Report: This refers to a report
General of Pakistan Revenue / Provincial Accountants- prepared by Finance Department that gives progressive
General for the Federal and each of the Provincial actual revenue and expenditure for a particular
Governments. period of the fiscal year (i.e. quarter/half-year) and
also gives comparisons to the budgeted receipts and
Appropriation: Appropriation refers to an allocation
expenditure.
of funds to a spending department. It is an Act of the
1 Accounting Policies and Procedures Manual Budget Strategy Paper: Budget Strategy Paper
12 Key concepts and definitions
(BSP) is a document that sets out a Government’s Constitution: A body of fundamental principles or
policy goals and strategic priorities that provide a established precedents according to which a country
basis for formulation of budget for the next financial or other organization is acknowledged to be governed.
year. The BSP guides the central departments This handbook will be referring to the Constitution of
(Finance Department and Planning & Development the Islamic Republic of Pakistan, 1973.
Department) in indicating expected level of budget
ceilings to the administrative departments, while Contingent Liability: International Public Sector
at administrative department level, it helps them in Accounting Standard 19 defines a Contingent Liability
prioritizing their current and development spending as “ (a) A possible obligation that arises from past
within the indicated resources. events and whose existence will be confirmed only
by the occurrence or non occurrence of one or more
Budget Surplus: The amount by which government’s uncertain future events not wholly within the control
income exceeds its spending in a fiscal year. of the entity; or (b) A present obligation that arises
from past events but is not recognized because:
Capital Receipts: These refer to receipts obtained (i) It is not probable that an outflow of resources
from sources of finance other than Revenue. Examples embodying economic benefits or service potential will
include loans, advances, grants, etc. be required to settle the obligation; or (ii) The amount
of the obligation cannot be measured with sufficient
Capital Expenditure: Generally, expenditure on capital
reliability.
items (e.g. bricks and mortar) is classified as Capital
Expenditure. This also includes expenditure met from Current Revenue Expenditure: This refers to
capital receipts2. For example, repayment of loans, budgeted or actual outflow of funds from Revenue
investments in approved securities. account for Government’s ongoing/non-development
operations. For example, pay and allowances, pension,
Cash Accounting: A method of accounting that
utilities, repair & maintenance, etc. paid from revenue
records cash payments and cash receipts only.
account.
Charged Expenditure: This refers to certain
Debt Servicing: The amount of money required
expenditures met from the Consolidated Fund, which,
to cover payments for interest and principal on
under the Constitution, must be discussed, but are
outstanding debts / loans for a given period.
not submitted to the vote of the National or Provincial
Assemblies. Examples include salaries of the Judges Development Project / Schemes: A development
of the High Court; salary of the Governor and related project is an activity undertaken to acquire, build or
expenses of the Governor’s House. improve physical assets or develop human resources
and is provided within the development expenditure
Chart of Accounts: A coding structure that allots codes
grant. Development project usually has a finite life
to all types of expenditures, receipts, assets, liabilities,
and a specific source of funding. Development budget
departments, and functions of the government in
may comprise Revenue Expenditure and / Capital
order to make the accounting simple. The codes help to
Expenditure (Provincial-own sources, Foreign Project
consolidate and summarize information.
Assistance (FPA), Federal Grant, etc.). Development
Consolidated Fund: Constitution requires every budget consists of ongoing or new schemes for the
government to open two accounts (i) Consolidated province. It is called Annual Development Programme
Fund and (ii) Public Account. For Provinces, article 118 (comprising budgets for Provincial Departments and
of Constitution stipulates that “all revenues received Districts separately) in Sindh.
by the Provincial Government, all loans raised by
Direct Tax: A tax imposed directly on the income or
that Government, and all moneys received by it in
capital of a person or organization, rather than as part
repayment of any loan, shall form part of a consolidated
of the price of goods or services. Tax on an individual’s
fund, to be known as the Provincial Consolidated Fund”.
income, referred to as Income Tax is an example of
Money left in the account on 30th June is called closing
Direct Tax.
balance, and the same becomes opening balance at the
start of the new financial year on 1st July. Drawing & Disbursing Officer: Drawing & Disbursing
Officer (DDO) is responsible for accounting, payment,
2 Accounting Policies and Procedures Manual cash and personnel record-keeping functions of a
spending unit / department. and Actual Expenditure.
DDO Code: A six digit unique code allotted to each External Audit: This refers to an audit of the financial
spending unit and is published in Budget Books against statements of a company, government entity, other
names of spending units / projects. It is also called legal entity or organization, carried out in accordance
cost centre code or DDO code. For example: Medical with specific laws or rules, by an expert who is
Superintendent Liaqat University Hospital Hyderabad independent of the entity being audited.
has been assigned ‘HB5099’ as DDO code; similarly,
District Prosecutor Shikarpur has been allotted a DDO Federal Grants: These constitute grants other than
code of ‘SQ0027’. Straight Transfers and Divisible Pool Transfers from
the Federal Government. These mainly comprise
Divisible Pool Taxes: Under the National Finance grants from the Federal Government for Public
Commission (NFC) Award, Federal Divisible Pool Sector Development Programs (PSDP). The federal
comprises 7 different taxes and duties collected by PSDP grants are only pass-through items as these are
Federal Board of Revenue, i.e.: released to executing agencies for implementation of
Federal Development Projects.
•• Taxes on Income
•• Wealth Tax Federal Transfers: Payments made by the Federal
•• Capital Value Tax (CVT) Government to the Provinces either out of the Federal
•• Taxes on sales of goods & purchase of goods Divisible Pool or as part of Straight Transfers. Moneys
imported, exported, produced, manufactured and forming part of the Straight Transfers are collected by
consumed the Federal Government on behalf of the Provinces
•• Export duties on cotton and are transferred to the respective province after
deducting collection charges.
•• Customs duties
•• Federal Excise Duties excluding the excise duty on Finance Bill: Finance Bill is a legal document that
gas charged at well heads. gives effect to the financial proposals of the Provincial
The Divisible Pool Taxes are divided among the Federal Government for a particular financial year. The Bill
Government and Provincial Governments under a becomes a law once debated, amended and approved
formula specified in NFC Award. by members of the Provincial Assembly. Finance Bill is
tabled in the Provincial Assembly at the time of budget
Employee Benefits: Employee Benefits include presentation every year. Financial / Fiscal Year
General Provident Fund, Pension and Encashment of Refers to the accounting period of the government. It is
Leave. a 12-month period starting from 1st July of the current
year and ends on 30th June of the succeeding year, e.g.,
Employee-related Expenditure: Employee-related FY 2013-14 runs from July 1, 2013 until June 30, 2014.
expenditure primarily includes pay and allowances Both terms (financial year and fiscal year) are used
of the government employees. Pay can include basic interchangeably.
and special pay, while there can be a range of different
allowances, e.g. House Rent Allowance, Conveyance Foreign Project Assistance: External resources
Allowance, etc. Allowances are generally grouped available to a Federal/Provincial Government mainly
under Regular and other allowances. comprise loans and credits from friendly countries and
specialized international agencies and grant assistance
Excess: An amount of expenditure exceeding the under specific country programmes. The Foreign
approved budget, which is regularised / approved by Assistance (Loans, Credits and Grants) is broadly
the Provincial Assembly through an Excess Budget categorized as project aid and commodity aid. Project
Statement in next budget session. The approval Aid/Assistance generally takes the shape of foreign
exercise is mostly perfunctory as the expenditure has loans and grants for procurement of project equipment
already been incurred and the Assembly has little time and supply of services etc. The purpose of obtaining
to discuss it. the Assistance is to supplement domestic resources for
Expenditure: Depending upon the context, the term achieving accelerated growth in selected priority areas.
‘Expenditure’ as used in Annual Budget Statement Function and Function Code: Government performs
generally refers to Budget Estimates, Revised Estimates various functions such as Health services, Education,
Agriculture, etc. As already explained under Chart of issued by the IPSAS Board for use by public sector
Accounts, codes are also allocated to these functions. entities around the world in the preparation of financial
Each function has some sub-functions such as primary statements. More details appear in Chapter 11.
education, secondary education which are also
assigned sub-codes for ease of recording of budget and Medium Term Budgetary Framework (MTBF):
expenditure. A multi-year budgetary framework is aimed at
assisting ministries / departments in predictability of
Fiscal Transfer: This refers to the share of a province resources they need to formulate plan and implement
out of Divisible Pool Taxes, transferred in accordance government policies. Unlike an annual budget, the
with the National Finance Commission (NFC) Award to MTBF is a multi-year approach to budgeting which links
the relevant account of the Provincial Government by the spending plans of the government to its policy
the Federal Government. Similarly in case of districts, objectives.
the share of districts in the Provincial Consolidated
Fund worked out as Allocable Amount, in accordance Modified Cash Accounting: A method of accounting
with the award of the Provincial Finance Commission in which all cash payments and receipts are recorded,
and transferred to districts. along with certain assets and liabilities/commitments.
Pakistan currently follows modified cash accounting
General Ledger Account: A General Ledger Account is system.
an account used to sort and record balance sheet and
receipt and payment transactions. Examples include Non-Development Expenditure: Expenditure relating
the asset accounts such as Cash, Investments and to the on-going operations of the government.
Equipment. Examples include pay and allowances of employees,
operating expenditure, repair & maintenance, etc. Non-
Grant/Demand: Every department presents its Development Expenditure is also referred to as Current
requirements of expenditures for next year to the Expenditure.
Assembly in the shape of a ‘demand’. The Assembly
debates and then ‘grants’ the money to the department. National Finance Commission: National Finance
Every Grant/Demand also has a code number. Commission (NFC) comprises Federal and Provincial
Finance Ministers and other persons appointed by the
Gross Domestic Product (GDP): GDP is the standard President. Article 160 of the Constitution lays down
measurement of the size of the economy. It represents the provision for the establishment of NFC. Its main
the total value of goods and services produced within objective is to set a revenue sharing formula of the
a country during a fiscal year, including those of the Divisible Pool taxes between federation and provinces
private sector and the government. (vertical distribution), and among the provinces
(horizontal distribution).
Indirect Tax: This means a tax levied on sale/purchase
of goods and services rather than on income and profit. Object: Object element of the Chart of Accounts
Examples include General Sales Tax (GST) levied on sale enables the classification of transactions into
of goods/services, Customs Duty on imports, Excise expenditure and receipts and also facilitates recording
Duty on production, etc. of financial information about assets, liabilities and
equity. Examples include Pay & Allowances (Object
Internal Audit3: Internal auditing is an independent, code A01), Repairs & Maintenance (Object code A13),
objective assurance and consulting activity designed Operating Expenses (Object code A03).
to add value and improve an organization’s
operations. The organization can be any entity of the PEFA5: Public Expenditure and Financial Accountability
Government, i.e. an Administrative Department, an (PEFA) is a tool for assessing the status of public
autonomous body of the Administrative Department, a financial management. A PEFA assessment provides
Development programme/project, etc. a thorough, consistent and evidence-based
analysis of PFM performance at a specific point in
IPSAS4: International Public Sector Accounting time. The PEFA methodology can be reapplied in
Standards (IPSAS) are a set of accounting standards successive assessments to track changes over time
3 See: https://na.theiia.org/standards-guidance/mandatory-
guidance/Pages/Definition-of-Internal-Auditing.aspx Post-audit: An audit of accounting
4 See: https://en.wikipedia.org/wiki/International_Public_Sector_
Accounting_Standards 5 See: https://pefa.org/
records, conducted at some interval of time after a Assembly having principle functions to examine

transaction or a series of transactions has already Appropriation Accounts and the Report of the Auditor-
occurred. General thereon and such other matters as the
Assembly or the Speaker or the Finance Minister may
Pre-audit6: A process undertaken by the DAO/AG/ refer to it. Public Accounts Committee functions under
AGPR involving verification (proper approval and the Rules of Procedure of Provincial Assembly.
validity)and audit (scrutiny against irregularities) of a
payment prior to it being made. Re-appropriation: It means the transfer of savings, in
the appropriations of one or more objects/cost centres,
PC Forms: Planning Commission, Government of to meet excess expenditure anticipated under another
Pakistan, has prescribed five pro-formas/forms for such costing object. Re-appropriation is carried out
development projects/schemes. The PC-I proforma under a Re-appropriation policy of the Government.
is used for creation of a project, PC-II is for assessing
feasibility of a project, PC-III is prepared for reporting Revenue Account: This refers to the account of the
budget and actual expenditure, PC-IV is used as a income derived from taxes and duties, fees for services
template for preparation of project completion report, rendered, land revenue from government estates,
while PC-V is used for annual performance of the fines, penalties, other miscellaneous items, and the
project in terms of finance and operations/key targets. expenditure met there-from.
These are explained in more detail in Chapter 8 of this
Handbook. Revenue Receipts: These represent receipts which
are collected during the normal operations of the
Public Private Partnership: A Public-Private government and make up the largest proportion of
Partnership (PPP) is a “mechanism for government government’s own-source receipts in a financial year.
to procure and implement public infrastructure and/ For example, sales tax on services collected by or on
or services using the resources and expertise of the behalf of Sindh Revenue Board.
private sector”7. The public partner is represented by
the government at a local, provincial and/or national Revised Estimates (RE): During any year, departments
level. The private partner can be a privately-owned may change their budget allocations between items of
business or consortium of businesses with a specific expenditure as well as demand more funds for some
area of expertise. items. Around April every year, government look at
their revenues and expenditures for the past eight
Public Sector Development Program (PSDP): months and forecast the requirements of the remaining
The Federal and provincial governments’ combined four months. Based on these changes and demands
expenditure relating to development projects / they make adjustments in the original budget. The
schemes. Federal PSDP document includes project result is a Revised Budget or Revised Estimates.
wise allocations for federal projects separately for each
Ministry / Division for a particular fiscal year and single Revenue Expenditure: Expenditure met from
line development budget allocations by all provincial revenue receipts. This can be both Development
governments. and Non-Development Expenditure. For example,
expenditure on salaries (pay and allowances), pension,
Public Account: Public Account comprises those repair & maintenance, utilities paid out from tax
moneys for which the Government has fiduciary and non-tax receipts. Salaries may be for employees
duty but it is not at liberty to appropriate for its engaged in ongoing non-development operations
general services of the Government. Public Account of the Government or for those hired for a specific
encapsulates trust accounts and special deposit development project or scheme with a finite life.
accounts. Article 118 of the Constitution defines both
Consolidated Fund and Public Account of a provincial Savings and Surrenders: Amount un-utilized out of
government. budget allocation is called ‘Saving’. Relinquishment
of allocated funds by a spending unit/department
Public Accounts Committee (PAC): The body is called ‘Surrender’. This generally happens when
constituted from the members of the Provincial the allocated funds are not likely to be spent by that
6 Under Accounting Policies and Procedures Manual (APPM), spending unit/department, within the stipulated
‘certification’ and ‘pre-audit’ refer to the same process.
time as prescribed by the government, and are not
7 See: http://ppp.worldbank.org/public-private-partnership/about-
public-private-partnerships required to be or cannot be re-appropriated to other
expenditure heads. Supplementary Budget: This refers to additional

funds not provided in the original budget. Under
Schedule of Authorised Expenditure: Schedule Article 124 of the Constitution, if, in respect of any
of Authorized Expenditure means the schedule financial year it is found that the amount authorized
prepared, following consideration by the Provincial to be expended for a particular service for the current
Assembly, of the Annual or Supplementary or Excess financial year is insufficient, or that a need has arisen
Budget Statement in respect of a financial year, and for expenditure upon some new service not included
authenticated by the Chief Minister with his signatures, in the Annual Budget Statement for that year, the
under Article 123 of the Constitution. Provincial Government has the power to authorize
expenditure from the Provincial Consolidated Fund,
Schedule of New Expenditure (SNE): New
whether the expenditure is charged by the Constitution
expenditure pertains to items of expenditure which
upon that Fund or not, and shall cause to be laid before
are not part of the on-going financial year and are
the Provincial Assembly a Supplementary Budget
expected to arise afresh in the coming year. For
Statement.
example, procurement of new vehicle and creation of
new vacancies in departments. A separate pro-forma Tax Revenue: Revenue of the government is bifurcated
is used by provincial government departments for into tax revenue and non-tax revenue. Tax revenue
preparation of SNE budget. comprises General Sales Tax on Services, Property
Tax, etc., whereas non-tax revenue is composed of
State Trading: State Trading operations of the
receipts from services rendered to general public.
provincial government relate to procurement and sale
For example, examination fees received by Boards of
of food grains especially wheat. Transactions pertaining
Education, consultation fees/lab test charges received
to state trading are kept separately and their receipts
by government hospitals, water changes collected by
and expenditures are credited and debited to the
Irrigation Department, etc.
provincial government’s food account i.e. Account No. 2
with the State Bank of Pakistan. It is carried out with the Voted Expenditure: Voted Expenditure means
borrowing from commercial banks as per cash credit such expenditure as is submitted to the vote of
facility extended by these banks. the Assembly, with reference to Article 82 (2) of
the Constitution (in case of Federal Government’s
Straight Transfers: Under Article 161 of the
budget) and Article 122 (2) of the Constitution (in
Constitution, Straight Transfers to the provinces
case of Provincial Government’s budget). Under the
include (a) net proceeds of the Federal Excise Duty on
requirements of the Constitution, expenditure in
natural gas; and (b) net proceeds of royalty on crude
Annual Budget Statement (ABS) is separately shown for
oil and natural gas assigned to the provinces under the
“charged expenditure” and “voted expenditure”).
Constitution.
Chapter 2. Introduction to Public Finance
Learning Objective 1: Define Public Finance
2.1 Definitions of Public Finance of a country’s budget process… including strategic

planning, medium-term expenditure framework,
Public Finance Management deals with management of annual budgeting and also revenue management,
public resources. Management covers both allocation procurement, control, accounting, reporting,
and use of resources collected from the economy. monitoring and evaluation, audit and oversight”.
Chartered Institute of Public Finance & Accountancy Public Finance is a field of economics which is
(CIPFA) defines PFM as “the system by which financial concerned with how governments raise money, how
resources are planned, directed and controlled to that money is spent, and the effects of these activities
enable and influence the efficient and effective delivery on the economy and on society.
of public service goals8.”
Public Finance studies how government at all levels
According to Development Assistance Committee - national, state, and local - provide the public with
(DAC) of Organization for Economic Cooperation & desired services and how they secure the financial
Development (OECD9), PFM includes all components resources to pay for these services.
8 https://www.oecd.org/dac/effectiveness/48782679.pdf
9 For more information see: http://www.oecd.org/dac/effectiveness/ pfm.htm
Learning Objective 2: Identify key elements of Public Finance
2.2 Elements of Public Finance The budget determines which public goods and
services to produce, which spill-overs to correct,
There are three10 elements of public finance, as and how much assistance to provide to financially
mentioned below: disadvantaged people.
•• Public Expenditure
•• Public Revenues 2.4 Public Revenue
•• Public Debt
Government must have funds, or revenue, to pay for
their activities. Some of the revenue is generated by
2.3 Public Expenditure charging fees for the services they provide, such as
a revenue from sale of gas, electricity, water, tolls for
Each year National, Provincial and Local governments
using a highway, or fee at a Government hospital.
create a budget to determine how much money they
will spend during the upcoming year. Most government revenue comes from taxes, such as
Income Taxes, Capital Taxes and Sales and Excise Taxes.
10 The fundamental and more traditional PFM elements include
Public Expenditure, Public Revenue and Public Debt. However, An important source of tax revenue in Pakistan is the
due to changing role of the government, other elements are are income tax, which is imposed on labour or activities
considered to be part of PFM, e.g. Federal Finance and Financial
Administration. See https://en.wikipedia.org/wiki/Public_finance. that generate income such as wages or salaries.
18 Introduction to public finance
Sales and excise taxes are also a major source of categories:

government tax revenue. Many provincial and local
•• Internal / Domestic Debt: When a government
governments levy sales tax on the purchase of certain
finds it impossible to obtain further money by
items.
taxation, it resorts to borrowing from citizens and
Consumers usually pay a percentage of the sales price financial institutions within the country. This is
as the tax on buying goods and / or services. Sales tax ‘internal or domestic borrowing’. Monies borrowed
on goods is a Federal Government’s tax and collected from citizens is in the form of bonds, saving
by the Federal Board of Revenue, while Sales Tax on schemes etc.
Services is charged and collected by provincial revenue •• External / Foreign Debt: This money is raised from
authorities, i.e. Sindh Revenue Board (SRB) in Sindh. international money markets, foreign governments,
and from international agencies like International
Traditional concept of public finance has been to raise Monetary Fund.
sufficient revenues for meeting public expenditure. •• Productive Debt: The debt that is expected to
However, renowned economist JM Keynes holds create assets which will yield income sufficient to
that the objective of Public Finance is to help in the pay the principal amount and the interest on it, is
achievement of certain social and economic objectives known as ‘productive debt’.
and finance some essential economic activities.
•• Unproductive Debt: Debt raised for financing
unproductive assets or heavy unproductive
2.5 Public Debt expenditures. Such a debt is a deadweight debt.
Debt invested on ailing state industry is an example
Public debt refers to borrowing by a government from of deadweight debt.
within the country or from abroad, from individuals or •• Short and Long Term Loans: Loans that are
association of individuals or from banking and Non- repayable within a period of one year are termed
Banking Financial Institutions (NBFIs). as ‘short-term loans’ and if taken for more than one
year, they are referred to as ‘long-term loans’.
Sindh Government, besides borrowing from State Bank
•• Contingent Liabilities: These liabilities mainly
and commercial banks, also raise money from foreign
arise from Pension and General Provident Fund
sources (e.g. World Bank, Asian Development Bank and
maintained by the Sindh Government and also
various international donor agencies) to meet their
include any guarantee issued by the Sindh
operational and development needs.
Government to third parties on behalf of a
Public Debt is broadly classified into the following Provincial Department or a Public Sector Enterprise
under a loan agreement with third parties.
Learning Objective 3: Name Three objectives of Public Finance
2.6 Need for Public Finance pollution and release it into the environment without
considering the adverse effect pollution has on others.
One of the most important functions of the modern
Governments is to provide public goods, i.e. Public finance provides government programs that
government-financed items and services such as roads, moderate the incomes of the wealthy and the poor.
policing, defence and street lights. Since the citizens These programs include social security, welfare, and
would not voluntarily pay for these services, the private other social programs. For example, some elderly
businesses have no incentive to produce them. people or people with disabilities require financial
assistance because they cannot work.
Public finance also enables governments to correct or
offset undesirable side effects of a market economy. Governments redistribute income by collecting taxes
These side effects are called spill-overs or externalities. from their wealthier citizens to provide resources for
Example: households and industries may generate their needy ones. The taxes fund programs that help
support people with low incomes. to the capacity to establish priorities within the budget.
Means allocating and spending public resources

2.7 Three objectives of Public Finance in such a way that attainment of the government
Management (PFM) objectives is maximised (i.e. allocated efficiency
achieved). To achieve this allocated efficiency, there
PFM is only one of the instruments to implement public must be:
policies, but it is probably the more important. As an
•• Clearly defined national and sub-national
instrument, PFM has specific objectives to properly
(provincial / district) objectives and priorities
implement policies. These policies, which should not be
confused with policy objectives. •• Existence of effective sector programmes and
strategies
Traditionally, emphasis is placed on regularity, probity, •• Capacity and willingness to re-allocate if needed
due process, development of a control culture and
adequate procedures. Good control procedures and Efficient service delivery
due processes are required but they do not necessarily
lead to good outcomes. Also referred to as ‘operational efficiency’
The three specific objectives of PFM which have Represents the ability to make efficient and effective
emerged over time place an emphasis on policies and use of resources in the implementation of strategic
efficiency of spending. priorities. Key elements of this objective are as follows:
These objectives are: •• Use of liquidity (loans, cash management)

•• Support to service delivery units
•• Maintain aggregate fiscal discipline
•• Reduce leakages
•• Ensure strategic allocation of resources - also called
attaining allocative efficiency
•• Ensure efficient service delivery - also referred to as 2.8 PFM is an instrument
attaining technical efficiency
PFM is an instrument to implement public policies.
The first objective, i.e. aggregate fiscal discipline is
fundamental to the whole PFM system. Without fiscal Examples of policies are:
discipline the other two objectives do not make sense. •• Public finance policies
These are linked together in the following manner:
•• Tax policy
•• Government Service Charges i.e. policy for Non-Tax
Aggregate fiscal discipline
Receipts
•• Public expenditure policy
Pertains to effective controls of budget at the
•• Debt policy
aggregate level throughout the policy, planning and
budget cycle, by setting hard ceilings on expenditures •• National and sector policies
that are binding both at the aggregate level and on •• Poverty Reduction Strategy
individual spending entities. •• Sector plans, etc
Maintaining a sustainable balance between a

government’s revenues, expenditures and the level
of public debt is part of this objective. This in other
words, also means respecting the expenditures ceilings
at all levels and by all actors of the Government
administration.
Strategic allocation of resources
Also referred to as ‘allocative efficiency’. Broadly, refers

20 Introduction to public finance
Activity: Identifying PFM Institutions
The table below indicates names of various entities. Please state if it is a PFM institution or not.
ENTITY IS IT A PFM
INSTITUTION?
YES / NO
District Accounts Office, Karachi Y N
Jinnah Post-Graduate Medical College (Hospital), Karachi Y N
Board of Revenue Y N
Finance Department Y N
Fisheries Department Y N
Lady Health Workers Programme Y N
Planning & Development Department Y N
Accountant General, Sindh Y N
Government Higher Secondary School, Shikarpur Y N
Accountant-General, Sindh Y N
Suggested Readings
•• Historical perspective of Public Finance: https://en.wikipedia.org/wiki/Public_finance
•• Definition and explanation of concepts in Economics: http://economicsconcepts.com/public_finance.htm
•• Economic Survey of Pakistan (A chapter on Public Finances): http://www.finance.gov.pk/survey/
chapter_10/04_Public_Finance.pdf
Chapter 3. Budget Concepts, Objectives and Principles
Learning Objective 1: Appreciate the term ‘Budget’ in historical perspective and its
current usage
3.1 Origin and evolution of Budget balance, comprehensiveness, and control, had emerged
in Europe. Fiscal procedures there had developed into
The origin of the word budget is the Latin bulga, or structures, a century of innovations had settled into
the Irish bolg, “bag”. The word turned up in English institutional relationships.
sometime between 1400 and 1450, having travelled
via the Middle French bougette, a diminutive form The Twentieth Century witnessed new dimensions and
of bouge, “leather bag” or satchel. By the end of the roles to the budgeting that focused more on linking
sixteenth century, it became a standard part of the late of public sector spending with national / sub-national
Middle English vocabulary, usually referring to a leather government policies. The emergence of Medium Term
bag. Budgetary Framework (MTBF) is an example in this
regard.
Budgeting practices largely evolved since nineteenth
century when Napoleon Bonaparte, the French army
general and Emperor, realized to streamline military 3.2 What is Budget?
spending by establishing the budgetary control
Budget refers to a plan expressed in financial terms
institution like office of Auditor General. In 1803, France
prepared for a specific period. This plan covers both
adopted the English word budget and expanded on
projections for revenues and expenditure of an
the English technical capabilities to obtain greater
organization.
control over all expenditures, both military and non-
military and accomplished them in such a short period For a governmental entity, the budget represents the
of time. legal authority to spend money.
By the 1860s France had developed a uniform A government budget is a government document
accounting system consisting of conventions, a presenting the government’s plan of revenues and
standard fiscal year, requirements, procedures, spending for a financial year that is passed by the
reporting and auditing. Consequently, the budget was legislature, approved by the Chief Minister and
considered to be one of the government’s major policy presented by the Finance Minister.
documents.
Budget is a product of the planning process. It also
In later years, the spectrum of budget encompassed involves allocating limited resources to the prioritized
spending in social infrastructure besides military needs of the government besides determining what is
spending. In England, for instance, focus of budgetary to be done and achieved, the manner in which it is to
spending was concentrated on expenditures on be done and the resources required for the same.
domestic activities to stimulate commerce. England
viewed the French budgetary techniques as a It requires the broad objectives of the government/ or
promising way to control English finances and in 1861 a government entity to be broken down into detailed
created the first ever Public Accounts Committee in work plans for activities and / or projects.
Parliament and, in 1866 the offices of Controller and
Auditor General. More specific purposes of the budget could be defined
as follows;
By the end of the Nineteenth Century, unity, annularity,
It provides a comprehensive and transparent financial
22 Budget concepts, objectives and principles
plan linking a government organization’s available recording (accounting) and monitoring (auditing) the
financial resources to its activities. expenditure of funds.
It sets out a limit on the level of expenditure permitted It provides authority to public fund managers to spend
in carrying out the organization’s activities. money on implementing agreed policies and carrying
out planned activities without constant reference to
It provides a structure of releasing (allotment), top management.
Learning Objective 2: Name key budgeting principles
3.3 Budget Principles multi-year budget must also be prepared for a

particular year.
The broad principles governing a ‘good’ budget are •• Universality: Revenue / receipts and expenditure
summarized as followed: should be entered in full without any adjustment
•• Comprehensiveness: There should be a against each other.
single budget document with all receipts and •• Transparency: Revenues and expenditure should be
expenditures of the government and should cover presented in a transparent manner.
ALL government revenue and expenditure. •• Balanced (policy): of revenues and expenditures,
•• Annual: Budget should be prepared on an annual compatible with macroeconomic constraints, or
basis. Budget estimates developed as part of a international commitment.
Learning Objective 3: Describe key features of different budget methodologies
3.4 Budget Methodologies The incremental budgeting has two identifying

characteristics. First, funds are allocated to departments
Over the years, different budget methodologies have or organizational units. The managers of these units
emerged and are being practiced in public sector at then allocate funds to activities as they see fit. Second,
varying degrees. Some of the key ones include: an incremental budget is developed on the basis of
a previous period’s budget. Each period’s budget
•• Incremental Budgeting
begins by using the last period as a reference point.
•• Zero-Based Budgeting
Only incremental changes in the budget request are
•• Performance Budgeting reviewed.
•• Output Based budgeting
•• Program Budgeting The concept of Incremental Budgeting is simple and
easily comprehendible, hence operation-friendly in
These are described in more detail in the following nature. However, each of these characteristics creates a
section: problem.
Incremental Budgeting Incremental budget is particularly troublesome when

top management seeks to identify inefficiencies and
An incremental budget is a budget prepared using a waste. Inefficiencies generally tend to grow in the
previous period’s budget or actual performance as a incremental budget because it’s easy for them to get
basis with incremental amounts added for the new hidden. In the typical incremental budget, nothing ever
budget period. gets cut. Each budget begins with the funds allocated
for the last period; to which the budget entities add a
percentage for inflation and requests for those new or •• The activities performed, in order to achieve the
expanded activities they seek to pursue. final outcome
A Performance Based Budget informs the public about
Zero-Based Budgeting the total expended amounts on various services, as well
as the anticipated benefit which the public may derive.
Zero-Based Budgeting (ZBB) approach assumes that It informs the public about the possible destinations
the existing programs / services will not continue where their expenses go, along with the cost of the
indefinitely. It requires the financial managers to justify expected benefits. It permits the policy and decision
the entire level of funding for their programs each makers to have a transparent view of the tradeoffs
fiscal year. Budgets are established based upon what between alternative expenditure plans.
is needed for the upcoming fiscal year, regardless
of whether the budget is higher or lower than prior PBB uses Key Performance Indicators and Balanced
allocations. Scorecard approach for tracing out activities of a
program or project. It shortens the lengthy, traditional
Zero-Based Budgeting designed to overcome certain budgeting and reporting procedures which save
deficiencies in incremental budgeting, for instance, money and time simultaneously, with fresh regulatory
avoids an activity from becoming immortal. necessities. It requires highly skilled human resource
along with sophisticated analytical tools to perform this
In ZBB, the function of a government department is type of budgeting practices.
analyzed and evaluated in a comprehensive manner,
and any expense may increase only after approvals. Output Based Budgeting
When discrepancies arise, Zero-Based Budget requires
detailed justification from public service managers,
starting from the lowest levels, called the Zero-Base. Output based budgeting supports strategic
The Zero-Base is however, least bothered about the prioritization of resources and the linkage of financial
overall increase or reduction of the budget. information to the policy objectives of the government.
Such approach is preferred in government sectors in
ZBB usually requires budgeting for each activity to be order to enhance efficiency of budgetary allocations
started from scratch leading to detailed and lengthy through establishing linkages between operational
procedures and includes a lot of paper work. The merits plans based on service (output) delivery targets with
of ZBB are usually outweighed by high cost of human the constraining fiscal resources. OBB provides key
resource engaged and time required to undertake foundation for moving towards performance based
this type of budgeting. Another downside is that it is budgeting. The difference lies in setting the operational
resource intensive and as a result is rarely used. services delivery targets rather than performance
benchmarks.
Performance Budgeting
Output based budgeting can assist the public
service managers in ensuring greater transparency
Performance Based Budgeting (PBB) comprises an in public spending through establishing solid basis
annual, integrated performance plan, indicating the for monitoring and evaluation in both financial and
relationship between the levels of program funding operational perspective. However, the process involves
and the anticipated outcomes. It refers to a single collection, scrutiny and analysis of a lot of operational
or a set of performance target(s) which must be and financial data besides difficulties in quantification
achieved at a given expenditure level. PBB relates of optimal levels of service delivery vis-à-vis resource
the appropriations or expenditure targets with the inputs.
performance targets.
Output based budgeting framework enables the
PBB process considers following three different preparation of budget by linking the inputs (resources)
elements prior to the formulation of the budgetary with Outputs (services) and Outcomes (impact) of an
document: organization. In a nutshell, OBB estimates are prepared
•• The ultimate outcome of a particular performance for three years and are linked to organization’s policy
•• The strategies, that is, the diverse means of objectives.
attaining the final result
24 Budget concepts, objectives and principles
OBB has the following key elements: to groups of activities (programs) that are needed to
achieve a specific objective. As such, they are designed
•• Outcome: This refers to the intended results (or
to deal with one of the major problems of incremental
impact) on a target population of a particular
budgets; that is, funds are allocated to activities, not to
service (output) being delivered. For example,
departments.
a reduction in burden of a particular disease as
a result of expenditure incurred on a particular Objectives, outputs and expected results are described
activity by a provincial department/attached fully as are their necessary resource costs, for example,
department equipment and human resource. The sum of all
•• Output: The products or services delivered to activities or programs constitutes the Program Budget.
the target population. For example, detection Thus, when looking at a Program Budget, one can easily
of dengue cases, improved disease surveillance, find out what precisely will be carried out, at what cost
etc. Outputs may be the result of a set of and with what expected results in considerable detail.
activities funded through the Current Budget, the
Development Budget, or both. This approach demands thorough understanding
•• Key Performance Indicator: A variable used to of program structures, activities and components.
measure service delivery. Targets are set for each The alignment of all programs and their objectives
KPI against each output. For example, number of in a comprehensive organizational policy framework
dengue virus cases reported, number of master remains a challenge especially where such programs
trainers trained, etc. have conflicting targets.
•• Inputs: Resources required to undertake activities Suggested Readings
that contribute to an output. These include physical,
financial and human resources. For example, •• About ‘Budget’:
equipment, personnel, vehicles. https://en.wikipedia.org/wiki/Government_budget
•• Budget Theory in the Public Sector (edited by Aman
Program Budgeting Khan and W. Bartley Hildreth):
http://www.untag-smd.ac.id/files/Perpustakaan_
Program budgeting is an extended form of Digital_1/BUDGET%20Budget%20theory%20in%20
performance based budgeting. It describes and gives the%20public%20sector.pdf
the detailed costs of every activity or program that
is to be carried out in a budget and allocates funds
Chapter 4. Administrative Structures of the

Government
Learning Objective 1: Define ‘government’ and describe key functions of a modern

government
4.1 What is a Government?

The term “government” is derived from 14th Century French word, meaning “act of governing and ruling:” –
“system by which a thing is governed”. A government is responsible to govern or rule the state. Since this power
cannot be exercised arbitrarily it is done through the constitution which is also termed as the source from where
all powers are derived.
In general government comprises all government units, i.e. central government, provincial government and local
government. In some countries, social security funds are sometimes combined into a separate subsector and are
thus also part of a General Government. It is the bureaucracy which is termed as permanent government and
exercises powers to run the affairs of the government.
Government is part of what is called ‘public sector’ which also includes public corporations11 and quasi-
corporations controlled by the government units e.g. airlines, railways, large industrial units etc. The relationship of
Government and Public Sector is given in the following diagram12:
Pu blic Sector
G enera lG overnm ent Pu blic Coorpora tion
Centra l/Federa l
G overnm ent Fina ncia lPu blic Non-Fina ncia lPu blic
Coorpora tions Coorpora tions
Sta te/Provincia l
G overnm ent M oneta ry Pu blic
Coorpora tions ,inclu ding
Centra lBa nk ( Sta te Ba nk )
Loca lG overnm ent
Non-M oneta ry Pu blic
Fina ncia lCoorpora tions
11 Public corporations are often established to provide goods and services in larger quantities than a private corporation would provide at the
same selling price.
12 A simplified version based on IMF’s Government Finance Statistics (GFS) Manual, 2014
26 Administrative structures of the government
4.2 Functions of a Modern Government •• Improving economic efficiency.

•• Making the distribution of income less unequal
•• Protection of rights of citizens. (taxation and distribution of wealth).
•• Provision of basic social services (health, education, •• Stabilizing the economy through macro-economic
sanitation, drinking water etc.). policies.
•• Efficient service delivery (immigration, tertiary •• Foreign diplomacy and representing the country
education etc.). internationally.
•• Administration of Justice. •• Defence against outside forces, i.e. military defence.
•• Promoting economic growth and development •• Internal security.
Learning Objective 2: Gain an overview of the overall structure of Provincial

Government and understand the meaning, scope and contents of Rules of Business of
the Provincial Government and their relevance to the functions of the Government
4.3 Structures of the Government in Pakistan Government. A Cabinet of Ministers is responsible for
around 46 Provincial Departments.
Government of Pakistan consists of executive,
legislative and judicial branches. President of Pakistan Within provinces, there are ‘Divisions’, each of which
is the head of the state and is elected through an comprises three to four Districts. Each District has sub-
electoral process by the members of the Senate, districts (taluqas/tehsils) and several union councils.
National Assembly, and provincial assemblies for a
Under Sindh Local Government Act 2013, each district
five-years term, while Prime Minister is elected by the
is governed by a Chairman and each Metropolitan/
votes of the majority of the members of the National
Municipal Corporation is governed by a mayor through
Assembly. Under article 1 of Constitution of Islamic
a Local Council which comprises a number of elected
Republic of Pakistan, territory of Pakistan may consist
representatives (councillors). Depending upon an
of four provinces, one federal capital territory, Federally
urban or rural district, the local council structures
Administered Tribal Areas (FATA) and other states and
include the following:
territories, included by accession or otherwise. The four
provinces include Balochistan, Khyber Pakhtunkhwa •• Urban Local Councils:
(KPK), Punjab and Sindh. Two autonomous territories •• Metropolitan Corporation13
/ states are (i.e. Azad Jammu and Kashmir and Gilgit •• Municipal Corporation
Baltistan). •• Municipal Committee;
Provincial Government consists of several •• Town Committee;
‘Departments’ headed by ministers chosen from the •• Rural Local Councils:
elected representatives of the Provincial Assembly •• District Council
and a secretary (from the public service). The head •• Union Council
of the province is the Governor, who is nominated
More details of Sindh Local Government structures are
by the President of Pakistan, while the head of the
given in Chapter 16 of this Handbook.
Government of each province is the Chief Minister who
is elected by the respective Provincial Assembly.
Sindh is the second largest province in terms

of population. It has an area of 140,914 sq km.
Government of Sindh is based in Karachi (provincial
capital). The Provincial Assembly consists of 168
members, while Chief Minister is the head of the 13 There is one Metropolitan Corporation in Sindh (i.e. Karachi
Metropolitan Corporation)
4.4 Typical Organogram of a Provincial Government
4.5 Sindh Rules of Business

Each Province has developed rather own set of rules to transact business of the Government. Rules of Business
prescribe the scope of functions / services for each department of the Government. These rules are updated
on creation of new departments and on changes / Secretary dealing with specifically assigned subjects.
additions in scope of services of the Departments.
Secretary
In Sindh, the government business is transacted in
accordance with Sindh Government Rules of Business
1986, as updated from time to time. Secretary18 is the official head of the Department
and is responsible for its efficient administration and
The ROBs also specify the key administrative units discipline for the proper conduct of the business
(e.g. Department, Attached Departments etc.) of the assigned to the Department.
Government and the officers responsible for carrying
out the respective functions of the Department. The Secretary has the authority to distribute the work
of the Department among the officers, branches and
sections of the Department.
Chief Minister
On Chief Minister’s direction, the head of an Attached
Chief Minister14 is the head of the Cabinet. He/She Department can exercise the powers of a Secretary19.
is responsible for coordination of all policy matters.
Chief Minister has the powers to call for any case or Attached Department
information from any office, attached department or
departments. An Attached Department is an extended arm of the
Department and refers to an administrative unit which
Minister performs distinct functions and is headed by a separate
officer (other than Secretary). Attached Department
Minister15 is the in-charge of the assigned department. as defined under Sindh Rules of Business, is under an
He/she is responsible for policy matters and for the administrative control of Administrative Department
conduct of business of his/her department. to perform specific functions including supervision of
field offices.
Advisor
In Sindh, some Provincial Departments have Attached
Departments. Examples include:
Advisor is appointed by the Governor on the advice
of the Chief Minister. Advisor performs such duties •• Education Department: Bureau of Curriculum and
and functions as may be specified from time to time. Extension, Sindh. Headed by Director of Curriculum
The Advisor holds the office for so long as the Chief and Extension, Sindh
Minister desires. The terms and conditions of Advisor’s •• Agriculture Department: Agriculture Extension.
appointment are determined by the Chief Minister. Headed by Director General Agriculture Extension
and Adaptive Research Project Sindh
Department •• Agriculture Department: Bureau of Supply and
Prices. Headed by Director General Bureau of
Department16 means an administrative unit in the Supply and Prices.
Secretariat responsible for conducting activities as •• Health Department: Directorate of Nursing. Headed
specified in the Provincial Rules of Business. by Director Nursing.
•• Home Department: Police Department. Headed by
Each Department consists of a Secretary and other Inspector General Police
subordinate officials.
Examples from Selected Departments of Sindh:20
Under the Rules of the Business, one person can serve
as Secretary to more than one Department. Brief summaries of business assigned to three of the
Sindh Government’s departments are given in this
Similarly, a Department may have more than one17 section as an example only. The departments include
14 As defined in Sindh Rules of Business and Government of Sindh’s Finance Department, Planning & Development
Manual of Secretariat Instructions, 2010
15 ibid 18 As defined in Sindh Rules of Business
16 ibid 19 Rule 4(iv) of the Sindh Rules of Business, 1986.
17 As per Rule 4 of Sindh Rules of Business 20 As given in the Government of Sindh’s Rules of Business 1986.
Department and Agriculture Department. Economic Inquiry

•• Evaluation of the progress of development schemes
Finance Department and writing their critical appraisal
•• Initiation of measures for giving suitable publicity
•• Administration of public revenue, save as otherwise to the Development Plan and educating the public
provided on the results achieved from time to time
•• Assets and Liabilities Committees •• Maintaining liaison with the National Planning
•• Audit of receipt and expenditure Agencies (e.g. Planning Commission)
•• Entering into agreements with banks for availing •• Planning, including policy and development
banking services on behalf of the government •• Processing of all development schemes
•• Communication of financial sanctions programmes and proposals submitted by other
•• Creation of new posts and examination of schemes Departments and making recommendations to
of new expenditure Government thereon
•• Examination of all proposals for the increase or •• Service matters, except those entrusted to the
reduction of taxes Services & General Administration Department
•• Examination and advice on matters affecting Planning & Development Board:
directly or indirectly the finances of the Province,
•• An independent P&D Board has been created in
including:
Sindh with the objective of effective management
•• grants, contribution, other allowances and
of development portfolio. The Board formulates
honoraria, contingencies, recoveries from and
strategic directives for key development sectors
payment to Government Departments and
like Health, Education, Water & Infrastructure in
cases relating to money matters generally, such
accordance with Government’s policy objectives
as defalcations embezzlement and other losses
•• The Board is headed by a Chairman while there are
•• emoluments, pensions and allowances
seven Members who supervise and manage their
•• loans and advances to Government servants respective assigned areas/sectors, as follows:
•• Public Debt including floatation and administration •• Member (Development)
of Provincial Loans
•• Member (Social Sector)
•• Framing of financial rules for guidance of
•• Member (Energy & Infrastructure)
Government Departments and supervision of
•• Member (Services)
maintenance of accounts
•• Member (Natural Resources)
•• Managing the attached department of Local Fund
Audit •• Chief Economist / Member
•• Management of public funds Public accounts and •• Secretary (Planning) / Member (Secretary)
Public Accounts Committee
Agriculture Department
•• Report of Auditor General
•• Service matters, except those entrusted to the •• Agricultural Education
Services & General Administration Department •• Agriculture Research, Plant Protection and
•• Administration of Treasuries and Sub-Treasuries Entomology
P&D Department •• Matters relating to Agriculture University
•• Control over the price and distribution of sugarcane
•• Preparation of Annual Development Plan •• Collection and compilation of Agricultural Statistics
•• Co-ordination of technical assistance and foreign •• Experimental and demonstration farms
aid from abroad •• Improvement of agricultural methods
•• Co-ordination of statistics in general, and all matters •• Matters connected with agricultural census
relating to Bureau of Statistics •• Procurement and distribution of improved varieties
•• Co-ordination and training of officers in foreign of seed and fertilizer
countries •• Protection against insects and pests and prevention
•• Economic research and matters relating to Board of of plant diseases including plant protection work
•• Soil conservation in canal-irrigated zones

•• Enhancing the area under cultivation
•• Service matters, except those entrusted to the Services & General Administration Department
Learning Objective 3: Understand the typical structures of a Provincial Department
4.6 Typical Administrative Structures within a Provincial Department

Administrative structures in the provincial departments are created according to the functions assigned to them
under their respective rules of business. However, following structures generally exist in almost every department:
•• Secretary
•• Special Secretary
•• Additional Secretary
•• Deputy Secretary
•• Undersecretary
•• Section Officer
In addition to the above, other structures also exist depending upon the technical areas dealt with by the
departments. Some of those may include:
•• Director
•• Deputy Director
•• Assistant Director
4.7 Example of an Organizational Chart - Sindh Health Department21
Suggested Readings:
•• About ‘Government’: https://en.wikipedia.org/wiki/Government
•• Definition of Government: http://dictionary.cambridge.org/dictionary/english/government
•• Official web portal of Sindh Government: www.sindh.gov.pk
•• Rules of Business, Government of Sindh
21 http://sindhhealth.gov.pk/Organization-Structure
32 Roles and responsibilities of different institutions in public finance management
Chapter 5. Roles and Responsibilities of Different

Institutions in Public Finance Management
Learning Objective 1: Identify key categories of stakeholders in the budgetary process
5.1 Key Stakeholders •• General discussion on the Budget as a whole; and

•• Discussion and voting on demands for grants,
The institutions involved in budgetary process at the including voting on motions for reduction, if any.
provincial levels can be broadly categorized in two sub
groups: The Executive
•• Provincial Assembly, and
The executive arm on the other hand is mostly
•• The Executive Arm.
concerned with the processes and legal provisions that
Provincial Assembly relate to budget formulation and execution
Their role requires in depth knowledge and

The Assembly is responsible for authorizing budget understanding of the rules and procedures relating to
estimates besides ensuring good governance and public finance management
transparency in public spending.
On the basis of roles performed in the overall public
Generally the executive arm of Government (led finance domain, the executive arm is bifurcated into
by Cabinet and includes different central and Central Departments (i.e. Finance Department and
administrative departments of the Government) has Planning & Development Department) and other
primary responsibility for budget formulation and administrative departments (e.g. Health, Agriculture,
implementation. Education, etc.).
Provincial Assembly is directly answerable to the Within an Administrative Department the budgetary
public over the performance of the Government It is process is performed at various cadres that provide
not only concerned with budget planning but also has strategic guidance and control, e.g. Principal
responsibility to ensure that the utilization of public Accounting Officer (PAO) and other executive sub-
funds is done in a transparent and effective way. groups under their control including operational
planning and implementation groups comprising
Given the complexity and volume of the business
officers / officials of middle and lower management
of the Provincial Assembly, it is a normal practice to
including, for example, Drawing & Disbursing Officers
delegate its powers and responsibilities to a sub-group
(DDOs).
of parliamentarians generally referred to as ‘Committee’.
A Provincial Government is required to lay a statement

of the estimated receipts and expenditure of the
Government known as ‘Annual Budget Statement’
for the next financial year before the Assembly. The
Budget is presented to the Assembly on such day and
at such time as the Governor may appoint. The Finance
Minister, or a Minister acting on his behalf, presents
the Budget. The Assembly considers the Budget in two
stages:
Learning Objective 2: Understand roles and responsibilities of the key stakeholders
5.2 Role and Responsibilities of the Sindh Matters relating to PAC are dealt with in Rules 189-194
Assembly, Cabinet and Public Accounts of the Sindh Assembly Rules of Procedure.
Committee in Financial Management and PAC of the Sindh Assembly consists of Seven (7) elected
Control members with Minister of Finance as its ex-officio
member.
Provincial Assembly
Key responsibilities of PAC in relation to review of
the audit report are covered in Chapter 12 of this
The Provincial Assembly is responsible for approving Handbook.
targets for resource generation and authorizing public
spending.
5.3 Role of the Executive in Financial
The enactment of the provincial budget by the
Assembly is the key step towards empowering the
Management
Executive to undertake all necessary activities in this Responsibility for generating revenues and incurring
direction. expenditures that emanate from and relate to
various economic activities of the Government lies
The roles and responsibilities of the Provincial Assembly
with different executive agencies (administrative
in respect of the budgetary process are contained in
departments).
“Rules of Procedure” of the Provincial Assemblies.
The Secretary of each Administrative Department of
Provincial Cabinet the Government is the Principal Accounting Officer
(PAO), who is thus responsible for collection of all
The Provincial Cabinet, besides other responsibilities, receipts and incurrence of expenditure falling under his
performs a link between the executive arm and the jurisdiction.
Provincial Assembly in the discharge of responsibilities
for the operations of the government. Finance Department
Most of the matters that need to be deliberated upon

The Finance Department is responsible for supervision
in the Provincial Assembly are first presented to the
and control of provincial finances, preparation of
Cabinet for endorsement / approval.
provincial budget, formulation of Financial Rules
In respect of financial matters of the Provincial and Civil Services Rules relating to pay, pension
Government, the Cabinet functions as an interface for & perquisites of Civil Servants, management of
the Provincial Assembly and most of the key financial public debt and administration of Local Fund Audit
matters (including budget approval) are first presented Department and the Treasuries.
to the Cabinet before being presented in the Assembly.
Some of the key functions of the Finance Department
relevant to financial management of the Provincial
Public Accounts Committee (PAC)
Government are summarized as follows22:
Public Accounts Committee (PAC) is the body •• Management, supervision and control of the
constituted from the members of the Provincial Provincial Consolidated Fund of the Province and
Assembly with principle functions to examine the matters connected therewith or ancillary thereto
Appropriation Accounts of the Government and the •• Management, supervision and control of Provincial
report of the Auditor-General thereon and such other 22 Sindh Finance Department’s specific rules of business are given (as
matters as the Assembly or the Speaker or the Finance an example) in Chapter 4 . Here, a more generic summary is given
Minister may refer to the Committee. of what Finance Departments do in relation to public financial
management.
Treasures, ways and means and public debt development schemes in the Provincial
•• Preparation and submission of Annual Budget Government. As the Secretariat for the Provincial
Statement, Excess Budget Statement, Revised Development Working Party, it also acts as a
Budget Statement, and Supplementary Budget clearing house for development schemes within the
Statement to Provincial Assembly competence of the Federal Government (ECNEC/
•• Business relating to National Finance Commission CDWP).
and Provincial Finance Commission •• Policy formulation for approval of development
•• Business pertaining to audit and accounts schemes.
•• Grant sanctions beyond the powers delegated to •• Monitoring the utilization of ADP funds.
the administrative departments, subordinate offices •• Project evaluation and impact analysis
and special institutions
Administrative Departments
•• Performing Treasury functions of the Federation
in the province in terms of Article 146 of the
Constitution and matters related thereto; Administrative departments are responsible for budget
preparation, implementation, monitoring, reporting,
Planning and Development Department review and evaluation.
The head of the Department ensures financial

Planning and Development Department is the
discipline and accountability in the performance of
custodian of annual development plan, development
these activities.
budget and, in coordination with administrative
departments, oversees development activity in the The mandate of the Administrative Department is
Province. performed at various tiers, e.g. Principal Accounting
•• It is responsible for formulation and execution Officer and Drawing & Disbursing Officer (DDO), etc. as
of the development portfolio of the Sindh given below:
Government. A summary of the key functions of
the P&D department as mentioned in the rules of Principal Accounting Officer
business of the provinces is presented as follows:
•• Preparing the Annual Development Program (ADP) In the duties and responsibilities of the Principal
/ Public Sector Development Programme (PSDP) Accounting Officer (PAO), finance is an essential
in coordination with all Departments (especially element. The PAO is to ensure that financial
Finance Department). considerations are taken into account at all stages in
•• Approval of PC-1’s / Development Projects. framing and implementing decisions.
•• Project appraisal The Principal Accounting Officer is responsible not
•• Monitoring the implementation of development only for the efficient and economical conduct of the
programs and projects by Monitoring & Evaluation Departments, but also continues to be personally
Cell (MEC): answerable before the Public Accounts Committee.
•• Monitoring the progress of all provincial
•• Responsible for the overall preparation and
development projects;
implementation of the budget.
•• Project physical progress verification through field
•• Provide strategic guidance on budget planning and
visits and identification of bottlenecks in financial
prioritization
and physical progress of schemes included in ADP;
•• Ensure compliance with procedures concerning
•• Scrutiny and compilation of Monthly Progress
preparation of receipts and expenditure estimates
Reports of ADP (PC III) received for Administrative
Department and District Government; •• Communication and distribution of budget grants
to all concerned in the Department
•• Preparing monthly, quarterly and annual review
and monitoring reports. •• Ensure budget control
•• Coordination with the administrative departments •• Preparation and finalization of requirements for
with respect to development activities re-appropriation, supplementary grants, and
surrenders of excess funds
•• Determining policy for the approval of
Principal Accounting Officer has the power to delegate Reports produced by AGP are laid before the Provincial
his functions to his sub-ordinate officers/officials of the Assemblies and are considered in the Public Accounts
department to act on his behalf. Committee of the Sindh Assembly.
Depending upon nature, type and structure of an AGP also has a key role in strengthening the legislative
Administrative Department, the team of subordinate oversight by providing an independent and objective
officers / officials may include: assessment of the process of governance both at the
federal and provincial levels.
•• Additional Secretaries / Director General
•• Deputy Secretaries / Directors / Senior Planning More details on key functions performed by AGP are
officer given in Chapter 12.
•• Under Secretary / Section officer / Budget and
Accounts officer / Superintendent / Planning officer Controller General of Accounts
Drawing and Disbursing Officer

The Controller General of Accounts (CGA) is the premier
accounting office of the Government of Pakistan. The
Drawing and Disbursing Officer (DDO) holds primary Office is entrusted with the task of producing financial
responsibility for execution of the budgetary process statements for the federation. It was formed under an
for their respective organization / offices. ordinance issued in 2001. Some of the key functions
performed by CGA are as follows:
DDO is a Government servant who draws bills, incurs
expenditure to the extent specified and makes •• to prepare and maintain the accounts of Pakistan,
payments on behalf of the Government. DDO is the Provinces and district governments in such
assisted by a team of officials comprising Assistants and forms and in accordance with such methods and
Budget Clerks etc. principles as the Auditor-General may prescribe
•• to authorize payments and withdrawals from the
Key roles and responsibilities with respect to the
Consolidated Fund and Public Accounts of the
financial management of the office under their
Federal and Sindh Government against approved
jurisdiction are as follows:
budgetary provisions
•• Providing input for development of operational •• to prepare and maintain accounts of organizations
plans and authorities established/controlled by the
•• Preparation of estimates of expenditures Federal and Sindh Government
•• Preparation of estimates of receipts •• to lay down the principles governing the internal
•• Analysis of activities relating to generation of financial control for Government departments
receipts and incurrence of expenditures in consultation with the Ministry of Finance and
•• Identification of organizational outputs (services) provincial finance departments
and correlating with financial requirements •• to render advice on accounting treatment for new
•• Assists PAO in control of expenditure schemes, programmes or activities undertaken by
•• Preparation of revised and supplementary the Government
estimates •• to submit accounts of receipts and disbursements
•• Timely submission of budget documents to the for Federal and Sindh Government to the Auditor-
controlling officer or to the Head of the Department General
•• Other activities in respect of audit, monitoring of •• develop and maintain a system of pension,
expenditures and receipts, if any. provident funds and other retirement benefits in
consultation with the concerned government
Auditor-General of Pakistan •• to co-ordinate and ensure resolution of audit
observation of the Audit Department with the
The Auditor General of Pakistan (AGP) is responsible for concerned departments
ensuring public accountability and fiscal transparency •• to prescribe syllabus, standards and provide
in the governmental operations. The Auditor General facilities for the training of officers and staff under
is appointed under the Constitution of the country. his administrative control
The Controller General is the administrative head Treasury Officer23

of various offices and has authority for transfer and
posting within his organization. Some of these offices Under the Treasury Rules of the Government of Sindh,
include: every district has a separate treasury under the charge
•• the Accountant General of Pakistan Revenues and of a Treasury Officer (TO), who is appointed by Pakistan
its sub-offices Audit Department. However, where the appointment
•• the Military Accountant General and its sub-offices has not been made, the treasury will be in the general
charge of the Collector who may appoint one of his
•• the Offices of the Provincial Accountants General of
subordinate officers to act as TO.
each Province and their subordinate offices
Under the Rules, the government moneys standing in
Accountant-General
the public account must be retained either in a treasury
or deposited in State Bank / National Bank. Moneys
Accountant-General is sub-ordinate to the Controller can be received at a treasury under different accounts.
General of Accounts and is the head of office of Examples include:
Accounts in the province and performs the assigned
duties with assistance of District Accounts Officers •• Receipts under civil, revenue and criminal court
(DAOs) and Treasury Officers (TOs). cases
•• Money received by notaries public
Accountant-General has a key role in the public •• Receipts of the Public Works Department
financial management of the province. Key functions
•• Receipts of the Forest Department
performed by the Accountant-General include:
•• Receipts of the Railways
•• keeping the accounting records of all centralized •• Examination fees collected on behalf of
accounting entities of the province examination boards
•• performing the pre-audit (validation) function on •• To effectively deal with cash and maintain necessary
payments out of Provincial Consolidated Fund records, a treasury usually has two departments:
•• preparation and submission of civil accounts Accounts Department under the charge of an
/ appropriation accounts of the Provincial Accountant and Cash Department under the charge
Government, District Governments and Tehsil of a Treasurer.
Municipal Administrations in the manner specified
Key responsibilities of the TO are summarized as
by the Auditor-General
follows:
•• preparation and submission of annual accounts
of the Provincial Government to the Controller- •• Receiving moneys deposited by individuals
General / government departments on behalf of the
•• preparation of bank reconciliations government under various heads of account
•• Ensuring safe custody of cash and service postage
District Accounts Officer stamps by putting in place effective physical,
administrative and institutional controls
At district level, there is a District Accounts Officer •• Authorizing utilization of cash as permitted under
(DAO) who operates under the guidance of the the rules (TO 7 Sub Rule 4 of the Sindh Treasury
Accountant-General of the province. DAO is responsible Rules)
for processing all accounting transactions relating to •• Depositing cheques drawn in favour of the
the provincial departments in their respective district. government into the State Bank or National Bank
•• Depositing money orders into the post office and
The DAOs maintain records of payments and receipts,
issuing acknowledgment receipts to the concerned
for Federal and Provincial transactions (in separate
department
ledgers) and submit consolidated monthly accounts to
the respective AGPR sub-office or AG office •• Permitting withdrawal of funds from the treasury.
This may be done for the following purposes:
•• To pay sums due by Government to the drawing
23 In Sindh, Treasury Officers have been gradually converted and

re-designated as District Accounts Offices except for Karachi.
officer assigned tasks.

•• To place the drawing in funds to meet claims
likely to be presented against Government in State Bank of Pakistan
the immediate future by other Government
servants or private parties The Government’s banker at both the Federal and
•• To enable the drawing officer to supply funds Provincial levels is the State Bank of Pakistan, with
to another Government servant from which to National Bank of Pakistan acting as its agent.
meet similar claims
•• To pay the amounts due by Government to a Federal and Provincial Governments are separate
private party accounting and reporting entities and each
government operates separate bank accounts with the
•• Making payments against approved pension claims
State Bank of Pakistan.
•• Making payments against approved refund claims
•• Ensuring safe transfer of money from treasury to Key functions of the State Bank in relation to public
State Bank finances are as follows:
•• Authorizing receipt of moneys deposited into the •• Administering transactions relating to Consolidated
treasury Fund and Public Account of the Government
•• Maintaining complete records of cash, cheques and •• Compiling and reporting receipts in and
service postage stamps disbursements from various saving and deposit
•• Reporting to the Collector / Auditor General / DG schemes operated by the Government
Audit (Works) on a timely basis •• Making payments of authorized amounts from the
•• Ensuring compliance with Treasury Rules / Financial accounts maintained with SBP / NBP
Rules of the Province at all times •• Providing loans and advances to the Government
•• Monitoring/supervising the work of the Accountant •• Carrying out open market operations (including
and the Treasurer sale and purchase of Treasury Bills) on behalf of the
•• In case of sub-treasuries being in place, monitoring Government for raising and discharging loans for
the work of sub-treasury officer(s) the Government
•• Administering Assignment Accounts for approved
Divisional Accounts Officer
programmes/projects of the government
•• Managing Food Accounts of the government
Divisional Accounts Officer is an employee of the
Provincial Accountant-General’s Office and is posted at Suggested Readings:
a Divisional level to carry out pre-audit of transactions •• Provincial Financial Rules
relating to departments in infrastructure sector. These •• Provincial Treasury Rules
Departments mainly include Communication & Works
•• Accounting Policies & Procedures Manual (PIFRA /
Department, Irrigation Department and Public Health
Auditor-General’s Office)
Engineering Department.
•• Rules of Business of the Sindh Government
The job of the Divisional Accounts Officer requires •• Auditor-General of Pakistan’s (Functions, Powers
providing assistance to Executive Engineers (XEN) of and Terms and Conditions of Service) Ordinance,
the above Departments in ensuring compliance with 2001
the rules and regulations in respect of expenditure •• Controller General of Accounts (Appointment,
incurred by the XEN office, verifying accuracy and Functions and Powers) Ordinance, 2001
completeness of third party claims and compiling •• A Guide to Sindh DDOs
relevant accounts of the XEN offices on a monthly basis.
The Divisional Accounts Officer reports his findings to
Director General (Works) in the Accountant-General
Office.
The Divisional Accounts Officer is the head of the

Accounts branch of the XEN office and is assisted by
auditors and other subordinate staff in carrying out the
38 Budget cycle
Chapter 6. Budget Cycle
Learning Objective 1: Define Budget Cycle
6.1 What is Budget Cycle?

The provincial budget planning, preparation and execution process consists of distinct activities and steps
performed at Central Departments (Finance Department and Planning & Development Department) and Line
Departments (including their attached departments, controlling officers / DDOs).
These activities / steps are grouped in what is generally called a Budget Cycle and are linked to each other in the
following manner:
Learning Objective 2: Name budget cycle components and understand how these are
linked to each other
6.2 Brief Description of the Budget Cycle Phases

Phase I - Strategic Planning
This Phase primarily covers planning aspects of budgeting and consists of activities undertaken for resource
projection, inter-sectoral prioritization, identification of relevant strategies for resource mobilization and public
investment, and determination of sectoral and departmental expenditure ceilings.
This also includes communication of budgeting Department and Planning & Development Department
instructions to the government entities / DDOs as part on prescribed format.
of the Budget Call Circular / Guidelines.
Use of accounting/reporting functionality of IFMIS
Phase II - Budget Formulation including use of Chart of Accounts is also part of this
Phases.
This Phase covers detailed procedures to be followed

Phase V - Oversight & Accountability
for preparing estimates for both Expenditure and
Receipts.
This Phase specifies procedures relating to Excesses
As part of the budgeting exercise, the Finance and Surrenders of budget. If an amount allowed to be
Department determines the likely scale of expenditure spent during a financial year under the authority of the
against and receipts into, the Provincial Consolidated Schedule of Authorized Expenditure is not expected
Fund for next financial year. to be spent before the close of the financial year (or
is expected to be spent only partially), the savings
The budget estimates as submitted by administrative expected are surrendered by the Head of Department
departments are analyzed and reviewed in detail at concerned, through the Statements of Excesses and
Finance Department and Planning & Development Surrenders.
Department before onward submission to the Cabinet
for approval and for presenting the same before the Phase VI - Policy Review
Provincial Assembly
After Cabinet approval, the budget consisting of The last phase of the budget cycle is about evaluation
Annual Budget Statement along with supporting of Government’s policies for which funds are provided
budget publications is laid before the Provincial as part of the annual budget process.
Assembly under Article 120(1) of the Constitution for
consideration and authorization. Currently, policy reviews are not carried out as an
integrated phase of the budget cycle, but only on an ad
hoc basis by way of annual progress reviews or other
Phase III - Budget Execution
reviews initiated by donors.
Actual incurrence of expenditure authorized under Timing of Completion of Various Phases

the Schedule of Authorized Expenditure, and the
•• Phases l and II are completed before the
realization of the estimated receipts included in the
commencement of the financial year to which the
Annual Budget Statement, is monitored and controlled
Annual Budget Statement relates.
by the concerned authorities.
•• Phases III and IV are executed throughout the
The Phase also covers releases of funds for financial year.
procurement of goods/services, budget revisions •• Phases V and VI are executed after completion of
including supplementary budget requests, budget the relevant financial year.
savings/excesses and surrenders of unutilized budget.
Phase IV - Accounting & Reporting
This Phase relates to recording of actual receipts and

expenditure by DDOs and reporting to the Department
Secretariat and from Department Secretariat to Finance
40 Budget cycle
Learning Objective 3: Understand relative timelines of key activities within each

Phase of Budget Cycle
6.3 Budget Cycle

NO. BUDGET ACTIVITY RESPONSIBILITY TIMELINES -
Phase-I of the Budget Process – Strategic Planning
1 Issuance of the budget call circular (BCC) in Sindh Finance Department October
2 Development of Medium Term Fiscal Framework (MTFF) ; 2
Finance Department; November -
Development of Budget Strategy Paper (BSP) P& Department February
Phase-II of the Budget Process – Budget Formulation
3 Forwarding of BCC to DDOs / spending units Administrative October
departments
4 Submission of proposals for Schedule of New Expenditure Administrative November
(SNEs) to Finance Department departments
5 Issuance of Indicative Budget Ceilings for Recurrent and Finance Department; January
Development budgets P& Department
6 Preparation of detailed budget estimates and submission DDOs October-February
to administrative department’s HQ
7 Preparation of scheme wise ADP estimates and DDO (Project December -

submission to administrative department’s HQ Manager / Director) February
/ Administrative
departments
8 Review, consolidation and internal approval of non- Section Officers, December -
development and development budget estimates (ADP) Deputy / Additional February
Secretaries / Secretaries
of Administrative
departments
9 Submission of Non-Development budget (on Regular and Administrative February
MTBF mode) to Finance Department departments
10 Submission of statement of the excess & surrender Finance Department; February
including the revised estimates of the current Administrative
financial year & all the proposal of re- appropriation / departments
supplementary budget
11 Submission of 1st edition of proposed ADP to P&D and Administrative February
Finance Department departments
12 Sharing of 1st edition of ADP by Finance Department with Finance department February
P&D Department
13 Inter-departmental Priority Committee (IDPC) meetings P&D Department March
for clearance of tentative Development Programme
14 Communication of ADP by P&DD to the FD for printing 2nd P&D Department April/May
edition of ADP
6.3 Budget Cycle

15 Sharing of printed tentative ADP (2nd edition) by the Finance Department April/May
Finance Department to the P&D Department.
16 Finalisation of Revised Estimates for current year and Finance Department April/May
Budget Estimates and SNEs for next year (Current Budget)
17 Finalization of MTBF estimates Finance Department April
18 Annual Plan Coordination Committee (APCC) meeting Finance Department; April/May
P& Department;
Administrative
departments
19 National Economic Council (NEC) meeting Finance Department; May / June
P& Department;
20 Finalization of Annual Development Programme (ADP) Finance Department; May
P& Department;
21 Completion of all budget documents, schedules, and Finance Department May
summaries for the Cabinet
22 Submission of Surrender of Savings Administrative June
departments
23 Presentation of the budget to Provincial Cabinet Finance Minister June (After Federal
Budget)
24 Cabinet approval to budget estimates Provincial Cabinet June
25 Presentation of the budget to Provincial Assembly Finance Minister June
26 Consideration and authorization of budget estimates Provincial Assembly June
(demands for grants) by Provincial Assembly
27 Authorization of budget estimates Provincial Assembly June
28 Communication of approved budget estimates to Line Finance Department July
Departments
29 Procurement of goods and services; Spending by Administrative Throughout the
Administrative departments and their DDOs/spending departments year (July - June)
entities (as per provincial PPRA rules)
Phase-IV of the Budget Process – Accounting & Reporting
30 Recording and reporting of actual expenditure Administrative Throughout the
departments; year (July - June)
Finance Department;
Accountant-General’s
office
Phase-V of the Budget Process – Oversight & Accountability
31 External audit Auditor General of After the end of
Pakistan relevant financial
year
42 Budget cycle
6.3 Budget Cycle

32 Oversight by Public Accounts Committee of the Sindh Public Accounts After compilation
Assembly Committee of Sindh of Audit Reports
Assembly; by the Auditor-
General
Administrative
departments
Phase-VI of the Budget Process – Policy Review
33 Currently, Policy Reviews are not integrated to the budget process. However, these are carried out as and
when required as part of budget reforms currently being undertaken in the sindh government. These are
discussed in more detail in Chapter 13 of this Handbook.
Note: The Budget Cycle components / phases are discussed in detail in the ensuing chapters.
Learning Objective 4: Name key constitutional and legislative provisions governing

the budget processes
6.4 Legislative Framework for Budgeting in Sindh Government

Financial management and control in Sindh is exercised in the light of the Constitution of Pakistan 1973 and the
rules / acts promulgated under the Constitution and other rules and procedures as prescribed by the Provincial
Government / Provincial Assembly.
Constitutional and other regulatory requirements relating to budget preparation, management and control are
briefly discussed in this Section under the following headings:
Constitutional Provisions
ARTICLE TITLE
Article 118 Provincial consolidated fund and Public Account

Article 119 Custody of Provincial Consolidated Fund and Public Account
Article 120 Annual Budget Statement
Article 121 Expenditure Charged Upon Provincial Consolidated Fund
Article 122 Procedure Relating to Annual Budget Statement
Article 123 Authentication of Schedule of Authorized Expenditure
Article 124 Supplementary and Excess Grant
Article 125 Votes on Account
Article 126 Powers to Authorize Expenditures when Assembly Stands Dissolve
Rules of Procedures of Sindh Assembly
RULE TITLE
Rule 145 Budget

Rule 146 Presentation of the Budget
Rule 147 Budget not be discussed on presentation
Rule 148 Stages of the Budget
Rule 149 Allotment of days
Rule 150 General Discussion
Rule 151 Completion of Stages of the Budget
Rule 152 Cut Motions
Rule 153 Notice of the Cut Motions
Rule 154 Cut Motions in respect of Expenditure other than New Expenditure
Rule 155 Conditions for Admissibility of Cut Motions
Rule 156 Admissibility of Cut Motions
Rule 157 Discussions on Cut Motions
Rule 158 Voting on Demands for Grants
Rule 159 Voting on Account
Rule 160 Procedure for dealing with Supplementary and Excess Demands
Law on Management of Public Finances
Many countries have enacted laws for effective public finance management. Some of these include South Africa,
Kenya, Afghanistan, etc. Key objectives of having a generic PFM (Public Financial Management) law are to:
•• regulate financial management in the government;
•• ensure that all revenue, expenditure, assets and liabilities of the government are managed efficiently and
effectively;
•• provide for the responsibilities of persons entrusted with financial management in the government.
In Pakistan, the Federal Government enacted Public Finance Management Act in 201924. In Sindh there is a ‘Sindh
Financial Management and Accountability Act 2011’. In addition, the Government of Sindh has recently initiated
the process of introducing a generic PFM law. A draft law has been developed and is currently under consideration
at relevant forums.
24 http://download1.fbr.gov.pk/Docs/2019731173630487FinanceAct,2019.pdf - Pages 231 - 246

44 Budget cycle
Learning Objective 5: Practically apply the concepts discussed in this Chapter
Activity: Identifying relevant Phases of Budget Cycle for some Budget Activities
The following Table comprises 2 Columns:

•• Column 1 lists some of the Activities that are normally performed during a financial year in relation to budget
by government departments/entities, while
•• Column 2 is blank. Identify relevant phases of the budget cycle in Column 2 against each of the Activities in
Column 1.
ACTIVITY RELEVANT BUDGET CYCLE PHASE
(1) (2)
Issuance of budget ceilings by Finance

Department to line departments
Analyzing salary budget estimates at Health

Department secretariat before submission to
Finance Department
Assigning chart of account codes to DDOs

budget submissions
Determination of key Outputs for next year by

a Budget Officer in Education Department
Rectification of an error in draft budget

demands
Cabinet approval of budget demands for next

year
Approval of development budget by P&D

Department
Re-appropriation from “Utilities” to “Traveling”
Submission of a supplementary budget

request from Energy Department for purchase
of vehicles
ACTIVITY RELEVANT BUDGET CYCLE PHASE
(1) (2)
Issuance of a Purchase Order by Irrigation

Department for purchase of an IT equipment
Receipt of Invoice at Services Hospital from an

Equipment supplier
Reconciliation of Livestock Department’s

actual expenditure with AG’s records
Issuance of cheque for Rs. 500,000/= by Health

Department to K Electric in August 2016
Issuance of draft audit paras to Education

Department by Senior Auditors
Reporting of irregularities by auditors in

purchase of vehicles
Suggested Readings:
•• Budget Call Circulars of Sindh Finance Departments
•• DDOs Handbook
•• Accounting Policies & Procedures Manual (PIFRA / Auditor-General’s Office)
•• Constitution of Pakistan
•• Rules of Procedures of the Sindh Assembly
46 Strategic planning
Chapter 7. Strategic Planning
Learning Objective 1: Appreciate the significance of strategic planning in the

budgetary process
7.1 Strategic Planning process.
Conventionally, there has been no strategic planning These components are aimed at guiding the Finance
phase in Provincial budget cycles. and P&D Departments estimate resource availability
at earlier stages of the budget cycle and help
The only ‘planning’ document traditionally used is administrative departments and their spending units
budget call circular issued by Finance Department / DDOs prioritise their operational and development
that triggers preparation of current and development activities.
budget at the administrative departments.
It consists of activities undertaken for resource
Key components of this Strategic Planning are being projection, inter-sectoral prioritization, identification
introduced as part of the ongoing PFM reforms in the of relevant strategies for resource mobilization and
Province of Sindh. Some interventions (like Medium public investment, and determination of sectoral and
Term Fiscal Framework and Budget Strategy Paper) departmental expenditure ceilings.
have been initiated in recent years as part of planning
Learning Objective 2: Understand the key activities performed at Finance Department

and Administrative departments as part of strategic planning process, and issuance of
Budget Call Circular
7.2 Planning at Finance Department of forward budget estimates of the administrative

departments
Developing a Medium Term Fiscal Framework (MTFF) •• Development and non-development priorities
•• Expenditure forecast
MTFF is concerned with estimating the availability MTFF has been introduced under the ongoing PFM
of resources (both domestic and foreign) over the reforms in Sindh and is currently presented as part of
medium term comprising next financial year and two Budget Strategy Paper (BSP).
subsequent financial years.
Preparing the Budget Strategy Paper
MTFF broadly covers the following;
•• Overview of the fiscal situation in the province BSP covers requirements for financing of Current and
•• Projection of federal transfers Development budgets in light of budget priorities.
•• Resource mobilization
It is based on the projections / numbers finalized for
•• Identification of budget pressures and an account
MTFF.
Finance Department has a leading role in preparation BCC triggers the budget preparation activity at the
of the BSP. Input from P&DD is also obtained. administrative departments.
Presented to the Provincial Cabinet for deliberation and BCC is generally issued in October / November each
final approvals each financial year. financial year.
The BSP is updated each year to incorporate impact of BCC gives instructions on the preparation of estimates
changes e.g. in Federal Transfers and Provincial own of various types of receipts and expenditure, including
receipts; and in development / sectoral priorities of the the formats and statements in which the estimates
Province. are required to be furnished. It generally includes the
following details:
Preparation of BSP has been a regular feature in Sindh
which is carried out under the ongoing PFM reforms. •• Covering letter by Finance Secretary
•• Budget guidelines and Instructions (including brief
Developing Expenditure Ceilings introduction to any changes or initiatives taken for
upcoming budget year)
There has been a practice of issuing expenditure •• Budget calendar
ceilings to selected administrative departments. •• Annexures including Budget Forms and instructions
to fill in the forms
These ceilings are based on the estimated resource •• Key Contents of the Sindh BCC
availability of the provincial government, actual •• Budget Calendar
spending levels of the administrative departments
•• Instructions and budget forms for Schedule of New
in the previous financial year and sectoral policies /
Expenditure
priorities in the ensuing budget period.
•• Information on developing Budget Strategy Paper
Expenditure ceilings are usually part of the BSP. •• Guidelines and Budget Forms for Recurrent (Non-
Development) Budget
Finance Department has leading role in developing the
•• Guidelines and Budget Forms for Development
ceilings
Budget / Annual Development Programme (ADP)
Once the ceilings are determined, the Finance •• Guidelines and Budget Forms for Pilot MTBF
Department conveys the same to the concerned PAO / Departments26
Secretary of the administrative departments. •• Guidelines and Budget Forms for formulation of
Revised Estimates
Ceilings help the Departments in prioritising their
•• Guidelines and Budget Forms for Re-appropriations
current and development spending in the ensuing
and Supplementary Budgets (both current and
period.
development)
•• Guidelines and Budget Forms for Surrenders &
Issuance of Budget Call Circular25
Savings
Commencement of budget process at administrative

departments takes place with issuance of Budget Call
7.3 Strategic Planning at Administrative
Circular by Finance Department. Departments
An integrated Budget Call Circular (BCC) is issued with The practice of preparing strategic / spending plans
the purpose of providing guidance to Departments in has not fully evolved yet as there are only a few
framing their Revised Estimates for the current year and administrative departments that have prepared their
the Budget Estimates for the ensuing financial year for plans. For example, Health and Education Departments
both current and development portions of the budget prepared such plans a few years ago.
It consists of budget preparation guidelines and A strategic plan can serve as an important tool to
instructions for administrative departments and their 26 These are Eight Administrative departments: Agriculture
Supply & Prices Department; Education & Literacy
DDOs Department; Energy Department; Health Department;
Irrigation Department; Livestock & Fisheries Department;
25 The description under this heading relates to Sindh processes only. Social Welfare Department; Special Education Department
48 Strategic planning
integrate budgetary processes and department’s priorities.
Suggested Readings:
•• Budget Call Circular of Finance Department
•• DDOs Handbook
Chapter 8. Budget Formulation
Learning Objective 1: Get an overview of the budget formulation process at

administrative departments for both Current and Development budgets
8.1 Non Development Budget Process

Non Development Budget (or Current Budget) comprises Regular Budget and Schedule of New Expenditure.
Overall process for this type of budget is given in the figure below:
Regular budget: DDOs of the administrative departments fill budget forms as given in the Budge Call Circular.
These comprise Final List of Excesses and Surrenders and Revised Estimates for current year including budget
demands for next year. Explanatory memorandum with justifications are also attached to support budget
demands. The DDOs also provide vacancy positions and estimates for Receipts.
Schedule of New Expenditure (SNE): DDOs submit SNEs to Section Officer responsible for Non-Development
50 Budget formulation
Budget in the Administrative Department. SNEs are subordinate offices are rationalized and prioritised
mainly for funding staff costs and physical assets. •• Actual Expenditure for current and past financial
years is reflected as recorded in the Integrated
Administrative departments prepare budget demands
Financial Management Information System (IFMIS)
for Expenditure on prescribed forms (discussed later).
•• Reconciliation of actual Receipts and Expenditure
The budget demands are aligned to the Provincial
with Accountant General Sindh/District Accounts
Budget Strategy. Before being submitted to the Finance
Offices/ Treasury
Department / P&D Department, these demands are
examined by senior officials of the administrative •• Officer/senior staff’s entitlements/ceilings for
departments in consultations with subordinated DDOs, vehicle, telephone, etc. are reflected appropriately
taking into consideration the following: •• Need is assessed considering the future
requirements for key budget heads
•• Instructions given in the BCC are followed by DDOs
•• Preparation of budgets for each DDO and
while preparing the budget demands
consolidated for all DDOs
•• Budget demands of the attached departments/
Learning Objective 2: Define ‘Development Budget’ and understand the role of PC-I in
development budget and various other PC forms used in the project life cycle
8.2 Development Budget consists of budget allocations to Federal Ministries and

Divisions for the upcoming fiscal year. Allocations made
Development budget refers to scheme-wise (or project- by Sindh Government for their development budget
wise) budget for specific a development activity. outlays are also separately identified in the PSDP
Development projects are projects undertaken to document and are included to arrive at overall size of
acquire, build or improve physical assets or develop the national development budget for a particular year.
human resources.
Provincial development budget is also known as
Planning Commission, Government of Pakistan, “Annual Development Programme”.
performs the functions of economic planning and
oversees development activity in Pakistan. The Financing for Development Budget
Commission is responsible for setting development
priorities on an annual and medium term basis. Following are the funding source for Development
There is a separate Planning & Development Projects:
Department at each province with responsibility •• Provincial Consolidated Fund
to perform similar functions within their respective •• Federal funded projects
jurisdiction. The Department provides overall
•• Foreign funded projects
leadership to the administrative departments for
•• Provincial and federal co-funded projects
creation, processing, approval, implementation and
monitoring of development schemes in the province. •• Provincial and foreign co-funded projects
•• Federal and foreign co-funded projects
P&D Department also coordinates with the •• Provincial and private co-funded projects
Federal Government / Planning Commission on
implementation of large development programmes,
foreign funded projects and federally-funded province- 8.3 PC Documents
specific projects.
Planning Commission, Government of Pakistan, has
Federal development budget is also termed as Public prescribed various forms for use at different stages
Sector Development Programme (PSDP) which of the project life cycle. The same forms have been
adopted by Provincial Planning & Development
Departments. Names of the forms are given below •• Financial plan

while their brief description follows: •• Expected outcome of the survey feasibility study
•• PC-I: Form for project preparation for production and details of projects likely to be submitted after
sectors /infrastructure sectors / social sectors the survey.
•• PC-II: Form for survey and feasibility studies •• Name, designation and contact details of the official
preparing the PC-II
•• PC-IIIA: Form for physical targets based on PSDP
allocations PC-III(A) Form - Physical Targets based on PSDP Allocations
•• PC-IIIB: Form for monthly progress reporting
•• PC-IV: Form for project completion report Key contents of the Form include:
•• PC-V: Annual performance report after project
completion •• Project name
•• Low cost PC-I: Form for preparation of projects less •• Approved capital cost
than PKR 1 million •• Expenditure till date
•• Budget allocations for the current year
PC-I Form - Project Preparation (for Production, Infrastructure •• Annual work plan with targets in quantitative terms
and Social Sectors) and actual achievements
•• Quarterly work plan with targets identified for each
Separate PC-1 forms have been designed for economic quarter of the financial year
sectors. These include: •• Cash requirements for each quarter separately
•• Production Sector •• Output indicators
•• Infrastructure Sector
PC-III(B) Form - Monthly Progress Reporting
•• Social Sector
Key contents of this form include the following: Key contents of the Form include:
•• Project name and location •• Project name
•• Responsible authority and project stakeholders •• Financial status with break up showing budget
•• Project objectives allocations, financial requirements for the current
•• Detailed description quarter of the fiscal year, releases and expenditure
•• Capital cost estimates during the month
•• Recurrent cost estimates after project completion •• Physical status, giving details on physical progress /
•• Demand and supply analysis stage of completion of the project
•• Financing plan •• Description of issues / problems in project
•• Project appraisal implementation
•• Project implementation schedule and management PC-IV Form - Project Completion Report
PC-II Form - Survey and Feasibility Studies
Key contents of the Form include:
Key contents include: •• Project name and other relevant details (location,
sector, executing agency, project approval date,
•• Name by which the survey/ feasibility will be
etc.)
identified
•• Project implementation period including
•• Administrative authorities responsible for
extensions, if any
sponsoring and execution
•• Project cost (with breakup of capital cost into local,
•• Details of survey/feasibility study showing:
foreign components and loan/grant portions)
•• General description and justification
•• Actual expenditure incurred
•• Implementation period
•• Original allocations and revised allocations
•• Year wise estimated cost
•• Financing details: Federal/Provincial/Donor, etc.
•• Manpower requirements
•• Project accounts (Assignment Account, Current
/ Saving accounts, etc.) including status of these recurring cost and impact of completed projects.
accounts (whether closed or still open)
Key contents of the Form include:
•• Details of financial phasing as per PC-I and actual
expenditure •• Project name
•• Physical targets and achievements •• Objectives & scope of project as per approved PC-I
•• Break up of planned and actual expenditure and achievement of those objectives
•• Estimate of recurring cost after completion of the •• Planned and actual recurring cost of the project,
project with details
•• Comments on achievement of objectives •• Planned & actual manpower employed
•• Estimate for year-wise income and revenue •• Planned and actual physical output of the project
generation, if any •• Planned and actual income of the project
•• Detail of inputs/outputs/outcomes •• Planned and actual benefits to the economy
•• Names/designations of project directors (from start •• Planned and actual social benefits
to end) •• Planned and actual cost per unit produced/sold
•• Financial / economic analysis •• Marketing mechanism
•• Issues faced during implementation •• Arrangement for maintenance of building &
•• Key lessons learned and suggestions for future equipment
planning and implementation of similar projects •• Reasons for non achievement of outputs/ targets as
envisaged in the PC-I
PC-V Form - Annual Performance Report after project
•• Lessons learned during the year in operation,
completion
maintenance, marketing and management
•• Changes in project management during the year
PC-V is used to document the actual achievement
•• Suggestions to improve projects performance
against the targets set in PC-I and also to portray the
Learning Objective 3: Gain an overview of PC-I preparation, review and approval

process
8.4 Summary of PC-I preparation, review and PC-1 proforma

approval process •• Hold internal discussions and finalize the draft PC-I
•• Present to P&DD authorities
Department identifies activity to be performed to •• Incorporate P&DD’s feedback into the draft and
achieve certain objectives. Similarly, other authorities, finalize
i.e. Member of the Assembly, Provincial Cabinet, Chief •• Seek approval from the appropriate authority:
Minister, Federal Government) may also identify a
•• If project cost is less than Rs. 100 Million:
particular initiative to be funded through development
Approving authority is Departmental
budget.
Development Working Party (DDWP, chaired
•• Need for financing is assessed by secretary of the respective administrative
•• Source of funding is determined departments) and P&DD to notify the approval
•• Internal discussions are held to determine if the •• If project cost is between Rs. 100 Millon to
need would be met from internal or external Rs. 5 Billion: Approving authority is Provincial
sources Development Working Party (PDWP, chaired by
•• Fine tune the concept Chairman Development Board/ Additional Chief
•• Discuss with P&DD and agree the concept Secretary ( Development) ) and P&DD to notify
the approval
•• After the go-ahead, start preparing PC-1 on relevant
•• If project cost is between Rs. 5 billion and Rs. 10 its total cost is more than Rs. 10 billion or project
billion: Approving authority is PDWP. Summary is funded by Federal Government or if it is a
sent to Chief Minister for approval and then foreign-funded project: Approving authority is
P&DD to notify the approval Central Development Working Party (CDWP, at
•• If project is funded by Sindh Government and the Federal Government level).
Learning Objective 4: Understand the Development Budget formulation process at

Administrative departments
8.5 Formulation of Development Budget Strategy Paper. However, the actual ceiling is decided
(ADP / PSDP) depending on the future demand, priority, impact on
socio-economic and implementation capacity of the
Administrative departments prepare their Annual Departments.
Development Program (ADP) in line with prevalent
Usually, a specific ratio of budget allocation for ongoing
economic policies, strategies of the Government and, in
and new schemes is maintained each year. On-going
case of Public Sector Development Programme (PSDP),
schemes nearing completion, generally have priority
broad guidelines given by the Federal Government on
over the new schemes.
preparation of PSDP.
Prioritization of new schemes is also carried out
There is usually a separate planning & development
before finalizing the draft portfolio. The Administrative
section dedicated to Development budgeting in
departments also ensure aligning their development
each Administrative Department. The section is
projects to Sustainable Development Goals (SDGs)
responsible for initiating, preparing and finalizing the
development budget demands for the Administrative For projects / schemes involving Foreign Projects
Department. The planning section after receiving the Assistance, appropriate provision is also made for
Budget Call Circular sends it to all concerned DDOs counter-part funds in accordance with commitments
(including districts) for preparing budget proposals for made with International Development Partners. The
development schemes. Revenue and Capital components are separately
identified.
Specific guidelines for formulation of ADP/PSDP as
issued by the P&D Department are included in the The development portfolio with draft budget ceilings
Budget Call Circular. These include the following: is discussed in internal meetings of the Administrative
departments and approved by the Secretary. After
Administrative departments to ensure that their
approval of the Secretary the filled ADP proformas are
projects / schemes in the approved portfolio fall
sent to P&D Department with a copy to FD. The P&DD
within the parameters of economic agenda of the
has the final authority on recommending allocations as
Government and can also add new projects, which are
well as finalizing number of schemes to be included in
implementable under Public Private Partnership (PPP)
the APD.
mode.
The Administrative departments prepare their draft

ADP in accordance with ceilings given in the Budget
Learning Objective 5: Identify various budget forms issued by Sindh Government as

part of the Budget Call Circular
8.6 Budget Forms27 Estimates for Development budget are prepared on

Budget Form BCC-X “Estimates of Annual Development
Expenditure Budget Forms Programme”. See Annexure - D.
Pilot MTBF Departments (Budget Form BCC-IX)

Regular Expenditure (Budget Form BCC-II)
Additional Budget Form has been prescribed for Pilot
Regular Expenditure component of current budget is MTBF Departments to provide information on their
prepared using the budget Form BCC-II “Estimates of service delivery targets (outcomes/outputs). The
Regular Expenditure”. See Annexure - A. information pertaining to their performance indicators
and targets is prepared on Budget Form BCC-IX
Pay & Allowances (Budget Form BCC-III) “Performance Indicators and Targets”. See Annexure - E.
Details of employees Pay & Allowances are budgeted
on Form BCC-III “Details of Sanctioned Posts for Regular Receipt Budget Form
Expenditure Estimates”. See Annexure - B.
Tax and Non-Tax Receipts (Budget Form BCC-1)
New Expenditure (Budget Form BCC-IV)
Tax and Non-Tax Receipt estimates are prepared using
Budget proposals for New Expenditure are prepared budget form BCC-I - Estimates of Regular Receipts. (See
on another budget form BCC-IV titled “ Proposal for Annexure - F).
Schedule of New Expenditure”. See Annexure - C.
Budget Review, Analysis and Finalization
Development Expenditure (Budget Form BCC-X)
27 Budget Forms are included in Sindh Budget Call Circular. .
Learning Objective 6: Understand the key concepts of budget review and analysis
process at Finance Department and P&D Department
8.7 Analysis and Review of Budget at Finance Budget demands for administrative departments are
Department also reviewed in light of budget ceilings provided at
initial stages of the budget cycle.
Budget submissions from the administrative
The budget review / analysis / recommendation
departments are reviewed and analyzed at Finance
functions are performed at various levels within the
Department.
Finance Department:
Budget submissions are made separately for each DDO
At Budget Examiners Level
/ cost centre.
The primary job of Budget Examiners is to assist Section
The purpose of the review process is to determine
Officer (Budget) in effectively performing day-to-day
accuracy, appreciate constraining fiscal boundaries,
budget activities. Some of their specific tasks are listed
assess reasonableness, and ensure proper account
below:
coding according to chart of account classifications.
•• Review budget proposals from the administrative missing in their budget proposals before
departments and check for accuracy of and finalization.
rationale for the budget proposals. •• Perform an overall review to judge if the updated
•• Review previous years’ allocations and check proposals fit into the latest estimates for fiscal
actual budget utilization till date for each budget resources.
submission. •• Liaison with administrative departments and
•• Review budget proposals in light of initial budget finalise the Budget Proposals.
ceilings and any particular instructions / budget •• Prepare a consolidated statement in respect
formulation policy from the higher management of of the budget proposals along with their
the Finance Department. recommendations for the review of the Special
•• Propose / carry out budget cuts. Secretary Finance and Finance Secretary.
•• Ensure new expenditure is appropriately included Budget Reviews in Priority Committee Meeting
in the budget proposals.
•• Review of departmental policies and their linkage
•• Review supplementary grants, revised estimates,
with current and development budgets for
excesses/savings/surrenders statements from the
upcoming budget year.
administrative departments and assess their impact
on next year’s budget. •• Review of budget ceilings and initial budget
estimates of the administrative departments.
•• Ask administrative departments for further
justifications, details. •• Review and analysis of receipt targets.
•• Amend the budget proposals and submit to the •• Review of measures for rationalization of budget
Section Officer (Budget). allocations and optimum utilization of limited
financial resources available to the Departments to
•• At Section Officer (Budget) Level
meet Departmental mission/policy objectives
•• Review the work performed by Budget Examiners.
•• Discussion on measures for identification of
•• Comparative analysis of budget proposal received
any redundant operations of the administrative
from administrative departments and initial budget
departments and related budget impact.
ceilings.
•• Review of new initiatives by the Administrative
•• Assess the reasonableness of the budget proposals
Department.
as modified by the Budget Examiners and ask for
•• Negotiation of budget demands / final budget
rationale/justifications.
ceilings with Finance Department / P&DD
•• Obtain further justifications, details, etc. from
administrative departments. Review by Finance Secretary
•• Prepare a statement of variance/recommendation •• Review consolidated budget proposals
for each budget file reviewed. •• Conduct the reviews in consultation with all
•• Submit the statement to Deputy Secretary concerned Wings of the Finance Department
(Budget)/Additional Secretary Finance for their (Budget Wing, Expenditure Wing, Local Government
review and analysis. Wing, etc.).
At Deputy Secretary (Budget) / Additional Finance •• The purpose of this review is to assess budget
Secretary / Special Secretary Finance Level contraints and to determine overall size of probable
expenditure in relation to expected resources in
•• Review the Statement of Recommendations and
next financial year.
Variances prepared by Section Officer.
•• Ensure that the policies of the Government are
•• Invite the concerned Administrative Department’s
appropriately translated into budget proposals
representatives to provide any key information
The budget review, analysis and approval process for Sindh is presented in the following flow-chart:
8.8 Analysis and Review of Development Budget at Planning & Development Department
P&D Departments is responsible for receiving development budget demands from the administrative
departments.
The Department is also responsible for consolidating, processing, finalizing and recommending the budgets for
approval by the competent authority (Cabinet/Provincial Assembly).
The analysis and review of the proposals of the administrative departments is conducted in light of the Provincial
Government’s vision, policies and plans for the development activities over the medium term.
Review of Draft ADPs by Section Chiefs/Assistant Section Chiefs

•• Review draft ADPs of the administrative departments in light of the sectoral development policies and
priorities of the Government.
•• Analyze the ADPs in accordance with ADP guidelines issued by the P&D Department.
•• Review the budget proposals in light of the overall size of the ADP.
•• Review is also carried out considering the PC-1 (financial / operational) requirements.
•• Analyze financial requirements separately for ongoing and new schemes.
•• Forward budget recommendations to the Member P&D / Chief Economist.
ADP Review by Member P&D28 / Chief Economist
•• Review ADP proposals / recommendations by the Sector Chief/Assistant Sector Chief.
•• Review with the obective that developing the subject sector promotes the development of overall cluster of
sectors within which the subject sector is classified.
•• Identify core shcemes/programmes which gain priority in the ADP allocations.
•• Macro-Level Review and Finalization of ADP
•• Recommendations by Members in respect of ADPs are reviewed by ACS (Development).
•• Hold meetings jointly with Finance Department / concerned departments for dialogue on the
recommendations to finalize the ADPs.
•• Ensure that the Government policies and the inter-sectoral prioritization have been reflected properly in the
ADP before submitting to the Cabinet for approval.
8.9 Budget Finalization and Approval

The Finance Department and the Planning and Development Department complete their respective budget
processes and perform an overall review of the whole Provincial budget.
Budget demands are also assessed in light of projections made earlier under MTFF / BSP.
Both FD and P&D Department hold meetings to discuss availability of resources for the development programme.
Budget estimates are finalized as part of a series of meetings held under the chairmanship of the Chief Minister.
The estimates are approved by competent authorities at Finance Department and Planning and Development
Department in respect of current and development budget (ADP) respectively.
28 Member P&D, Sindh

Process relating to review, analysis and approval of Development Budget is given in the flow-diagram below:
8.10 Use of SAP System / IFMIS for Budget Consolidation

As mentioned in Chapter 11, an IFMIS for budget compilation and execution has been developed under the PIFRA
reform project by the Federal Government. The same has been adopted by the Sindh Government.
Input of budget forms into the SAP Budget Module is completed at the Finance Department for all administrative
departments (and their DDOs).
Most of the budget publications are directly produced through the SAP system. However, some publications like
ABS, Development Budget-Volume V (Sindh) are being compiled without using the software. However, the data
required for these publications comes from the SAP database.
8.11 Printing of Budget Books

After the documents are produced through the SAP and are verified for errors and mistakes, mass printing of the
budget publications is authorized by the Finance Department.
Budget Publications comprise numerous books. The number of copies printed for the budget books depends
upon the number of Members of the Sindh Assembly. Extra copies are also printed for internal use at the Finance
Department and for researchers/ general public / academia.
Not all budget books are printed. However, softcopies of all budget books are uploaded at the official website of
the Sindh Government. Brief description of the Budget books is given in the next section.
Learning Objective 7: Name different budget publications / books and understand

their key contents
8.12 Budget Books Matrix

NAME OF BUDGET BOOK PURPOSE
1 »» Budget Speech - Urdu Policy statement, rationale for next year’s budget estimates and financial
performance in current year
»» Budget Speech - English
Key Contents: The Budget Speech is the government’s budgetary policy statement for a fiscal year. The finance
minister reads the budget speech in the Assembly. The budget speech is a proposed account of the government’s
plan for expenditures and projected revenues and debt. The speech covers the measures planned to be taken for
raising revenues and financing the proposed expenditure and other fiscal policy measures including key modes
of financing to meet any budget deficit. The speech also highlights prevailing macroeconomic situation including
social indicators, budgetary performance, financial discipline and key challenges which can impact the economy. It
also includes major spending and tax proposals for the upcoming fiscal year.
2 Budget at a Glance High level summary of Receipts and Expenditure
Key Contents: Budget at a Glance is a summary of the whole budget presented in two pages (in Sindh). It gives a
summary of the projected receipts by major classifications, e.g. Revenue Assignment from the Federal Government;
Straight Transfers; Provincial Receipts (Tax and Non-Tax), etc.
Similarly, expenditure is also shown by categories like Current Revenue Expenditure, Current Capital Expenditure
and Development Expenditure, etc. At the bottom of the summary, difference between the Receipts and
Expenditure is shown as a Deficit or Surplus.
3 Volume I - Annual Budget Receipt and Expenditure with appropriate level details
Statement

Key Contents: This document is tabled for each fiscal year in the Provincial Assembly of Pakistan under Article 120 of
the Constitution of Pakistan. The Annual Budget Statement (ABS) shows separately:
»» the sums required to meet “charged expenditures” described by the constitution

»» the sums required to meet other expenditure proposed to be made by the constitution (“voted expenditures”)
»» The statement distinguishes expenditure on revenue account from other expenditure both for current and
development expenditure.
ABS includes both Receipts & Expenditure:
Receipt portion of ABS provides balances of all budgetary receipts, e.g. Federal Transfers, Revenue Receipts, Capital
Receipts, External Receipts; Public Account Receipts (net balances). Additional resources may include privatization
proceeds plus credit from the banking sector to finance government expenditures.
Expenditure portion is broken down into current expenditure and development expenditure and is separately
shown for expenditure on Revenue Account and expenditure on Capital Account. A summary of Object-wise
classification (e.g. Pay & Allowances, Operating Expenses, etc.) is also given. Expenditure on Revenue Account
signifies that portion of expenditure which is met from resources other than loans and grants, etc., whereas
expenditure on Capital Account refers to expenditure which is financed from loans, finances, credits, grants, and
other borrowings.
Sindh ABS also includes Fiscal Framework; a summary of Expenditure by Department; a brief description of Public
Debt liability of the Government; and various Funds managed by the Government.
4 Volume II - Part 1 and Part 2 - Receipts / Provincial Resources
Estimates for Receipts
Key Contents: This summarizes receipts from various sources, i.e. transfers from federal government, provincial
taxes, non-tax receipts, borrowings, public account balances (receipts and disbursements), etc.
This book is published in two parts (Part I & II)..

5 Abstract for Current Summary of Current Expenditure
Expenditure - Volume III
Key Contents: This is a grant-wise abstract of Current Expenditure in Sindh.
The Volume III provides details of Current Expenditure for each applicable department, identified through the DDO
code and classified according to the relevant object and functional classifications for the next financial. Budget
estimates and Revised estimates for the preceding financial year are also given. At the start of the book, a summary
is given for all relevant departments who would be provided funds for their operational needs.
6 Demands for Grants Description of development projects / schemes for each Department
(Development Expenditure):
Capital & Revenue (Volume
–IV); and
Public Sector Development

Programme (PSDP) (Volume
V)

Key Contents: The Book on Development Budget is a listing of development schemes and provides information
on on-going and new development schemes managed / to be managed by each administrative department. Key
information provided includes name of schemes, total cost, proposed allocation, future throw forward, etc.
Similarly, there is another book on Development expenditure that provides development expenditure for each
relevant DDO. The expenditure is classified according to the relevant object and functional classifications for
the next financial year. Budget estimates and Revised estimates for the preceding financial year are also given.
At the start of the book, a summary is given for all relevant departments who would be provided funds for their
development needs.
In Sindh, the Book is published in two parts.
7 Volume VI - Part I to Part V Current / Non-Development budget estimates for DDOs

- New Expenditure/Current
Expenditure/Development
Expenditure
Key Contents: The budget books of the Sindh Government provide details for New Expenditure, Current &
Development Expenditure. Information in this book is presented for each applicable department, identified through
the DDO code and classified according to the relevant object and functional classifications for the next financial.
Budget estimates and Revised estimates for the preceding financial year are also given. At the start of the book, a
summary is given for all relevant departments who would be provided funds for their operational needs.
8 Volume VII - Explanatory Explanations / justifications of receipts and expenditure
Memorandum (on Receipts &
Expenditure)
Key Contents: This book gives brief explanation and basis of estimation for major receipt and expenditure items. The
information is presented separately for each of the following categories of receipts and expenditure:
»» Current Revenue Expenditure

»» Revenue Receipts
»» Capital Receipts
»» Current Capital Expenditure
»» Development Capital Expenditure
9 Salient Features of Budget Analysis of receipts and expenditure with ratio analysis, commentary on significant
items with rationale / justifications
Key Contents: This brief document is prepared by Sindh Government. It gives analysis of receipts and expenditure
for each major head and compares proposed allocations with previous year’s budgets.
10 Budget Analysis Detailed analysis of budget & expenditure
Key Contents: This document is published by Sindh Government only and includes a detailed analysis of both
receipt and expenditure sides of the budget. It also includes a comparison of budgeted numbers with actual
collections / receipts and expenditure. However, this information pertains to the current year and not the next
financial year.
11 Foreign Project Assistance Details of foreign loans and grants

Key Contents: This book is published by Sindh Government. It provides details of loans and grants from external
sources. These include bi-lateral / multi-lateral loans, project loans / aid and financial assistance from other donors.
The information in this book is provided for each relevant department and identified through the DDO and
applicable object classifications (the presentation is similar to that given in detailed estimates books).
Previous year’s budget estimates and revised estimates are also presented in this book.
12 Supplementary Budget Post-budget allocations / budgets not provided for in previous year’s budget
Demands
Key Contents: This book includes budget allocations provided to the administrative departments over and above
their budget estimates approved in last fiscal year.
Learning Objective 8: Understand the significance of Pre-budget Session of the

Provincial Assembly and name the budget approving authorities
8.13 Pre-budget Session of the Sindh Assembly

As per Sindh Assembly Rules, pre-budget Session of the Sindh Assembly is to be held every financial year
but practically there is no such practice of holding these sessions. The Assembly’s Rules of Business prescribe
procedures in this regard.
The purpose of the Session is to brief the Members of the Assembly on likely size of the budget for the upcoming
financial year and to review progress of current financial year’s budget with focus on budget utilization for current
and development operations of the Province.
This Session is usually held during the months of January and March each financial year.
Finance Department prepares necessary information to be presented for discussion during the Pre-budget
Session. This normally includes:
•• Overall utilization vs. allocations (provincial budget) for the current financial year;
•• Budget utilization in the key sectors (health, education, agriculture, etc.);
•• Performance of mega programs/projects;
•• Likely size of resources for the upcoming financial year;
•• New initiatives planned
Further details on Pre-budget Session are contained in Provincial Assembly’s Rules of Procedure.(See Rule 143)
Rule 144 also provides for a Post-budget discussion in the Assembly whereby Assembly shall discuss releases and
utilization of budget on quarterly basis.
8.14 Cabinet Approval of the Budget

The finalized budget is laid before the Cabinet for detailed discussion and consideration
The Annual Budget Statement along-with the supporting budget publications are reviewed and approved by the
Cabinet before approving the same to be presented Rule - 147 Budget not to be discussed on Presentation
before the Provincial Assembly.
The Cabinet also reviews the budget in light of its There shall be no discussion on the budget on the day
approvals of MTFF and BSP earlier during the course of on which it is presented to the Assembly.
budget preparation cycle.
Rule - 148 Stages of the Budget
The Cabinet, after satisfying themselves on the budget
laid before them for approval, or make modifications The Budget shall be dealt with by the Assembly in the
in accordance with the policies of the Government, following stages, namely:-
recommends the same to be presented before the
Provincial Assembly. (a) general discussion on the budget as a whole,
(b) discussion on expenditure charged upon the

8.15 Presentation of the Budget before the Provincial Consolidated Fund; and
Sindh Assembly (c) discussion and voting on demands for grants;
Article 120(1) of theConstitution demands laying of
the Annual Budget Statement before the Provincial Rule - 149 Allotment of Days
Assembly under Article 120(1) of the Constitution.
The Speaker shall allot days for different stages of the
The budget is presented before the Assembly by the budget referred to in rule 148:
Provincial Finance Minister.
Provided that not less than two days shall intervene
Sindh Assembly’s Rules of Procedure contain similar between the day of the presentation of the budget
considerations for budget related matters. Specific and the first day allotted by the Speaker for general
guidance is given in Rules 145 to 160. discussion:
Rule 145 - Budget Provided further that not less than five days shall be
allotted for general discussion.
(1) The Budget shall be presented to the Assembly on
such day and at such time as the Chief Minister may Rule - 150 General Discussion
appoint.
(1) No motion shall be moved nor shall the budget
(2) The Secretary shall cause the day and time be submitted to the vote of the Assembly on the day
appointed under sub-rule (1) to be notified in the allotted for general discussion.
Gazette.
(2) The Finance Minister or the Minister who has
(3) The demand for grant shall be entertained presented the budget shall have a general right of reply
only if it is certified to have been made on the at the end of the discussion.
recommendations of the Chief Minister.
(3) The Speaker may prescribe a time-limit for speeches.
(4) The Budget shall not be referred to a Standing
Committee or to a Select Committee and no motion in
Rule - 151 Completion of stages of the Budget
respect thereof shall be made except as provided in the
this Chapter.
The Speaker shall, on the last day of the days allotted
Rule - 146 Presentation of the Budget for any stage of the budget, just before the termination
of the sitting, put every such question as is necessary to
dispose all the outstanding matters in connection with
The Budget shall be presented by the Finance Minister the completion of that stage.
or, in his absence, by any other Minister nominated by
the Chief Minister.
Rule - 152 Cut Motions In order that a motion under rule 153 may be
admissible, it shall not –
A member may move a cut motion to reduce the (a) to more than one demand;
amount of a demand in any of the following ways:-
(b) extend beyond one specific matter which shall
(a) that the amount of the demand be reduced be stated precisely;
to Re.1.00 representing disapproval of the policy
underlying the demand. Such a motion shall be known (c) contain arguments, inferences, ironical
as “Disapproval of Policy Cut”. A member giving notice expressions, imputations, epithets or defamatory
of such a motion shall indicate in precise terms the statements;
particulars of the policy which he proposes to discuss.
The discussion shall be confined to the specific point or (d) make suggestions for the amendment or
points mentioned in the notice and it shall be open to repeal of all existing law;
members to advocate an alternative policy;
(e) refer to a matter which is not a concern of
(b) that the amount of the demand be reduced by a Government;
specified amount representing the economy that can
(f ) relate to a expenditure charged upon the
be effected. Such specified amount may be either a
Provincial Consolidated Fund;
lump sum reduction in the demand or omission or
reduction of an item in the demand. The motion shall (g) raise a question of privilege;
be known as “Economy Cut”. The notice shall indicate
briefly and precisely the particular matter on which (h) revive discussion on the matter which has
discussion is sought to be raised and speeches shall be been discussed in the same session and on which
confined to the discussion as to how economy can be decision has been taken;
effected;
(i) relate to a matter which is under adjudication
(c) that the amount of the demand be reduced by by a court of law; and
Rs.100.00 in order to ventilate a specific grievance
which is within the sphere of the responsibility of the (j) anticipate a matter which has been previously
Government. Such a motion shall be known as “Token fixed for consideration in the same session.
Cut” and the discussion thereon shall be confined to
the particular grievance specified in the motion. Rule - 156 Admissibility of cut motions
Rule - 153 Notice of Cut Motions The Speaker shall decide whether a cut motion is
admissible under these rules and may disallow any
Unless notice of a motion for reduction in a grant has cut motion if, in his opinion, it is an abuse of the right
been given two clear days before the day on which of moving cut motions or is calculated to obstruct or
the demand is to be considered, any member may prejudicially affect the procedure of the Assembly or is
object to the moving of the motion and thereupon in contravention of these rules.
such objection shall sustain; provided that the Speaker
suspends this rule and allows the motion to be made. Rule - 157 Discussion on cut Motions
Rule - 154 Cut Motions in Respect of Expenditure other than (1) A motion under rule 153 shall ordinarily be
New Expenditure considered in order of the heads of the budget.
(2) The Speaker may put before the Assembly all

If a motion under rule 153 is carried, the Speaker motions for consideration and voting at a time.
shall inform Government in writing of the fact and
Government shall communicate its decision thereupon
Rule - 158 Voting on demands for Grants
to the Speaker for the information of the Assembly.
Rule - 155 Conditions for admissibility of Cut Motions (1) Each demand for grant referred to in sub-rule (c) of
rule 148 shall be discussed separately.
(2) Before a question is put in respect of a demand for may be submitted to the vote of the Assembly and if
grant, all cut-motions in respect of that demand shall the Assembly assents to the demand, funds may be
be discussed and voted upon. made available.
(3) When notices of several cut-motions relating to the Provided that the Speaker may relax all or any of the
same demand are given, the motions shall be discussed provisions of rules 146,147 and 149.
in the order in which the heads to which they relate
appear in the Budget.
8.16 Budget Authorization by Sindh Assembly
(4) On the last day of the days allotted under rule 149
for the stage referred to in sub-rule (c) of rule 148 at After the Annual Budget Statement is considered and
the time when the sitting is to terminate, the Speaker the demands for grants are approved by the Provincial
shall forthwith put every question necessary to dispose Assembly, the Finance Department prepares a
of all the outstanding matters in connection with the Schedule Authorized Expenditure (SAE), specifying:
demands for grants. •• the grants made or deemed to have been made by
the Provincial Assembly under Article 122 of the
Rule - 159 Vote on Account Constitution;
•• the several sums required to meet expenditure
(1) A motion for vote on account shall state the total charged upon the Provincial Consolidated Fund,
sum required to be voted and the various amounts but not exceeding, in the case of any sum, the sum
needed for each Department or item of expenditure shown in the statement previously laid before the
which compose that sum shall be stated in a schedule Assembly;
appended to the motion. •• submits it to the Chief Minister for authentication.
The schedule so authenticated by the Chief Minister
(2) Amendment may be moved for the reduction
is laid before the Provincial Assembly, but is not
of the whole demand for grant or for the reduction
open to discussion or vote thereon.
or omission of the items of which the demand is
composed. SAE is prepared under the requirements of Article 123
of the Constitution .
(3) Discussion of a general character may be allowed on
the motion or any amendments moved thereto but the
details of the grant shall not be discussed further than 8.17 Communication of Authorized Budget
is necessary to develop the general points. Estimates to Administrative Departments
(4) In other respects, a motion for vote on account shall The Finance Department communicates Schedule of
be dealt with in the same way as if it were a demand for Authorized Expenditure (SAE) to the concerned Heads
grant. of Departments. The communication is in the form of a
letter, which indicates the:
(5) The schedule referred to in sub-rule (1) shall
also separately specify the several sums required •• expenditure charged upon the Provincial
to meet the expenditure charged on the Provincial Consolidated Fund, and
Consolidated Fund. •• other expenditures voted by the Provincial
Assembly.
Rule - 160 Procedure for dealing with supplementary and The letter is accompanied by the pages of the estimates
excess demands containing the complete details ofthe expenditure
authorized.
The procedure for dealing with supplementary
estimates of expenditure and excess demands A copy of the letter along-with its enclosures is
shall, as far as possible, be the same as prescribed also forwarded to the Accountant General and the
for the budget, except that if, on a demand for a Administrative Department concerned.
supplementary grant, funds to meet the proposed
Some expenditure items included in the grants, or
expenditure on a new purpose are available by re-
provisions made for charged expenditure are not
appropriation, a demand for the grant of a token sum
communicated to any administrative departments but remain at the disposal of the Finance Department. For
example:
•• Interest on Debt and Other Obligations
•• Appropriation for Reduction or Avoidance of Debt
•• Superannuation Allowances and Pensions
•• Provincial Miscellaneous Investment
•• Public Debt
•• Loans and Advances
Learning Objective 9: Apply basic concepts of budget preparation and perform simple
costing for selected budget heads
Activity 1: Identify Three Outputs for following types of organizations in government sector:
1. A hospital 2. A Primary School 3. A Veterinary Support Office

ORGANIZATION OUTPUT
Civil Hospital, Karachi
Government Primary School for Girls,

Karachi
Veterinary Support & Disease Control

Centre, Hyderabad
Activity 2: Preparing Budget Estimates for Physical Assets
Suppose you are a Drawing & Disbursing Officer (DDO) of Government of Sindh. Your current assignment is
preparation of next year’s budget. As part of the, you are finalizing a schedule of Physical Assets comprising
various items of equipment, furniture & fixtures, vehicles, etc. The schedule will serve as one of the Annexures to
the budget document of the Hospital. Following data is available in this regard:
QUANTITY UNIT RATE (RS.)
Office table 5 2,500

Carpet 5000 sq ft. 20/sq. ft.
Fax machine 1 20,000
Chairs 5 200
External Modems 2 5,000
Curtains 5 2,000
Photocopier 1 60,000
Computer table 2 4,500
Printers HP laser jet 2 18,000
Desktop computers 3 40,000
Revolving chair 1 10,000
Repair to Chairs & Office tables (last year’s budget) total:
Rs. 2,000. Next year’s budget will be increased by 10%
Laptop computers 2 80,000

File rack 3 2000
Motorcycle 100 cc 2 50,000
Suzuki Jeep 2 550,000
Peach tree (software) license 1 70,000
Staff car 1 650,000
Sofa set 2 5,000
Replacement of tyres for:
»» Existing staff cars 4 1,500
»» Existing motorcycles 4 500
Required:
•• Calculate Cost of each of the items listed in the Table.
•• Calculate Total Cost of all items.
•• Identify items which should not be classified under the Physical Asset category.
•• Show Repair & Maintenance Cost separately.
•• Classify the above items according to the type of the Physical Assets. (Example: Suzuki Jeep will be classified as
‘Vehicles’, Desktop Computers will be classified as Computer Equipment)
Activity 3: Calculating Total Receipts and Total Expenditure
Table below gives a simplified summary of provincial Receipts and Expenditure for two years,
i.e. 2016-17 and 2017-18. The Table has four Columns: Column 1 shows alphabets against some selected rows;
Column 2 lists Receipt and Expenditure budget heads; Column 3, which is split in two parts, gives Budget
Estimates 2016-17 and Revised Estimates 2016-17; the last Column shows Budget Estimates 2017-18.
From this Table:

•• Calculate Totals in rows marked by alphabets A-H in Column 1.
•• Calculate percentage increase / decrease in Total Expenditure of the Province by comparing corresponding
Budget Estimates 2017-18 and Budget Estimates 2016-17
•• Calculate percentage increase / decrease in Total Expenditure of the Province by comparing Budget Estimates
2017-18 and Revised Estimates 2016-17
•• Calculate percentage increase / decrease in Total Expenditure of the Province by comparing Revised Estimates
2016-17 and Budget Estimates 2016-17
Table: Summary of Provincial Receipts and Expenditure
2016-17 2017-18
(1) (2) (3) (4)
Budget Estimates Revised Budget Estimates

Rs. in million Estimates Rs. in million
Rs. in million
CURRENT REVENUE RECEIPTS

Federal Transfers
Revenue Assignment from the 493,173 480,488 547,422
Federal Government
Straight Transfers 54,667 73,622 65,167
A TOTAL TRANSFERS FROM THE
FEDERAL GOVERNMENT
Provincial Own-Source Receipts

Provincial General Sales Tax on 78,000 78,000 100,000
Services
Provincial Tax Receipts (Other than 76,013 69,395 85,620
GST on Services)
Provincial Non-Tax Receipts 12,019 11,898 14,006
B TOTAL PROVINCIAL OWN-SOURCE
RECEIPTS
C TOTAL CURRENT REVENUE RECEIPTS
CURRENT CAPITAL RECEIPTS
2016-17 2017-18
(1) (2) (3) (4)
Budget Estimates Revised Budget Estimates

Rs. in million Estimates Rs. in million
Rs. in million
Foreign / Domestic Loans &

Borrowings
Foreign Debt 3,900 2,864 1,621
Bank Borrowings - Local 20,000 20,000 46,500
Foreign Project Assistance (FPA) 28,800 23,041 42,741
Other Receipts 12,188 5,925 27,326
D TOTAL CURRENT CAPITAL RECEIPTS
PUBLIC ACCOUNT OF THE PROVINCE
Gross Receipts 1,467,602 1,630,117 1,780,972
Less: Disbursements -1,377,245 -1,517,755 -1,668,191
E NET RECEIPTS IN PUBLIC ACCOUNT
F TOTAL RECEIPTS OF THE PROVINCE
EXPENDITURE OF THE PROVINCE
Current Revenue Expenditure 572,760 606,962 666,474
Current Capital Expenditure 30,369 27,856 32,643
Development Expenditure 265,988 242,777 344,067
G TOTAL EXPENDITURE OF THE
PROVINCE
H DIFFERENCE BETWEEN RECEIPTS
AND EXPENDITURE
Suggested Readings:
•• Budget Call Circular, issued by Sindh Finance Department
•• Rules of Procedure of Sindh Assembly
•• Constitution of Pakistan (Budget related Provisions)
•• Budget publications of Sindh Government
•• Sindh P&D Department: http://www.sindhpnd.gov.pk
•• PC Forms: http://www.sindhpnd.gov.pk/resource-center/docs.html
70 Chapter 9. Structure of receipts and expenditure
Chapter 9. Structure of Receipts and Expenditure
Learning Objective 1: Understand the concepts of Consolidated Fund and Public

Account
9.1 Consolidated Fund and Public Account the High Court and the Secretariat of the Provincial
Assembly
Receipts of a Sindh Government are classified under •• all debt charges for which the Provincial
two broad categories, i.e. Consolidated Fund and Public Government is liable, including interest, sinking
Account Receipts. fund charges, the repayment or amortisation
of capital, and other expenditure in connection
Similarly, outflows of moneys are also separately
with the raising of loans, and the service and
categorized as Expenditure on Consolidated Fund
redemption of debt on the security of the Provincial
and Public Account. A brief description of each of the
Consolidated Fund
category is given in the following paragraphs:
•• any sums required to satisfy any judgement, decree
or award against the Province by any Court or
Consolidated Fund
Tribunal
•• any other sums declared by the Constitution or by
Consolidated Fund represents those moneys for which Act of the Provincial Assembly to be so charged.
the Government is at liberty to appropriate for the
operations of Government. The above types of expenditure are termed as
“Charged’ Expenditure while all other are called “Voted”
Under Article 118 of the Constitution, the Provincial Expenditure.
Consolidated Fund comprises:
The Consolidated Fund is subdivided into several
•• All revenues received by the Provincial Government components of revenue and expenditure, to meet
•• All loans raised by that Government Constitutional requirements (e.g. requirement for
•• All moneys received by it in repayment of any loan voted and charged expenditures) and administrative
•• All moneys other than those listed above are requirements. The Annual Budget Statement follows
included in Public Account (discussed later in this this broad scheme of classification.
Chapter).
Article 118 of the Constitution characterizes Public
Article 119 of the Constitution empowers the Account as all moneys which do not form part of the
Provincial Government to regulate the custody of the Provincial Consolidated Fund but are: (a) received by or
Provincial Consolidated Fund, the payment of moneys on behalf of the Provincial Government; or (b) received
into that Fund, the withdrawal of moneys there-from by or deposited with the High Court or any other court
and all related matters legislation. established under the authority of the Province;
Article 121 of the Constitution specifies certain
Public Account
expenditure to be charged upon Provincial
Consolidated Fund. These include:
Public Account comprises those moneys, for which the
•• remuneration payable to the Governor, the Judges Government has fiduciary duty but it is not at liberty to
of the High Court and the Speaker and Deputy appropriate for its general services of the Government.
Speaker of the Provincial Assembly Public Account encapsulates trust accounts and special
•• administrative expenses, including the deposit accounts.
remuneration payable to officers and servants, of
These are defined as under:-

•• Trust Accounts- legal entities in their own right, under the stewardship of the Government, and as such are
expected to produce financial statements in their own name. These trust accounts are normally established
under an Act of Parliament or a Presidential Order. Examples of trust accounts include provident and
benevolent funds, employee’s insurance funds and trust accounts of certain departments (e.g. Railways)
•• Special deposit accounts- these accounts include Public Account moneys that are operated under the
authority of the Ministry of Finance, but are not trusts as they are not legal entities. Examples of special deposit
accounts include relief funds, civil and criminal court deposits, welfare funds and development funds.
•• Public Account Receipts
•• Assets
•• Cash and Bank Balances
•• Receivables
•• Other Assets
•• Liabilities
•• Trust Account – Funds
•• Trust Account – Others
•• Special Deposit – Investments
•• Special Deposit – Funds
•• Personal Ledger Accounts (PLAs)
•• A major component of these balances is generated on account of reserves / deposits in Trust Account Funds
such as General Provident Fund and Benevolent Fund, etc.
•• Disbursements
•• These represent outflows from Assets
•• Liability represents payouts from deposits and reserves account
Learning Objective 2: Discover various types of Provincial Receipts and their

significance to Sindh government
9.2 Classification of Receipts

Overall structure of the receipts is given in this diagram while a brief description follows:
9.3 Account No. 1 - Non-Food Account •• Corporate Income Taxes: These include taxes on
companies’ profits and
Sindh Government maintain two accounts with the revenues. The corporate category includes all types
State Bank of Pakistan. Account No. 1 is called Non- of companies (public, private, listed, non-listed, etc.)
Food Account and is used to record, besides Revenue Taxes collected from own sources of the Province:
Receipts, transactions for loans also. The Board of Revenue is the controlling authority for
administration of Revenue collection including land
Receipts on account of new loans (foreign and
taxes, land revenue, preparation of land record and
domestic) obtained by the Government and recoveries
other related matters.
against loans and advances extended by the
Government are routed through the Account No. 1. Board of Revenue is the custodian of the rights of the
land holders and is the highest revenue court in the
province with Appellate Jurisdiction against orders
9.4 Revenue Receipts of subordinate revenue officers/courts including
These are the incomes which are received by the EDOs (Revenue) and Collectors. Board of Revenue is
government from all sources in its ordinary course of responsible for administering various revenue laws in
governance. These receipts do not create a liability or force in the province, in particular the following:
lead to a reduction in assets. •• Sindh Board of Revenue Act 1957
Revenue receipts are further classified as tax revenue •• The Sindh Land Revenue Act 1967
and non-tax revenue. •• Sindh Land Revenue Rules 1968
•• The Land Acquisition Act 1894
Tax Revenue •• Stamps Act 1899
•• Registration Act 1908
Tax revenue consists of the income received from •• Amendments in Registration Act 1908
different taxes and other duties levied by the •• Following types of Taxes are collected by BOR,
government. It is a major source of public revenue. Sindh:
Every citizen, by law is bound to pay them and non- •• Capital Value Tax
payment is punishable. Tax Revenue comprises a •• Property Registrations
number of taxes which are classified under two groups,
•• Stamp Duty
i.e. Direct Taxes and Indirect Taxes.
•• Jamabandi30
Direct Taxes •• Indirect Taxes
•• Indirect taxes are those taxes which are levied on
commodities and services and affect the income of
Taxes levied on a person’s or an organization’s income
a person through their consumption expenditure.
are called Direct Taxes. Such taxes must be paid by the
Here the burden can be shifted to the user of the
person / organization on whom levied, i.e. their burden
goods/services.
cannot be shifted to someone else. There is no direct
benefit to the tax payer on payment of these taxes. Share of Indirect Taxes received from the Federal
Following are examples are Direct Taxes: Government as part of Federal Transfers under National
Finance Commission (NFC) Award31 include the
Share of Direct Taxes received from the Federal following Taxes:
Government as part of Federal Transfers under National
Finance Commission (NFC) Award29 include the •• Customs Duties: Goods imported into Pakistan are
following Taxes: liable to customs duties at tariff rates specified in
First Schedule to the Customs Act 1969. Every year,
•• Personal Income Taxes: Taxes levied on incomes the government determines the expected level of
/ salaries of individuals including on profits of receipts from this source and accordingly revises
individuals’ businesses. Also include all related
30 Jamabandi is a record of rights of a village. A Jamabandi Register
penalties, surcharges, etc. collected from the contains name of owners, area of land, shares of owners and other
individuals. rights. It also indicates rent/revenue and other charges payable on
land.
29 See Chapter 14 for more details on NFC mechanism 31 See Chapter 14 for more details on NFC mechanism
tax rates on all / certain goods imported into the ▪▪ Motor Vehicle Tax ▪▪ Property Tax
country.
•• Sales Tax: Sales tax is a tax on consumption
▪▪ Entertainment Duty ▪▪ Professional Tax
levied on manufacturers, importers, wholesalers, ▪▪ Hotel Tax ▪▪ Excise Duty
distributors, dealers, retailers. Sales tax on services ▪▪ Cotton Fee ▪▪ Infrastructure Cess
has been specifically excluded from this regime and
is being collected by the provinces.
Non-Tax Revenue
•• Federal Excise Duty: The federal excise duty
is levied on such excisable goods produced or
manufactured in Pakistan or imported into Pakistan Receipts from civil administration and other functions
as are specified in the First scheduled to the Central
Excise Act 1944. This source of receipt is being These receipts are realized from a number of sources
gradually phased out and largely replaced with covering various organs of the state, for example,
sales tax. Excise revenue comes from five major health, education, economic regulation, civil defence,
sources, i.e. cigarettes, beverages, POL Products, justice, jails, communication and works, forest
cement and natural gas. institutions, fisheries, agriculture, printing, irrigation,
Provincial Own-Source Indirect Taxes include Sales Tax etc.
on Services, which constitutes the biggest proportion
of the overall indirect taxes collected by provinces Income from property and enterprise
from their own-sources. In Sindh, this tax is collected
by Sindh Revenue Board (SRB), which was established Income from property & enterprise comprises profits,
under the Sindh Revenue Board Act, 2010 to regulate interest receipts, dividends from the government’s
fiscal and related economic policies in the province. investment in public corporations.
The role of the SRB also encompasses administration,
Dividends on Government Investments
management, imposition, levy and collection of taxes,
duties, cess and other levies, and to provide leadership
for enforcing the tax system through application of Dividends represent return on government’s
modern techniques of information and developing investment in the share capital of financial institutions
automated system of collection and assessment of tax and commercial enterprises. The receipt of dividend
and related matters in the province. varies from year to year depending upon profits earned
each year by these bodies and declaration of dividends
The SRB administers Sales Tax on Services Act in the on share capital.
province and ensures compliance with the related rules
and regulations. Interest Income
Under the Sales Tax on Services law in force in the
province, Telecom services are liable to tax @ 19.5% Government advance loans to districts, local
while other services are taxed at the standard rate of authorities, Public Sector Enterprises and others
16%. On certain other services, Sales Tax is levied at to assist them in carrying out their development
reduced/concessionary rates. programmes or other day-to-day operations. Interest
on loans is chargeable in accordance with the terms
Sindh Excise & Taxation Department has a leading role and conditions of each loan.
in resource mobilization for the Government of Sindh.
The Department has been entrusted with two functions Miscellaneous receipts
i.e. Tax collection and Narcotics suppression. It has the
exclusive authority of issuance & administering the
These include receipts on account of economic services
intoxicating liquor and other intoxicating licenses.
and other receipts.
The Sindh E&T Department administers various laws for
collection of taxes, duties and levies from more than 5
million taxpayers in the province. The taxes / levies are
9.5 Capital Account
listed below:
Capital Account is maintained to record inflows from Capital Receipts include Receipts from Internal and
loans and advances from internal and external sources External Sources.
and outflows on account of repayments of loans and
advances to the lenders. The items in Capital Account Current Capital Receipts
directly impact the asset and liability balances of the
Government. Current Capital Receipts broadly fall under the
Loans/debts are described in detailed in the remaining following two categories:
part of this Chapter. •• Funds received on account of new loans
•• Recoveries of loans extended to provincial
Capital Receipts autonomous bodies/agencies and employees of the
Government
These are Receipts which normally create a liability or
result in a reduction in assets are called capital receipts. 9.6 Account No. 2 - Food Account
However, other Receipts which neither create a liability
nor reduce assets (e.g. grants) are also part of the All receipts acquired by the Government under State
Capital Receipts. Trading in food commodities and all repayments
against these are channelized through Account No. 2.
These consist of proceeds from borrowing, money The Government obtains loans from commercial banks
received in repayment of loans, recoveries of advances/ under counter-finance arrangement with the SBP for
investments, proceeds of saving schemes and net financing operation of State Trading in food grains
receipts from transactions under deposits and reserves (wheat procurement). Once the procured wheat is
heads. released from public warehouses, the sale proceeds are
The net capital receipts so realized by the government directly deposited in Account No. 2 to retire the loan
generally constitute the availability of resources for taken from the consortium of banks.
financing of Annual Development Programme (ADP). Receipts under Food Account also form part of Current
Capital Receipts.
Learning Objective 3: Describe main types of Debts raised by Sindh Government and
learn how to calculate debt ceilings for the Government
9.7 Types of Debt •• CDLs - SCARP (Salinity Control and Reclamation

Project)
Classification of Sindh Debt on the basis of debt terms Foreign Debt comprises debt from a variety of
and conditions is as follows: multilateral and bilateral lending organisations
•• Soft Term Loans including:
•• Commercial Loans •• IDA (International Development Association)
Debt is from two sources: •• ADB (Asian Development Bank)
•• Domestic •• IBRD (International Bank for Reconstruction and
Development)
•• Foreign
•• OFID (OPEC Fund for International Development)
Domestic Debt comprises:
•• IFAD (International Fund for Agriculture
•• Floating Debt/Ways & Means Advances (Non-Food Development)
Account-I) •• OECF(Overseas Economic Cooperation Fund) Japan
•• CDLs (Cash Development Loans) - Normal •• AIIB (Asian Infrastructure Investment Bank)
Floating Debt/Ways & Means Advances (Non-Food In provincial Budget Books, interest payments are
Account-I): It is a short term borrowing extended by classified under Current Revenue Expenditure while
the State Bank of Pakistan to Government of Sindh to repayments of principal amount are shown under
meet any shortfall of cash in day-to-day government Current Capital Expenditure.
business. The Government of Sindh is receiving this
loan in pursuance of the Agreement signed with State (In case of borrowings from the Federal Government)
Bank of Pakistan under State Bank of Pakistan Act 1951. - These payments are made through at source
It is also known as SBP’s Overdraft Facility. Interest/ deductions by Federal Government from monthly
mark-up on outstanding amount of current account is divisible pool share of the Provincial Government.
charged at a rate equivalent to the quarterly average
rate of Market Treasury Bills with six months maturity.
9.9 Debt Ceilings
CDLs - Normal is a development loan extended by the
Raising of debt has mainly remained in Federal
Federal Government to the Province for financing its
Government’s control. Provincial governments have
ADP (Annual Development Programme)
had no power to raise debt. However, after the 18th
CDLs - SCARP is channelised from the Federal Amendment to the Constitution, the provincial
Government to WAPDA (Water and Power governments have been empowered under Article 167
Development Authority) for the execution of water & of the Constitution to raise debt to meet their budget
power projects deficits.
The interest rate on CDLs ranges from 7.42% to 17.71% The provincial governments can obtain domestic
per annum and comprises uniform amortization period borrowing up to a certain limit. This limit is set by
of 25 years including a grace period of 5 years. National Economic Council (NEC). The combined debt
ceiling currently set for all the provinces is 0.5% of the
The need for foreign loan arises under the scarcity of national GDP (Gross Domestic Product).
domestic resources
This limit is divided amongst the provinces according
More than 60% of the external debt is from World Bank to their share in the NFC Transfers. An example to
(IDA) while 36% from Asian Development Bank. The explain this concept is given below:
balance is shared between OECF (Overseas Economic
•• GDP: Rs. 28,000 billion
Cooperation Fund) Japan (2.75%) and the rest of the
lenders. •• Combined Debt Ceiling for all the Provinces: 0.5% of
the GDP
The foreign loans comprise both concessional and •• Combined Debt Ceiling for all the Provinces: 0.5% x
commercial loans. IDA (World Bank) loans have been Rs. 28,000 billion = Rs. 140 billion
taken on concessional lending rates while ADB loans
The ceiling (Rs. 140 billion) will now be distributed
are based on mixed mode i.e. concessional and
amongst the provinces in the ratio of their respective
commercial rates.
share in NFC transfers:
The main difference between the two lending types
Share of each provinces in NFC transfers:
is of the rate of interest and the length of maturity.
Concessional lending allows a longer maturity period •• Balochistan: 9.09%
for repayments of loan as compared to commercial •• Khyber Pakhtunkhwa: 14.62%
lending. Commercial lending is usually based on •• Punjab: 51.70%
London Inter Bank Offered Rate (LIBOR) with shorter
•• Sindh: 24.55%
maturity periods.
Distribution of Debt Ceilings among the provinces is as
follows:
9.8 Debt Servicing
Debt servicing includes the payment obligation on
account of interest and principal against domestic and
foreign loans.
PROVINCE PROVINCIAL DEBT The World Bank is providing technical assistance for this
CEILING initiative.
(RS. IN BILLION)
Balochistan 12.726 9.11 Issues with Public Debt

Khyber Pakhtunkhwa 20.468 Economic problems generally arise when debt
Punjab 72.380 servicing capacity of a government does not keep
Sindh 34.370 pace with the growth of debt. Debt servicing capacity
directly relates to a government’s ability to generate
enough funds from within the economy as a whole
9.10 Debt Management Unit of Finance or from the specific project / programme for which
Department debt was obtained. If the use of debt fails to generate
desired economic benefits, the government generally
Finance Department (Sindh) has established Debt tend to resort to additional borrowing to pay off the
Management Unit (DMU) to manage the provincial existing debt and correct any economic imbalances
debt and liabilities. DMU has embarked upon emanating from the use of debt. This can result in a
developing a Debt Management Strategy to provide debt-trap in the long run.
a framework for management of debt, loans and
liabilities. The sustainability in public debt in terms of its
level and rate of growth are the core issues that the
The objective of establishing a dedicated DMU is to government pay special attention to. A prudent public
use the additional fiscal space effectively through debt management always strives to maintain the ratio
borrowing to accelerate economic growth in the between the stock of debt and capacity to service it
province. without any sacrifice of the economic goals.
Learning Objective 4: Identify individual components of the Provincial Expenditure

and learn how these relate to each other
9.12 Expenditure Types and Classification

Overall structure of the Expenditure looks like the following:
Article 121 of the Constitution specifies certain expenditure to be charged upon Provincial Consolidated Fund.
These include:
•• remuneration payable to the Governor, the Judges of the High Court and the Speaker and Deputy Speaker of
the Provincial Assembly
•• administrative expenses, including the Similarly, the Expenditure is also categorized along
remuneration payable to officers and servants, of Object and Functional classifications. Object
the High Court and the Secretariat of the Provincial classifications are specified under the Government’s
Assembly Chart of Accounts and broadly cover the following:
•• all debt charges for which the Provincial
Government is liable, including interest, sinking
fund charges, the repayment or amortisation
OBJECT DESCRIPTION
of capital, and other expenditure in connection CODE
with the raising of loans, and the service and
redemption of debt on the security of the Provincial A01 Employee-Related Expenditure
Consolidated Fund
A02 Project Pre-Investment Analysis
•• any sums required to satisfy any judgement, decree
or award against the Province by any Court or A03 Operating Expenditure
Tribunal A04 Employees Retirement Benefits
•• any other sums declared by the Constitution or by A05 Grants, Subsidies & Write-off Loans
Act of the Provincial Assembly to be so charged.
A06 Transfers
The above types of expenditure are termed as A07 Interest Payments
“Charged’ Expenditure while all other are called
“Voted” Expenditure. A08 Loans & Advances
A09 Physical Assets
Expenditure is also classified into Non-Development
A10 Principal Repayments
and Development expenditure with a further
branching out into Revenue and Capital components. A11 Investments
The Non-Development expenditure is also referred to A12 Civil Works
as Current expenditure. A13 Repair & Maintenance
The “Revenue” ingredient of Non-development
Functional classifications of Expenditure have been
Expenditure comprises payments of salary bills along
prescribed in IMF’s Government Finance Statistics
with ancillary expenditures such as allowances,
Manual 2014 as part of COFOG (Classification of the
purchases, repairs and maintenance, interest payments,
Functions of the Government) and are also included in
pension, general provident fund, utilities, and other
Government’s Chart of Accounts. A brief description of
operational expenses.
each of the classification is given below:
The “Capital” element of Non-development •• General public services: This includes
Expenditure enshrines outflows on account of expenditure for executive & legislative organs of
investments, principal repayments, loans and advances the government, financial & fiscal affairs, external
to government servants, local/autonomous bodies etc. affairs, debt servicing; foreign debt, loan payment,
domestic debt, pensions etc.
The “Revenue” part of Development Expenditure makes
up the bulk of operational expenses such as salaries of •• Defence Affairs and Services: Consists of Military
contract employees, consultants, purchases etc. defence and defence administration
•• Public Order and Safety Affairs: This covers
The “Capital” component of Development Expenditure expenditure for law courts, police, fire protection,
essentially entails expenditures on mortar and bricks. prison administration and operation, administration
of public order etc.
In Provincial Annual Budget Statement of Sindh,
•• Economic Affairs: It includes allocations for
Expenditure is also split between Provincial and
general economic, commercial and labour affairs,
District components, i.e. Provincial and District ADP.
agriculture, food, irrigation, forestry & fishing,
The former indicates that the allocation would be
fuel and energy, mining and manufacturing,
utilized by Provincial departments/entities, while
construction and transport, communication and
the latter refers to the allocation to district /local
other industries, etc.
government entities to be utilized under their local
government system.
•• Environmental Protection: It covers budget estimates for waste water management, pollution abatement,
R&D environment, administration of environment protection, etc.
•• Housing and community amenities: It includes allocations for housing department, community
development and water supply.
•• Health: This includes allocations for medical products, appliances, and equipment, hospital services, public
health services, research and development in health and health administration.
•• Recreation, Culture and Religion: This includes budget estimates in respect of recreational and sporting
services, cultural services, broadcasting and publishing, religious affairs and administration of information,
recreation, and culture.
•• Education affairs and services: This covers for Pre-primary / primary education affair and services, secondary
education affairs and services, Education Sector Reforms, tertiary education affairs and services, education
services, subsidiary services to education, administration, education affairs and services not classified
elsewhere.
•• Social protection: Includes allocations for administration and other functions for social welfare institutions of
the government, e.g. Bait-ul-Maal, child protection, etc.
Capital Expenditure: This refers to any projected expenditure which is incurred for creating an asset with a long
life or repayment of loan. Thus, expenditure on land, machines, equipment, irrigation projects, oil exploration,
general economic/ commercial / labour affairs, agriculture, food, forestry and fishing etc. and expenditure by way
of investment in long term physical or financial assets are examples of capital expenditure.
Activity: Calculating Provincial Debt Ceilings
National GDP data and provincial share in NFC award are given below:
Gross Domestic Product (GDP) Rupees 32,000 billion
Provincial share as per NFC Award:
Balochistan: 9.09%
Khyber Pakhtunkhwa: 14.62%
Punjab: 24.55%
Sindh: 51.70%
Calculate Domestic Debt ceilings for each province in accordance with debt ceiling set by National Economic
Council. Complete the following Table with the computations performed:
Province Domestic Debt Ceiling

(Rs. In Billion)
Balochistan
Khyber Pakhtunkhwa
Punjab
Sindh
Suggested Readings:
•• Budget publications of the Sindh Government (Annual Budget Statements / Budget Analysis)
•• Government’s Chart of Accounts
•• Board of Revenue, Sindh: http://borsindh.gov.pk/
•• Excise & Taxation Department, Sindh: http://www.excise.gos.pk/
•• Sindh Revenue Board: http://www.srb.gos.pk/home/index.jsp
•• External Debt Management Manual, Government of Sindh: https://fd.sindh.gov.pk
82 Chapter 10. Budget execution
Chapter 10. Budget Execution
Learning Objective 1: Gain an overview of the procurement process followed by

Provincial Departments
10.1 Budget Execution - Procurement of Goods international competitive bidding.

& Services Prequalification of suppliers or contractors can be
done by the procuring agency keeping in the view the
Following creation of Public Procurement Regulatory
relevant experience, past performance, capacity or
Authority (PPRA) and subsequent issuance of
capability of the firms or suppliers.
PPRA rules by the Federal Government, the Sindh
Government have formed their own PPRAs and framed Procuring agency (i.e. a government department/
the relevant rules that govern procurement of goods organization intending to procure goods, services and
and services by Government Departments. works) should provide the concerned supplier with
all the documents and other requirement needed to
Sindh Government adopted the system in 2007
be fulfilled at the time of bid submission and proper
through an ordinance which was converted into an Act
communication should be done to qualified as well as
in 2009. Sindh Public Procurement Rules 2009 were also
disqualified firms with the reason of disqualification.
notified in the same year. All provincial government
Procuring agency has a right to reject any bid of any
departments and their subordinate units are required
firm if not fulfilling the required criteria and it may
to follow SPPRA for procurement of goods/services.
also blacklist the firm on having finding fraudulent or
The key objective of PPRA rules is to ensure transparent corrupt activity.
and cost effective procurement of quality goods and
Generally open competitive bidding method is used
services in the public departments covering all stages
as a principal bidding method and these bids must
involved in the procurement process.
be submitted on the prescribed bidding documents
Provincial PPRA rules contain almost identical prepared by procuring agencies containing necessary
provisions for procurement of goods, services and instructions and bidding forms for the bidders. Bid
works. A summary of the important procurement rules security should not be more than 5% of the bid price.
is given below:
Open competitive bidding procedures have also been
Procurement agencies should do proper planning specified in detail in the Rules. These relate to:
keeping in the view the expected procurement time •• Single Stage - One Envelope procedure
frame and should decide in advance the procurement
•• Single Stage - Two Envelope procedure
method to be followed
•• Two Stage Bidding procedure
All procurements over Rs. 100,000 and up to Rs. •• Two Stages - Two Envelope procedure
1,000,000 should be advertised through the authority’s The Rules also specify alternate procurement methods.
website and may also be advertised in print media. These include:
The Sindh Rules stipulate that the advertisement •• Request for Quotations: a method based on
should be given in at least three dailies (in Sindhi, Urdu comparing price quotations obtained from at least
and English languages). three suppliers/service providers
•• Direct Contracting: a method under which goods/
Response time should not be less than 15 days in case
services are procured from a single source without
of national competitive bidding and 45 days in case of
competition. Certain conditions apply on this •• Petty Purchases: the procuring agency may
method. provide for petty purchases, where the object of
•• Negotiated Tendering: A procuring agency the procurement is below the financial limit of Rs.
may procure goods/services under this method 50,000. Such procurement is exempted from the
from one or more suppliers or contractors with requirements of bidding or quotation of prices
or without prior publication of a procurement (again subject to certain conditions).
notification. Certain conditions apply on this •• Repeat Orders: this means procurement of
method. additional quantities of the item(s) procured
•• Force Account: this means construction by the through open competitive bidding from the
use of the procuring agency’s own personnel and original contractor or supplier and such additional
equipment. This method can only be used for the quantities of the same item(s) of goods or works are
works under some conditions specified in the Rules. needed to meet any shortfall in the quantities.
Learning Objective 2: Describe various modes for release of funds
10.2 Funds Release Process the release request and submits to the Deputy
Secretary who reviews and recommends to
The process for release of funds is different for Non- Additional Finance Secretary (AFS). From AFS the
Development (Current) and Development expenditure. request is submitted to the Finance Secretary.
A bulleted summary is given below: •• The Finance Secretary once approves a particular
release, the relevant section prepares an audit copy
Non-development Expenditure: of the release and issues copies to the concerned
department (after embossing a seal on the release
The Budget Coordination section of Finance orders) and to the Accountant General..
Department prepares a budget release policy for first In Sindh, releases for current budget are made on
half of the financial year during 1st week of July each quarterly basis.
year. Amounts in specific heads, like pay & allowances
and other operational costs are fully released for 1st Development Expenditure:
half and are available for expenditure.
Certain types of contingencies, like repairs and Advice for release of fund is received from the Planning
maintenance, purchase of assets, financial grants etc. and Development Department (P&DD). These schemes
are withheld and are dealt with on case to case basis, should be reflected in the Provincial PSDP (provincial
according to plan submitted by the administrative schemes) or Federal PSDP (in case of Federal funded
department, or when the demand arises. projects).
Additional grants, where no budget is allocated or If a particular scheme is included in the PSDP during
budget allocated is short of the requirements are also the financial year, all the relevant procedure for
approved and released on case to case basis. This is approval and inclusion in the PSDP must be completed.
further included in the schedule of supplementary Properly approved minutes of the meeting approving
expenditure, if not met through re-appropriations. inclusion of a new scheme during the FY should be
accompanied with the advice from the P&DD.
The steps involved are as follows;
The finance department checks the following before
•• Request for release of funds is received at the releasing for any scheme:
Finance Department from the Administrative
Department. PSDP reflection (or appropriate approvals in case of
•• In Finance Department, Section Officer reviews new schemes)
The amount demanded is according to the allocation and not crossing the limit.
The steps involved in the process are similar to those described for non-development side above. In case of
development projects / schemes with authority to operate Assignment Accounts, the Provincial AG, after being
satisfied with the genuineness of the audit copy received from the Finance Department, authorizes Treasury
Officer (TO) to issue cheque to the concerned Project for the authorized amount. TO conforms to AG’s instructions.
Cheque received by the Project from TO is deposited into Project’s Assignment Account maintained with NBP. The
Account is credited after receipt of funds from Government’s main account.
10.3 Modes of Release of Funds

Pre-Audit
In Sindh, current budget stands released in the SAP system from the start of the new fiscal year.
Development budget is not automatically available for spending. There is a release process which must be
followed before the departments/budget users should be able to spend.
An overview of the process is given below:
Release
Request by
P&D
Assignment Account location of assignment account and profit centre for

budget allocation must be same.
Revised Procedure for Operation of Assignment •• Ministries/Divisions/Deptts/Subordinate-Offices/
Accounts of Federal Government (Local Currency) 2018 Projects/Organisations where government funding
is applicable to Federal Government as well as the is an exclusive source of financing and those who
Provincial Governments. submit their claims to AGPR/AG/DAO shall not be
allowed Assignment Accounts.
To ensure uniformity in fiscal operations, Special •• The Assignment Account opened for a specific
Drawing Accounts (SDAs), Personal Ledger Accounts project, activity or entity will not be used for
(PLAs) and Revolving Fund Account (Local Currency) any other purpose. Commercial account(s) and
will be discontinued by Federal and Provincial assignment-account(s) will not be Inter linked
Government departments. in their operations for any purpose. Besides,
the assignment account(s) will not be used for
Opening of Assignment Account:
collection and deposit of receipts.
Assignment Account is opened in National Bank of The dormant Assignment Accounts which have
Pakistan (NBP). either not received funds from the Government or
no transaction took-place for the last three years, will
Assignment Accounts shall only be established/
be -closed by NBP under-intimidation to MoF and
opened with the approval of Ministry of Finance (MoF)
AGPRJAG/DAO concerned.
for the Federal Government and respective Finance
Departments for the Provincial Governments. Control of Expenditure:
Requests for opening of Assignment Account duly •• The withdrawing entities shall be responsible for
authorized by the concerned Principal Accounting preparation and submission of detailed budget
Officer will be considered by -MoF on case to case estimates to the Ministry of Finance through
basis through set criteria. The letter of assignment shall Ministries/Divisions for budgeting purposes. The
specify the following: practice of allocating one lino budget shall be
discontinued.
•• Account name
•• On a monthly basis, the NBP shall send a bank
•• The bank branch from where it will be operated
statement to the drawing authorities/DOOM
•• Authorized cheque signatories and specimen respect of each assignment account that it
signatures maintains.
•• Budget head from which the allocation of funds will •• The withdrawing entities shall be primarily
be made responsible for accounting of -expenditure-on-a
•• Any other condition for operation of the account daily on the basis of this record arid the bank
The authorization letter is issued direct to NBP by the statement, the drawing authorities will render
AG/DAO. The cheque book of assignment Account is classified account of expenditure to the. AGPR/
also supplied to authorized cheque signatories by the DAO on a monthly basis (by 10th of each Month
AG/DAO. A copy of this authorization is furnished to for reconciliation of expenditure. The variation
Treasury officer for information. if any will be reconciled and appropriate entries
shall be made to update the accounting records.
Assignment Account criteria: Monthly/quarterly release of funds will be subject
•• Assignment Accounts are opened, both for to reconciliation with AGPR/AG/DAO.
development and non-development budget, as •• National Bank of Pakistan will report the account
per the criteria laid down by) the MoF. In ease remaining undrawn against the authorized ceiling
of development budget, a separate assignment at the close of a financial year to AGPR/DAO/PAO in
account shall be opened for each project. The respect of each Assignment Account within a week
Assignment Account will not be used for collection Recording of Expenditure:
and deposit of receipts.
•• Assignment Account shall be opened only in the The expenditure will be recorded in the accounts
jurisdiction of AG/AGPR/DAO concerned. The on endorsement by the AGPR/AG/DAO. In order to
record expenditure, the concerned DDO will supply
the cheques along with copy of schedule providing Assignment Account(s) shall be different from
the expenditure coding details on daily basis before those of main account. National Bank of Pakistan
presenting to the bank. The AGPR/AG/DAO will check will supply separate cheque books in respect of
the codal formalities i.e. budget availability, approval Sub-Assignment Account(s) to the authorized
etc at the time of endorsement of the schedule for signatories.
the purpose of accounting. On making endorsement, •• No modification/change will be made in the
AGPR/DAO will issue a schedule of cheques to NBP and ceilings fixed for Sub-Assignment Account after
DDO. the issuance of authorization letter by the Account
Office concerned.
The officers holding Assignment Accounts will ensure
•• The authorized signatories of the Sub-Assignment
that no cheque is drawn on Assignment Accounts,
Account(s) will issue separate cheque against each
unless it is required for immediately disbursement
object code (Head of Account) and present the
to the goods/services provider. Cheque(s) will not
same in the designated branch of NBP along with
be drawn for deposit into chest or any bank account
schedule of cheques after applying financial rules,
maintained by the entity. A certificate to this effect will
regulations and fulfilling -all codal formalities. It
be recorded on the Schedule of Payment. Moreover,
shall be mandatory on the part of NBP to see that
AGPR/DA0 will not endorse any cheque, under any
accounting classification (cost centre and object
circumstances, which are drawn in the name of project
code) is clearly written on the schedule of cheques.
authorities or drawer/payer for lump sum transfer of
The cost centres and object code(s) shall also be
funds from Federal Consolidated Fund/Central Account
recorded on the -back of each cheque. Any cheque
No: I to their commercial bank accounts or deposit in to
without such information will be returned by the
any chest. NBP will provide scroll with paid cheques of
NBP concerned branch.
Assignment Accounts (local currency) to AGPR/AG/DAO
on daily bails or as the payments are made. Budgeting, Reconciliation and Audit:
The limit of amount in cash drawn in favour of DDO •• The withdrawing entities shall be responsible for
shall be finalised /approved with consultation of preparation and submission of detailed budget
Finance Division as per rules. estimates to the Ministry of Finance through
Ministries/Divisions for budgeting purposes. The
Establishment of Sub-Assignment Account(s): practice of allocating one lino budget shall be
discontinued.
Sub-Assignment-Account(s) shall be established /
•• On a monthly basis, the NBP shall send a bank
opened in accordance with the-following procedure:
statement to the drawing authorities/DOOM
•• Sub-Assignment Account(s) shall be allowed on respect of each assignment account that it
the basis of a given benchmark/criterion. The maintains.
Benchmark/criterion shall include variables such as •• The withdrawing entities shall be primarily
Budgetary Arrangements, Geographic Location(s), responsible for accounting of -expenditure-on-a
Number of Field Offices, and other relevant variable daily on the basis of this record arid the bank
considerations. statement, the drawing authorities will render
•• Sub-Assignment Account(s) shall be opened classified account of expenditure to the. AGPR/
with the approval of Ministry of Finance/Finance DAO on a monthly basis (by 10th of each Month
Departments, on the recommendation(s) of the for reconciliation of expenditure. The variation
Principal Accounting Officer concerned. if any will be reconciled and appropriate entries
•• The Sub-Assignment Account(s) shall be operated / shall be made to update the accounting records.
maintained in designated branches of NBP. Monthly/quarterly release of funds will be subject
•• Sub-Assignment Account(s) shall be constituted to reconciliation with AGPR/AG/DAO.
under the main assignment account. All sub- •• National Bank of Pakistan will report the account
Assignment Account(s) will be tagged with CIF remaining undrawn against the authorized ceiling
(Customer Information Folio) of NBP through at the close of a financial year to AGPR/DAO/PAO in
IT system shall be sent by Finance Division/ respect of each Assignment Account within a week
Finance Departments to AGPR/AG/DAO and
subsequently to NBP. The signatories of Sub-
Post Audit: Balances in Revolving Fund Accounts lapse at the end

of each financial year. However, the lapsed funds can be
The drawing authorities will submit monthly account revalidated in the next financial year.
of expenditure with copies of -paid vouchers to the
AGPR/DA0 concerned for post-audit purpose by 15thof If the funds from donors are received in currencies
each month that will carry out 100% post audit. The other than US Dollars, these are credited in respective
AGPR/DAO will issue a certificate of post audit by the Revolving Fund Account in Pak Rupees at the prevailing
end of month to the DDO concerned. rate of exchange.
Revolving Fund Account The SBP head office reports any receipt of funds from
foreign donors in Pak Rupees and equivalent foreign
currency to National Bank head office with a copy
Revolving Fund Account is another mode of release to respective NBP branch, the project authorities,
of funds for development projects. Like Assignment Planning & Development Division/Department and
Account, Revolving Fund Account is also opened for Provincial AG.
expeditious flow of funds to development projects
by eliminating the pre-audit requirement. However, The project authorities send the cheque to the Treasury
the key difference is that Revolving Fund Account Officer for endorsement before presentation to the
is opened for projects which are funded by foreign NBP. An accounting entry is made in the books of AG/
donors besides the Government. DAO at this stage. In case of funds received on behalf of
Provincial Governments, the SBP simultaneously credits
National Bank of Pakistan is the designated bank for the funds to the respective Provincial Government
handling all transactions of Revolving Fund Account. Accounts. The Finance Department will ensure that
The foreign currency amounts received under a foreign budget allocations are available in the budget books
credit/loan/grant for the Account are translated/ for the project.
converted into Pak Rupees at the State Bank of
Pakistan’s weighted average buying rate of exchange Payments from the Revolving Fund Accounts are
prevailing on the date of transfer of funds by the effected by NBP cheques/authorizations issued by at
donors. least two authorized signatories. The payments into the
account in respect of donor funds are initiated through
Payments out of the Revolving Fund Account are withdrawal applications signed by persons approved
made by way of reimbursement to National Bank at by the respective Administrative Department.
the weighted average rate of exchange at which the Withdrawals are not permitted unless prior budgetary
foreign currency was purchased by the State Bank of provisions exist for the project.
Pakistan.
Project authorities prepare statements for share
Separate Revolving Fund Accounts are required to be from Government, donor and any other entities and
opened for each of the loans/credit/grants and are part expenditure incurred.
of the Government’s main account opened in the State
Bank of Pakistan (i.e. Non-Food Account No. 1). At the close of the project, the project authorities
must reconcile their account with the SBP/NBP and
The transactions against individual Accounts are determine any unspent balance. The unspent balance
recorded and reported along with other Government is required to be surrendered within two weeks of
balances by the respective office of SBP to SBP Karachi. the closure of the project. The State Bank authorizes
The reimbursement of payments made by NBP are to close the Revolving Fund Account after fulfilling
claimed by NBP from SBP on a daily basis. all formalities. All concerned Departments/offices are
The balances in the Revolving Fund Accounts are intimated of the closure.
reported in SBP Finance Department’s daily report
of consolidated balances of Federal/Provincial
Government Account along with other Government
balances to the Federal/Provincial Government
(Finance Division / Finance Department/respective
Accountants-General).
Learning Objective 4: Understand basic concepts of Re-appropriation, Supplementary

Budget, Surrenders, Excesses, Savings, Delegation of Financial Powers
10.4 Re-Appropriations
Re-appropriation means transfer of allocated amount from one unit of appropriation (e.g. budget head) to another
such unit. This is done to utilize ‘saving’ of budget allocation in a specific head of appropriation.
Example: If it is anticipated that budget allocation for Repair & Maintenance would not be fully utilized during
the fiscal year, the spending agency can request for transfer of un-utilized amount to another account head, e.g.
Utilities. Certain restrictions apply on Re-appropriations.
Re-appropriation Process
Re-appropriation is carried out in accordance with Delegation of Financial Power Rules of the sindh government.
Brief introduction of the Rules is given in later part of this Section.
Re-appropriation request is prepared according to the Re-appropriation policy on Budget Form BCC-V (for Non-
Development/Current Budget) and Budget Form BCC-XI (for Development Budget) as given in Sindh BCC. See
Annexure-G and Annexure - H.
Process flow for Re-appropriation is depicted in the diagram below:

10.5 Revised Estimates, Excesses / Savings & Surrenders of Budget Estimates

Administrative departments prepare Revised Estimates and identify Excesses / Savings in the budget. This is
usually done in April/May as a parallel activity to budget preparation for next year. Any portion of the budget
unlikely to be spent by the close of the financial year is required to be surrendered to the Finance Department.
A statement is prepared by the administrative departments to determine the likely surrenders or excesses over the
sanctioned budget and for fixing the revised estimates of expenditure for the current financial year.
The Statement of Revised Estimates, Excesses and Surrenders enables the Finance Department to frame the
revised estimates of the current financial year on the basis of the Statement. It helps in determining the cash
balance for the current financial year.
The Revised Estimates Statement is prepared on Form BCC-VII (Annexure - L), while surrenders of budget are
determined on Form BCC-VIII (Annexure - M).
Process flow diagram for Revised Estimates is given below:

10.6 Supplementary Budget

Administrative departments can raise requests for supplementary grant to meet expenditure of urgent nature.
These requests are submitted to the Finance Department for approval and release of funds.
For significant supplementary budget requests, a Summary is moved to the Chief Minister for approval. Funds can
only be released once the Summary is approved by the Chief Minister. Key contents of the Summary include:
•• Background of the scheme / initiative / case for which supplementary budget is requested
•• References to any previous meetings held / decisions made for the proposed scheme or initiative
•• Amount requested including break up into applicable budget heads
•• Rationale for seeking funds as part of supplementary budget
•• Attachments for further details
•• Decisions required
These requests received during the year are consolidated by the Finance Department in the form of a statement
called “Supplementary Budget Statement” as part of the annual budget process.
Approval to the Supplementary Budget Statement is accorded by the Provincial Assembly at the time of approval
of next year’s budget.
The request is prepared on a prescribed format and is usually part of the Budget Call Circular issued by the Finance
Department. The format is given in Annexure - K.
Process flow diagram for Supplementary Budget is given below:
10.7 Budget Execution Report

Finance Department, Government of Sindh, has initiated the practice of preparing a Budget Execution Report. This
report is primarily prepared on a quarterly basis and is submitted to the Provincial Assembly. However, it can also
be produced monthly and can be used by administrative departments or other users.
For each quarter, the Report gives progressive actual revenue and expenditure for the relevant quarter of the
fiscal year and also gives comparisons to the target receipts and expenditure allocations. The Report also includes
summaries of inflows/outflows in public account and food account.
It serves as a tool for the Provincial Assembly to exercise oversight on the operations of the executive.
10.8 Delegation of Financial Power Rules

Finance Departments has a pivotal role in managing provincial budget. This role demands that the Finance
Department maintains updated budget allocations, regulates and authorizes budget releases, approves transfer
of funds to intended recipients, closely monitors the budget utilization (expenditure), ensures accountability of
unspent funds and maintains accurate and complete record of budget and expenditure.
Over the years, some of the financial powers vested in the Finance Department, have been delegated to the
administrative departments and their offices/officers in view of the SPPRA Rules 2010 and the Delrgation of
Financial Power and Financial Control Rules, 2019.
A system of financial delegation has been devised by each provincial government. This actually acts as a regulatory
framework for management of expenditure by Provincial Government Officers. This framework prescribes
categories of officers and their respective powers to carry out various financial processes within the budget cycle
throughout the year.
The Framework covers general and specific financial powers applicable to administrative departments and each
class of officers.
The delegation of authorities is contained in Delegation of Power and Power of Re-appropriation Rules 1962.
Suggested Readings:
•• Budget Call Circular of Sindh Finance Department
•• Sindh PPRA Rules
•• Provincial Finance Rules
•• Accounting Policies & Procedures Manual (APPM)
•• The Sindh Delegation of Financial Powers and Financial Control Rules, 2019
•• Treasury Rules
•• A Guide for Sindh DDOs
•• Assignment Account / Revolving Fund Account procedures
•• Budget Execution Report: www.fdsindh.gov.pk
Chapter 11. Accounting and Reporting
Learning Objective 1: Understand the role of DDO in controlling and reporting

Expenditure
11.1 Accounting System and Role of DDOs the Departments and their attached departments and
in monitoring and controlling of administrative units operating under the Departments).
expenditure32 The administrative departments have the responsibility

for controlling expenditure to ensure that:
During the budget execution phase, the commitments
and payments need to be monitored. This is done by •• Expenditure is incurred in public interest and for
‘accounting’, which can be defined as the maintenance the approved purpose for which the grant was
of basic records of government transactions. provided;
•• It is within the allotted available grant;
At the heart of any fiscal system is the accounting •• The competent authority has sanctioned the
system, which maintains the basic records of expenditure;
government transactions and actual expenditure. •• Financial discipline and strict economy is enforced
The primary aim of the accounting system is to deliver at every step;
reliable information on the government’s financial •• Due care has been taken in incurring and paying
position. Accordingly, accounting systems are also the expenditure;
referred to as ‘financial management information •• All applicable rules and regulations have been
systems’ (FMIS). The financial management information observed.
system is being used by Finance Department and
administrative departments and. 11.2 Expenditure Reporting
In general the accounting system is not well suited
During the budget execution phase, payments to
to provide the financial information required for
suppliers, vendors, service providers are recorded and
macroeconomic, fiscal and financial management
reported. This is done with the help of both automated
because it requires further data analysis and
and manual processes that support maintenance of
consolidation. This is also a reason to integrate the
accounting records of the government’s transactions.
accounting system into a Financial Management
Information Systems (FMIS) for an integarated FMIS (or Payments made and actual expenditure incurred at
IFMIS - this is discussed in later parts of this Chapter). the DDO level are also centrally recorded in IFMIS
accounting system primarily maintained at the
Authorized expenditure allowed to be incurred
Accountant-General’s office. The function of the IFMIS
is distributed by the Finance Department to the
before committing expenditure and making payments
Heads of the Departments under relevant Grant/
is to primarily ensure that adequate funds are available
Demand Numbers and DDO codes. Actual incurrence
in the relevant budget head and the expenditure is
of authorized expenditure and the realization of
duly authorized.
the estimated receipts included in the Annual
Budget Statement, are monitored and controlled The expenditure incurred is periodically reconciled with
by the concerned authorities at the administrative AG’s records on a prescribed format and is reported to
departments (including Secretaries, Additional the central management in Department headquarters.
Secretaries, DDOs and other senior management of
The process for reconciling expenditure is presented in
32 For details, see “Guide to Sindh DDOs”
94 Chapter 11. Accounting and reporting
the diagram below:
Learning Objective 2: Understand the key features of IFMIS implemented under PIFRA
11.3 IFMIS in Public Finance Management

Government of Pakistan initiated Project to Improve Financial Reporting and Auditing (PIFRA) to revamp its
outdated accounting and auditing systems and make them more responsive to the changing needs of time.
This Project was funded by the World Bank and implemented by the Office of the Auditor-General of Pakistan,
Government of Pakistan. It comprised three components:
•• Financial Accounting and Budgeting System
•• Auditing
•• Training
Implementation of PIFRA commenced in early 2000 with following key objectives:
•• Establish effective accounting and reporting systems.
•• Modernize government audit procedures and •• Book of Forms

adopt internationally accepted auditing standards. •• Accounting Code for Self Accounting Entities
•• Strengthen financial management practices in •• Financial Reporting Manual
public sector. •• Handbook of Accounting Guidelines
•• Generate financial information, which is more
The office of the Director General MIS/FABS, working
useful, complete, reliable and timely.
under the Controller General of Accounts(CGA), is
PIFRA has helped the Federal and Provincial responsible for smooth functioning of the SAP-based
Governments in adoption of modern accounting, Financial Accounting & Budgeting System (FABS), which
budgeting and reporting concepts and techniques is an Integrated Financial Management Information
and has brought a paradigm shift in Public Financial System (IFMIS) being operated at government offices at
Management in line with best international practices. federal, provincial and district level.
Innovative changes such as Accounting based on
‘Modified Cash Basis’, adoption of International Public
Sector Accounting Standards (IPSAS) and acquisition of 11.5 IFMIS Architecture
an Enterprise Resource Planning (ERP) related software
(SAP/R3), have all been part of PIFRA initiative. PIFRA The IFMIS is being used at more than 500 sites across
was implemented at federal, provincial and district the country. The District Accounts Offices(DAOs)
levels of the government in three phases between and other district level offices, and provincial line
1996-2014. departments are linked through Wide Area Network
(WAN) to servers at Accountant General office and the
Further explanation of IPSAS is given in Section 11.7 of Finance Department of the respective province.
this Chapter.
All provincial servers are linked through WAN to the
federal server lying at the office of the Accountant
11.4 Financial Accounting and Budgeting General Pakistan Revenues (AGPR) in Islamabad,
System (FABS)33 thereby creating a seamless and integrated system
capable of providing real-time information on financial
FABS comprises New Accounting Model (NAM) and transactions taking place on the system across the
a SAP-ERP-based Information Technology platform. country at national and sub-national level.
The New Accounting Model (NAM) was introduced to
improve the traditional government accounting system
by bringing-in a shift towards modified cash-basis of
11.6 IFMIS Modules
accounting, double-entry book-keeping, commitment IFMIS has helped in integration of information systems
accounting, fixed asset accounting and a new multi- across the government departments/organizations by
dimensional Chart of Accounts. creating one database linked to all applications. It is
Key objectives of FABS (i.e. NAM, along with the being used in a large number of government entities
SAP-based IT platform) include effective budgetary in the country to process (a) monthly pay of more than
management, financial control, cash forecasting, trend 2.2 million government employees at federal, provincial
analyses, fiscal administration and debt management and district levels (b) monthly pension of more
to enable effective accountability and better financial than 0.1 million government employees (c) General
governance. Provident Fund payments of government employees
(d) thousands of payment claims of government
Most of the business processes of the Government departments across the country on a daily basis (e)
relating to accounting, budgeting and HR have been monthly and annual accounts of federal, provincial
revamped and are contained in following books/ and district governments (f ) budgets of federal and
manuals of the New Accounting Model: provincial governments. See figure below:
•• Accounting Policies & Procedures Manual
•• Manual of Accounting Principles
•• Chart of Accounts
33 More details for FABS/IFMIS are given at http://www.fabs.gov.pk/

Pu blic Sector
G enera lG overnm ent Pu blic Coorpora tion
Centra l/Federa l
G overnm ent Fina ncia lPu blic Non-Fina ncia lPu blic
Coorpora tions Coorpora tions
Sta te/Provincia l
G overnm ent M oneta ry Pu blic
Coorpora tions ,inclu ding
Centra lBa nk ( Sta te Ba nk )
Loca lG overnm ent
Non-M oneta ry Pu blic
Fina ncia lCoorpora tions
The functional subsystems of IFMIS are represented by different modules. Currently two key modules i.e. SAP
Financial Accounting and HR have been implemented across the country. These modules are integrated in real-
time, i.e. data is entered only once and this results in updating of all the relevant modules.
SAP FI
SAP Financial Accounting (FI) module is used for budget preparation, expenditure recording and tracking,
accounting and financial reporting. The specific use of the SAP FI is as follows:
•• Uploading approved budget estimates
•• Releasing budget to DDOs
•• Performing budget availability checks before incurring any expenditure
•• Recording re-appropriations, excesses, surrenders and savings
•• Preparing final grants
•• Recording supplementary budgets
•• Accessing / viewing actual expenditure against the budget grants
•• The budget after being approved by the Assembly is available for utilization in the first week of July and is
immediately transferred to relevant servers.
HR Module •• GP Fund account and related calculations and

payments
In this Module, following types of HR-related data is •• Pension/commutation data and payments
recorded, processed and maintained: •• Salaries of the government employees
•• Data relating to the government employees •• The HR Module and related sub-systems are in use
at AG Offices and District Accounts Offices.
Learning Objective 3: Gain comprehensive understanding of IPSAS
11.7 International Public Sector Accounting global conceptual framework for public sector entities.
Standards (IPSAS) This underpins IPSASB’s standard-setting and guidance
development activities.
International Public Sector Accounting Standards Board
Governments that report on a cash basis do not
(IPSASB)
account for significant liabilities, such as employee
IPSASB develops accounting standards and guidance pensions and loans and assets such as property,
for use by public sector entities. The structures plant and equipment and investments. The IPSASB
and processes that support the operations of the encourages public sector entities to adopt the accrual
IPSASB are facilitated by International Federation of basis of accounting - which will improve financial
Accountants (IFAC). IFAC is the global organization management and increase transparency resulting
for the accountancy profession dedicated to serving in a more comprehensive and accurate view of a
the public interest by strengthening the profession government’s financial position. Many governments,
and contributing to the development of strong jurisdictions, and international institutions have
international economies. IFAC comprises over 175 already adopted IPSAS - many more are on the road to
members and associates in more than 130 countries convergence.
and jurisdictions, representing almost 3 million
accountants in public practice, education, government Rationale for IPSAS
service, industry, and commerce.
There is increasing demand for public accountability
The IPSASB’s forward strategy from 2015 has a single
and transparency by stakeholders.
strategic objective, i.e. strengthening public financial
management and knowledge globally through The preparation of transparent and understandable
increasing adoption of accrual-based IPSAS by: financial statements is an important way for PSEs to
•• Developing high-quality public sector financial facilitate meaningful internal control and monitoring
reporting standards by oversight bodies such as the legislature.
•• Developing other publications for the public sector; In the past, there has not been a clear financial
and reporting framework for the Public Sector, thus the
•• Raising awareness of the IPSAS and the benefits of need for (IPSAS).
their adoption.
Since 1997, the IPSASB has developed and issued Scope and authority of IPSAS
a suite of 39 accrual standards (four of which have
been, or are in the process of being, withdrawn), three IPSAS are designed to apply to the governments
recommended practice guidelines, which provide and their component entities e.g. departments and
guidance on the broader areas of financial reporting agencies They set out to recognize, measure, present
outside the financial statements, and a cash basis and disclose requirements dealing with transactions
standard for countries moving toward full accrual and events in the Government sector. The IPSASB
accounting. In October 2014 the IPSASB issued the first encourages the adoption of IPSAS and advocates for
the harmonization of national reporting requirements International Accounting Standards Board (IASB) with
with IPSAS. the objective of making the international standard-
setting process more effective. Currently, the IASB is
Types of IPSAS the standard-setting body of the IFRS Foundation, an
independent, private sector, not-for-profit organization.
Accrual basis: Accounting Standards issued by IASC until 2001 are
called International Accounting Standards, while
Prescribes the manner in which Government’s financial those issued by IASB are called International Financial
statements should be presented under the accrual Reporting Standards.
basis of accounting.
When a new accounting standard is released, it is
Focuses on revenue, cost, assets, liability and equity, known as International Financial Reporting Standard
instead of cash flow only. Most IPSAS are on accrual (IFRS). However, any revisions to IAS are still referred
basis which is in line with International Financial to as IAS. As a result both acronyms (IAS & IFRS) run in
Reporting Standards (IFRS). parallel until all IAS are superseded by IFRS.
Cash basis: Standard Setting Process

Prescribes the manner in which financial statements
should be presented under the cash basis of Key steps involved in the standards setting process
accounting. include the following:
Focuses on financial reporting of cash receipts, •• Review of International Accounting Standards /

payments and balances, under the cash basis of International Financial Reporting Standards for
accounting. terminology;
•• Study of national accounting requirements and
Benefits of adoption of IPSAS practice(s) and exchange of views about the issues
with national standard-setters;
•• Accountability •• Consideration of pronouncements issued by IASB,
•• Quality and comparability national standard setters, and other authoritative
bodies, professional accounting bodies, and
•• Transparency
organizations interested in financial reporting;
•• Improved governance
•• Formation of steering committees, project advisory
•• Consistency panels, or sub-committees to provide input to the
International Accounting Standards (IAS) / International IPSASB on a project;
Financial Reporting Standards (IFRS) •• Steering committees to seek public sector
guidance, discuss public sector issues and analyze
public sector examples and issues exposure draft
All IPSAS are based on International Accounting
for public comment;
Standards (IAS) issued by International Accounting
Standards Committee (IASC) and International •• Consideration of all comments received within the
Financial Reporting Standards (IFRS) issued by comment period on discussion documents and
International Accounting Standards Board (IASB). IASC exposure drafts, and modifications to proposed
was formed on 29th June 1973 with the objectives standards where appropriate;
to develop accounting standards to be observed in •• Publication of an IPSAS which includes a basis for
the presentation of audited financial Statements of conclusions that explains the steps in the IPSASB’s
the private sector and to promote their worldwide due process and how the IPSASB reached its
acceptance. In 1974, global accountancy bodies (e.g. conclusions.
Institute of Chartered Accountants of Pakistan - ICAP
Structure of IPSAS
and Institute of Cost & Management Accountants
of Pakistan - ICMAP) were also allowed to become
member of IASC. IPSAS are usually structured as follows:
•• Objectives
In 2001, the IASC was restructured to form an
•• Scope with IPSAS as part of wider reforms to adopt accrual

•• Definitions accounting, e.g. Kenya, Uganda, Brazil, South Africa,
•• Main body India, Jamaica, Costa Rica, Chile, Russia, Ghana.
•• Effective date Pakistan has adopted IPSAS 1 (Presentation of Financial
•• Appendices Statements) only. Financial Statements of the Federal
•• Comparison with the relevant IAS Government34 and Provincial Governments are
•• Adoption of IPSAS by various countries presented on the format approved in IPSAS 1.
Countries which have adopted full accrual basis of
Summary of IPSAS
accounting include: New Zealand, Australia, USA, UK,
Canada, France, Colombia, Indonesia, Cayman Islands.
See Annexure - L for a brief summary of all IPSAS.
Some countries have agreed processes or have a 34 See Federal Government’s Financial Statements at: http://www.
project in place to adopt accrual based IPSAS or align cga.gov.pk/pdf/annual/Federal/fin_st/2013-2014-Fed.pdf
Learning Objective 4: Define chart of accounts and understand the structure of

Government’s Chart of Accounts
11.8 What is Chart of Accounts? the size of an organization. In a small business entity,
the number of transactions are expected to be very
In simple words, a chart of accounts is a list of accounts few, whereas in a large entity (such as a government
with codes numbers. It is one of the fundamental hospital), the number of transactions is relatively very
concepts of accountancy. high.
To understand it better, a few basic accountancy Types of Transactions

concepts have been explained in the following
paragraphs:
There are generally two categories of transactions:
Transaction •• Monetary Transactions - A large number of
transactions are classified as those involving money.
The concept of chart of accounts is closely linked to the •• Other Transactions - There are transactions that
concept of ‘transaction’. do not involve money. These mostly represent
accounting provisions, adjustments, corrections for
In its simplest form, a transaction is a ‘deal between two error, etc. in accordance with accounting concepts/
persons to exchange goods or services for money’. conventions.
Examples Basic Analysis of Transaction
•• A hospital purchases CT scan machine from an
equipment supplier and makes payment by cheque. Since every money-related transaction involves an
•• A school pays electricity bill. ‘inflow’ and ‘outflow’ of resources (e.g. goods ‘received’
•• A college purchases a staff car. and cash ‘paid’), it implies that a transaction always has
two parts: the one that relates to receipt of goods (or
A transaction generally always affects the financial
services) AND the other part that relates to payment of
position of both parties. A person receiving goods
money.
or services pays cash while simultaneously the other
person delivering goods or services receives cash. And from other person’s perspective, delivery of goods
(or services) AND receipt of money.
Number of transactions can vary depending upon
Accounting Elements classification of various ‘accounts’ that any entity deals

with at the time of making transactions.
There are five accounting elements on which the whole These elements can be further classified to detailed
accounting is founded. These are: level:
•• Equity •• Expenses can have details like Salary, Allowances,
•• Liability Utilities, Maintenance, while Assets can be
•• Asset further classified into items like Furniture, Vehicle,
•• Revenue Computer, etc.
•• Expense •• Income can refer to Grants, Dividends and Rent
Any accounting transaction involves one or more of the •• Liabilities can be further sub-divided into various
above elements. These elements change on the basis of types of obligations, for example, loans, salary
relevant transactions taking place within the business payables, etc.
entity. •• Equity can be classified into Reserves and Funds.
The changes take place due to dual side of an Structure of Government’s Chart of the Accounts
accounting entry, involving a Debit and Credit.
Government comprises a number of units and sub-
Rules of Debit & Credit units, e.g. departments, divisions, sections, entities,
programmes, authorities, hospitals, schools, etc. and
The universal rules for debit and credit are as each one of the units initiates transactions on almost
summarized below: daily basis.
The transactions are classified in Government’s

ACCOUNTING INCREASE (+) DECREASE (-)
ELEMENT accounting system according to an elaborate scheme
of codes called a Chart of Accounts. Government uses
Expenses Debit Credit the chart of account for all transactions it carries out
throughout the year.
Assets Debit Credit
Income / Revenue Credit Debit Chart of accounts provides a basis for classifying
Liabilities Credit Debit
transactions. It is specifically used when there are a
large number of transactions in an entity providing
Equity / Capital Credit Debit goods or services to other people. It also helps in
reporting the transactions by summarizing them to a
Accounting Entry: few lines.
Overall structure of the Chart of Accounts looks like the

•• Recording of a transaction in books of account is following:
done with the help of what is called an accounting
‘entry’.
•• Accounting Entry has two parts: a debit part AND a
credit part. No entry is complete unless both parts
are recorded.
Classification of Transactions
Classification of transactions is the first step in

developing a chart of accounts. Accounting Entry
enables recording of events / transactions with the help
of accounting elements.
In fact the accounting elements are the original form

of a chart of account since these provide the basic
Key Features of Government’s Chart of Accounts
•• Government’s chart of account is more complex as it involves a large number of codes to identify transaction
with respect to its type, purpose, originating department, source of funding,
•• Provide a framework for organising accounting transactions to provide a number of views of these transactions
•• These views are provided by the elements contained in the CoA
•• Each elements provides both summary and detailed views of accounting transactions
•• The elements consist of a number of characters which consist of both alpha and numeric characters
•• All the above features help in providing different views of accounting information required for reporting
11.9 Explanation of the Structure of the Chart of Accounts

Entity Element
The entity element enables reporting of transactions by the organisational structure or in other words the
organizational unit which is creating the transaction. lowest organisational level at which budgetary control
The use of the entity element is mandatory for all occurs and organisation information is collected and
accounting transactions. reported on. It is an example of a cost centre.
There are a number of sub elements contained A DDO is also called a ‘cost centre’ that is, the place
within the entity element. These allow for capturing from where the costs/expenditures are incurred. The
transaction data at more detailed levels. The sub cost centre is represented by alpha-numeric codes. The
elements contained in entity are government, division alpha codes (two digits) represent the district and the
/ department, attached department, district and four numeric codes represent the DDO..
Drawing and Disbursing Officer (DDO).
DDOs are ordinarily responsible for expenditure for
Government: The government sub element is the one entity (e.g. a school or a single project). However in
Federal or Provincial Government and represents circumstances where the DDO is responsible for more
the highest level at which entity information can be than one entity one DDO code will be assigned for
aggregated. each.
Each government is represented by a single alpha Example:

character.
In Chart of Accounts, Sindh Government is denoted
•• Ministry by one alpha character ‘S’. Each of the Provincial
•• Ministry refers to Federal Ministry. Departments has been assigned two numeric
•• Each Ministry is identified by two numeric characters. So, Sindh Health Department is identified
characters. as S42; Finance Department has been assigned S31;
Energy Department is represented by S46, etc. For
Division / Department: Division/Department is
Government of Sindh, the Entity codes range from S01
a subset of the Federal Government, while only
to S99.
Department is a subset of the Provincial Government
and reflects the departmental organisation
responsibilities. Object Element
Each division/department is identified by one numeric The object element enables the collection and
character. classification of transactions into expenditure and
receipts and also to facilitate recording of financial
Attached Department: Attached department is
information about assets, liabilities and equity.
a subset of a Division, is relevant to the Federal
Government only. The use of the object element is mandatory for all
accounting transactions.
This sub element defines the highest level at which
operational responsibilities are assigned and at which The object element consists of two sub elements, the
operating entities can logically be aggregated and accounting element and the account number.
reported on (e.g. Cabinet Division).
Accounting Element: The accounting element is a
The attached department is identified by four numeric single alpha character sub element and defines the
characters. accounting element to which a transaction will be
classified. The accounting elements are as follows:
District: District is the location in which the concerned
DDOs of the Division / Department and / or attached •• A00000 Expenditure
department are located. •• B00000 Tax receipts
•• C00000 Non-tax receipts
The district also represents the District Accounting
Office (DAO). Each DAO will be identified by a separate •• E00000 Capital receipts
code. •• F00000 Assets
•• G00000 Liabilities
Each district is identified by two alpha characters.
•• H00000 Equity.
Drawing and Disbursing Officer (DDO): DDO is the Account Number: The account number is a five
numeric character sub elements. This sub element Grant Number / Demand Number: The grant /
defines the detailed “natural” accounts to which demand number is a three numeric character sub
transactions will be classified (e.g. salaries, utilities, etc). element, which identifies the relevant Consolidated
Fund grant or Public Account.
The account number contains a further internal
structure. This structure is as shown below: The grant number will facilitate capturing and
reporting whether expenditure is met from capital and
•• Major object
revenue via a grant being distinctly revenue or capital
•• Minor object in nature.
•• Detailed object.
Fund element structure – Example (for Consolidated
Object Element Structure - Example
Fund):
An example of the object element in terms of the
actual code is shown below (Accounting Element A FUND CONSOLIDATED FUND DIGITS
Expenditure):
Source Capital / Revenue 1
Major Object A01 Employee related expenses Sub-Fund Development 1
Minor Object A011 Pay Grant Grant Number 222
Detailed Object A01101 Basic Pay-Officers
Function Element
Fund Element
The function element provides reporting of

The fund element enables financial reporting by fund
transactions by economic function and program. The
being either the Consolidated Fund or the Public
function code is mandatory for transactions relating to
Account. The use of the fund element is mandatory for
expenditure and revenue.
all accounting transactions.
The function element consists of four sub elements,
The fund element consists of four sub elements, fund;
major function, minor function, detailed function
source; sub-fund; and grant / public account number.
and program (program sub element will only be
Fund: The fund sub element is one alpha character and used by computerised entities if the Federal and
identifies the fund as being the Consolidated Fund or Provincial Government decides to introduce program
Public Account. accounting).
Source: Source represents either Capital or Revenue Major Function: Major function describes the principal
receipts and is identified by one numeric character. economic function to which a transaction should
belong.
Sub-fund: The sub-fund sub element is one
numeric character, which divides the Consolidated The major functions included in the Chart of Accounts
Fund between development, current and charged are those provided by the International Monetary Fund
expenditure and divides the Public Account between in the publication “A Manual on Government Financial
trust accounts and special deposit accounts. Statistics” (GFS).
The different sub-fund sub elements along with the Major function is identified by two numeric characters.
related codes are as follows:
Minor Function: The second sub element is minor
•• Voted Current expenditure function, which provides the lowest level of economic
•• Voted Development expenditure function to which a transaction will be classified.
•• Voted Capital Expenditure
The minor functions included in the Chart of Accounts
•• Charged Current Expenditure are those provided by the International Monetary Fund
•• Charged Development Expenditure in the publication “A Manual on Government Financial
•• Charged Capital Expenditure Statistics”(GFS), modified where necessary.
Minor function is identified by a single numeric character.
Detailed Function: Detailed function provides an additional level of detail and analysis and will be uniquely
applied to each major / minor function combination. The detailed function sub element will be revised (with
input from all stakeholders) prior to issuing the proposed CoA. The detailed function is identified by one numeric
characters.
Sub-detailed Function: Sub-detailed Function is a lowest level of additional information and is represented by
two numeric characters. An example of the function element in terms of the actual code is shown below:
FUNCTION EXAMPLE DIGIT
Major Function General Public Service 01

Minor Function Executive and Legislative Organs, 1
Financial & Fiscal Affairs, External Affairs
Detailed Function Financial and Fiscal Affairs 2
Sub-detailed Function Foreign Debt Management 08
Program Program 123
Project Element
The project element enables transactions to be aggregated and reported at a project level (generally equivalent to
“sub -grant” level in the project development budget). The project code will be used for all development projects
and the use of this code for all such projects will be mandatory. The project element consists of the project
number, which is identified by four numeric characters.
Learning Objective 5: Learn to use the Government’s Chart of Accounts
EXAMPLE: ASSIGNING CHART OF ACCOUNT CODES TO TRANSACTIONS
Government of Sindh collects sales tax from a restaurant based in Karachi.

How will the above transactions be described in Chart of Accounts language?
There is a unique code number in the Chart of Accounts for Government of Sindh. Collection of sales tax is the responsibility
of Sindh Revenue Board (SRB). The sales tax is part of provincial receipts and is also allotted codes under the relevant receipt
categories. The collections will be deposited into a designated bank account owned by the Government of Sindh. This
transaction will be analyzed with the help of some simple questions, for example:
»» Who is the overall Entity?
It’s a Provincial Government - Government of Sindh.
»» What is the name of the administrative unit/entity responsible for collecting taxes?
Sindh Revenue Board
»» Which Accounting Element(s) does the transaction actually involve?(i.e. a Receipt/Expenditure/Asset/Liability?)
It involves Receipt AND Asset
»» Is this Receipt refundable to the person who pays it?
No
EXAMPLE: ASSIGNING CHART OF ACCOUNT CODES TO TRANSACTIONS
»» Will this Receipt be part of Provincial Consolidated Fund or Public Account?

Consolidated Fund (since all taxes are part of the Consolidated Fund)
The above transaction will be written in Chart of Account language in the following manner:
Entity Object Fund Function Project
Activity: Identifying Function and Object Elements of Chart of Accounts
In the following table, Functions and Objects are intermingled. Please mention either Object or Function against
each item separately:
No. Description Whether Object or Function?
1 Repairs to Furniture & Fixtures

2 General Hospital Services
3 Basic Pay of Officers

4 Computer Equipment
5 Chemical Examiner and Laboratories
6 Hot and Cold Weather Charges

7 Drug Control
8 Newspaper, Periodicals and Books
9 Pension
10 Postage & Telegraph
11 Training
12 P.O.L Charges-Planes, Helicopters, Staff Cars
13 Secondary Education
14 Primary Education
Suggested Readings:
•• PIFRA / FABS / IFMIS: http://www.fabs.gov.pk/ & http://www.pifra.gov.pk/fabs.html
•• Office of the Controller General of Accounts: http://www.cga.gov.pk/
•• New Accounting Model (NAM) Manuals/Books
•• Government’s Chart of Accounts
•• IPSAS https://en.wikipedia.org/wiki/International_Public_Sector_Accounting_Standards
•• IFRS Foundation: http://www.ifrs.org/about-us/our-structure/
•• International Federation of Accountants: http://www.ifac.org/about-ifac/organization-overview/history
•• About IPSASB https://www.ipsasb.org/about-ipsasb
106 Chapter 12. Accountability for public funds
Chapter 12. Accountability for Public Funds
Learning Objective 1: Describe the key objectives of Sindh Government’s Internal Audit
function and understand the key structures of the Internal Audit Committees
12.1 Internal Audit government policies, procedures, laws, rules and

regulations; and
Key Objectives of Internal Audit Function •• Overall technical assistance for the operational
effectiveness efficiency of the administrative
departments.
Internal Audit function has remained virtually non-
existent in public sector in Pakistan. Except for a few Institutional Framework for Internal Audit Function
isolated examples in entities in corporate sector, there
exists no concept of Internal Audit at either the Federal
There will be a Provincial Internal Audit Committee
or Provincial Governments.
(PIAC) to be headed by Provincial Finance Minister.
Government of Sindh has, however, developed an The Committee will be responsible for establishing
Internal Audit Charter for establishment of Internal and maintaining a robust internal audit function and
Audit function in the Province. Some of the key mechanism for the government. The PIAC will oversee
Objectives of the Charter include the following: the implementation of the Internal Audit Charter and
relevant laws and rules.
•• Additional assurance to the Government of
Sindh including the administrative secretary and PIAC will be supported by an appropriately
management of department concerned that the staffed secretariat to be established at the Finance
implementation of risk management and internal Department.
control mechanism is adequate, economical,
efficient, effective and consistent with the generally At each department level, there will be Departmental
recognized standards, legislation, rules and Internal Audit Committee (DIAC) to be headed
regulations; by the respective Secretary of the Department.
•• Detailed functions and mandate, terms of reference, The Departments will have an internal audit
structures and roles and responsibilities for an function established in the form of a Wing (for large
effective internal audit function aimed at improving administrative departments, like Education, Health,
transparency, governance and accountability in Irrigation, etc.) or a Cell for medium sized Departments.
public resource management; In case of very small Departments, including
•• Basis for improved value for money out of the autonomous and semi-autonomous bodies,
use of precious public funds and other resources corporations, companies other authorities established
appropriated for service delivery; by the provincial government, the services of
•• Whether internal controls are in place at established internal audit wing or cell other
appropriate levels of public management and Administrative Department can be solicited through
operations; the PIAC.
Systems to check against pilferage, wastage, leakages,
losses or frauds through:
•• Assessment of reliability and integrity of financial
and operational information;
•• Assessment of extent of compliance with
Composition of PIAC:
Finance Minister Chairman

Chief Secretary Vice Chairman
Additional Chief Secretary Member
Secretary Finance Member
Secretary Law Department Member
Secretary of the concerned Department Co-opted Member
Accountant-General Member
Director-General Audit Member
Private Sector Representative Member
PIAC Secretariat Coordinator Member/Secretary
Departmental Internal Audit Committee (DIAC)
Reporting by DG-IA / CIA: The Departmental CIA / Director General Internal Audit Wing/Cell shall report
administratively to the PIAC and functionally to DIAC / secretary of the concerned department. The reporting will
normally include:
•• Submission of audit report to the DIAC
•• Regular reporting to the Administrative Secretary including coverage of matters relating to fiduciary risk
•• Regular assessment reporting on adequacy and effectiveness of the operational processes
•• Reporting of significant issues and problems relating to core areas of concern with recommendations and
impartial conclusions
•• Provision of information on audit plan and other allied matters to the Secretary on a regular.
Relationship with External Auditors
•• For effective and efficient use of resources, the DG IA / CIA and the External Auditors may consult each other.
•• DG IA / CIA can discuss their audit plans with the External Auditors to avoid duplication of activities and
resources.
•• Availability of IA’s working papers, documents and other material to the External Auditors to be on latter’s
request only.
Learning Objective 2: Appreciate the role of the Auditor General of Pakistan and Public
Accounts Committee of Provincial Assembly in ensuring exgternal oversight and
accountability for public funds
12.2 Auditor-General of Pakistan

The Office of the Auditor-General of Pakistan (OAGP) is responsible for ensuring public accountability and fiscal
transparency in the governmental operations. The Auditor-General is appointed under the Constitution of the
country. Reports produced by OAGP are laid before the National and Provincial Assemblies and are considered
in the Public Accounts Committee of the respective Government and to provide assurance as to the
Assemblies. fulfilment of the conditions subject to which such
grants or loans were given.
OAGP also has a key role in strengthening the
legislative oversight by providing an independent and Under Article 171 of the Constitution and in terms of
objective assessment of the process of governance Section 7, 9 and 10 of the Auditor General’s (Functions,
both at the federal and provincial levels. Powers and Terms and Conditions of Service)
Ordinance, 2001 the Auditor General of Pakistan is
A summary of key functions35 performed by OAGP are required to submit to the Governor the accounts of
as follows: the province relating to each financial year along with
his report thereon. These accounts together with the
•• Determining, with the approval of the President,
reports are called:
such forms, principles and methods in which the
accounts of the Federation and of the Provinces •• Appropriation Accounts and the Audit Report
shall be kept thereon
•• Certifying the accounts, compiled and prepared by •• Finance Accounts
the Controller General of Accounts or any person •• Commercial Accounts and the Audit Report thereon
authorized on that behalf for each financial year,
These reports indicate, among other things, what
showing under the respective heads the annual
irregularities have been committed by the executive
receipts and disbursements for the purpose of the
agencies in the management and control of the
Federation, each Province and each District
amounts placed at their disposal for expenditure.
•• Submitting the certified accounts with such notes/ These reports are laid before the Provincial Assembly
comments or recommendations as he may consider and examined and disposed of by the Public Accounts
necessary to the President or the Governor of a Committee of the Assembly in accordance with the
province or the designated district authority Rules of Procedure of the Assembly.
•• Preparing reports relating to the accounts of the
Federation/Provinces and submit them to the
President/Governor, who shall cause them to be laid 12.3 Budget Oversight Role of Public Accounts
before the National/ Provincial Assemblies Committee
Performing the function of audit in respect of:
Public Account Committee (PAC) is the body
•• expenditures from the Consolidated Fund and constituted from the members of the Provincial
Public Accounts of the Federation and each Assembly with principle functions to examine
Province appropriations of Government expenditure, the annual
•• receipts which are payable into the Consolidated finance accounts of the Government, the report of the
Fund or Public Accounts of the Federal Government Auditor-General of Pakistan and such other matters as
and of each Province and in the accounts of each the Minister for Finance may refer to it.
district; and to provide assurance that these
were payable, have been properly and correctly Matters relating to PAC are dealt with in Rules 189-194
deposited; and internal controls are in place for of the Sindh Assembly Rules of Procedure.
their proper assessment and collection PAC of the Sindh Assembly consists of Seven (7) elected
•• accounts of stores and stock kept in any office or members with Minister of Finance as its ex-officio
department of the Federation or of a Province or of member.
districts;
•• trading, manufacturing, profit and loss accounts, Key responsibilities of PAC in relation to review of the
balance sheets and other subsidiary accounts in any audit report are as follows:
Federal or Provincial department and public sector •• Examine the statement of accounts showing the
enterprises income and expenditure of state corporations,
•• the accounts of any body or authority substantially trading and manufacturing schemes, concerns and
financed by loans or grants from the Consolidated projects;
Fund of the Federal or Provincial or District •• Examine the statement of accounts showing the
income and expenditure of state corporations,
35 OAGP Annual Report 2016
trading and manufacturing schemes (including autonomous and semi-autonomous bodies);

•• Consider the report of the Auditor-General;
•• In scrutinizing the appropriation accounts and the reports of the Auditor General, the committee should satisfy
itself to:
•• The money shown was legally available to the service it was provided for
•• Expenditure conforms to the authority which governs it
•• Re-appropriation has been in accordance with the provisions framed by the Finance Department
•• Examine any funds spent in excess of the amount granted by the Assembly and make appropriate
recommendations
Learning Objective 3: Name various types of accounts and understand their key
contents
12.4 Brief Description of Financial Statements, Appropriation Accounts and Commercial Accounts
Financial Statements
The Financial Statements deal with the Accounts of the Province as a whole, including transactions relating to
debt, deposits, sinking funds, advances, suspense accounts and remittance business and general financial matters.
Appropriation Accounts
The Appropriation Accounts consist of:

•• a summary on total expenditure under each Grant/ Appropriation;
•• audited accounts of the expenditure of the year whether “Authorized” or “Charged”, separately for each Grant/
Appropriation, with important observations as a result of audit investigation; and
•• detail on financial irregularities.
Commercial Accounts
Commercial Accounts consist of the accounts and review of government’s commercial or semi-commercial
concerns or undertakings, including their audited accounts and related audit observations
Commercial Accounts are a part of the Appropriation Accounts but published as a separate document for the
purpose of convenience
12.5 Financial Irregularities

Some examples of financial irregularities include:
•• Any expenditure incurred without sanction
•• Any expenditure incurred without sufficient budget allocation
•• Any re-appropriation made in defiance of the principles laid down for re-appropriation or supplementary
grants
•• Any expenditure during a financial year on a purpose not provided for in the Schedule of Authorized
Expenditure/ Annual Budget Statement / negligence or misappropriation

Supplementary Budget Statement •• Drawing money from treasuries, which is not
•• Loss of public money or property due to fraud, required for immediate disbursement
Learning Objective 4: Gain an understanding of the types of audits and the overall
audit process followed for audit of public expenditure
12.6 Audit of Accounts compared with the intended impact.
According to the International Organization of 12.7 Audit Process

Supreme Audit Institutions (INTOSAI) Auditing
Standards, the full scope of government auditing •• Planning for audit usually starts in the last quarter
includes regularity and performance audit. Regularity of the financial year. Office of the DG (Audit)
audit comprises of the attest of Financial Statements requests the administrative departments to provide
called Certification Audit and Compliance with expenditure incurred till-date against the allocated
Authority Audit. Regularity audit embraces: budget.
•• Attestation of financial accountability of •• Preliminary assessment of the expenditure /
accountable entities, involving examination and allocations are carried out by the concerned staff of
evaluation of financial records and expression of the DG (Audit).
opinion on Financial Statements; •• Frequency of audit of the Departments is
•• Attestation of financial accountability of the determined on the basis of their relative budget
government administration as a whole; allocations and are categorized accordingly. For
example, Departments with highest budget
•• Audit of financial systems and transactions
allocations are put in category ‘A’ and are subject to
including an evaluation of compliance with
audit every year. Others with relatively less share in
applicable statues and regulations;
the overall budget outlay of the Government are
•• Audit of internal control and internal audit put in category ‘B’ and ‘C’ and are subject to audit
functions; after two or three years.
•• Audit of the probity and propriety of administrative •• DG (Audit) prepares audit plan for auditing the
decisions taken within the audit entity; and Provincial Government’s departments / entities.
•• Reporting of any other matters arising from or •• The plan is approved by the OAGP. The plan
relating to the audit that the Supreme Audit preparation and approval process usually takes
Institution considers should be disclosed. around 2-3 months.
Performance audit is concerned with the audit of •• DG (Audit) informs the concerned Administrative
economy, efficiency and effectiveness and embraces: Department, Finance Department, Accountant-
•• Audit of the economy of administrative activities General’s Office / CGA and OAGP.
in accordance with sound administrative principles •• The Administrative Department communicates the
and practices, and management policies; same to the concerned DDO. DDO starts preparing
•• Audit of the efficiency of utilizing of human, the necessary information, data, reports, schedules,
financial and other resources, including the material for the audit.
examination of information systems, performance •• Audit teams are constituted for audit of the
measures, monitoring arrangements, and accounting records. Audit team assigned to a
procedures followed by audited entities for particular Department visits the DDOs offices and
remedying identified deficiencies; and starts performing review / audit of the expenditure
•• Audit of the effectiveness of performance in relation and other relevant information in light of the
to the achievement of the objectives of the audited rules and regulations (i.e. Sindh Financial Rules,
entity, and audit of the actual impact of activities Accounting Policies & Procedures Manual, General
Financial Rules, Treasury Rules, Delegation of Financial Power Rules, Departmental policies/vision/mission
statement and plans. The audit team generally comprises an Auditor and a Senior Auditor.
•• Audit team enquires about the validity, accuracy and completeness of the expenditure incurred and ensures
that it is incurred within the approved delegation of financial powers and prepares audit paras for violations of
rules and regulations and other financial irregularities committed.
•• At the conclusion of the audit, the team prepares a compilation of audit paras and submits the same to the DG
(Audit) and the department concerned.
•• Internal meetings in the Administrative Department are held to discuss the audit findings. Meetings of the
audit team with their senior officers also take to determine the reasonableness of the audit paras.
•• Meeting of the Departmental Accounts Committee (DAC) is held to discuss the audit report. DAC is chaired by
Additional Secretary of the Department concerned and comprises other officials of the Department and audit
team members. A representative of the Finance Department also attends the meeting.
•• Audit paras are discussed in the DAC meeting and after provision of the required information / removing the
deficiencies as identified in the audit paras, both sides agree on the final version of the audit findings. Upon
auditors satisfaction, the relevant paras are removed and a final version of the audit findings is agreed upon.
•• Audit paras of the individual DDOs audit are discussed as outlined above. The final version of the audit findings
represents the compilation of remaining paras of all DDOs and are then made part of the overall audit report
for the province. The report also includes a section on some audit observations for which the management
of the Department has committed to provide information or take action as suggested by the auditors.
These paras are presented separately in the final audit report as “Memorandum for Departmental Accounts
Committee (MFDAC)”. The final report is then submitted to the Governor of the Province.
•• The report is also submitted to the Public Accounts Committee (PAC) of the Sindh Assembly (through the
Finance Department), where it is deliberated upon according to PAC’s own time table.
•• The audit process is also presented in the diagram below:
Learning Objective 5: Understand the role of accountability agencies in eradication of

corruption
12.8 Accountability Laws

National Accountability Ordinance, 1999
National Accountability Ordinance (NAO) was promulgated by the Federal Government in 1999 to eradicate
corruption in Pakistan. Some of the key features of this law are summarized as follows:
•• Setting up of a National Accountability Bureau to eradicate corruption and corrupt practices and hold
accountable those accused of such practices
•• Take effective measures for the detection, investigation and prosecution of cases involving corruption, corrupt
practices, misuse / abuse of powers, misappropriation of property, kickbacks & commissions and ensuring
speedy disposal
•• Recovery of the outstanding amount from those persons who have committed wilful default in repayments to
banks, development finance institutions, government and other agencies.
•• Implement policies and procedures for awareness, prevention, monitoring and combating corruption in the
society
•• Corruption and corrupt practices committed case(s) to the Accountability Court

by holder of public office or any other person is •• call for information from any person during inquiry/
cognizable under NAB Ordinance, 1999. investigation in connection with the provisions of
•• Punishment may include imprisonment (up to the Ordinance
14 years) or fine or both. Also, fine may also be •• request a Foreign State to have the evidence taken/
imposed which may shall not be less than the gains obtained, freeze assets, confiscate articles, transfer
derived by the accused. such evidence or articles or assets to Pakistan and
•• The law empowers the government to establish transfer the person in custody to Pakistan
Accountability Courts in the country. The •• inquire/ investigate any suspected offence in
Accountability Court can take cognizance of any conjunction with any other agency or with any
offence upon a reference by the Chairman NAB or person
an officer of the NAB duly authorized by him. •• direct that the accused be arrested during
investigation of the case
National Accountability Bureau (NAB)
•• authority to declare and notify any place as a police
station or a sub- jail at his discretion
National Accountability Bureau (NAB) operates under
•• tender full or conditional pardon to any accused
the National Accountability Ordinance1999 and
with a view to obtain evidence of such person who
is entrusted with the responsibility of eliminating
is supposed to have been directly or indirectly
corruption through a holistic approach of awareness,
concerned in or privy to the offence
prevention and enforcement.
•• seek full & complete assistance from any
NAB has headquarters in Islamabad, with seven department, organization, office
regional offices in Karachi, Lahore, Peshawar, Quetta, •• delegate any of his powers and authorized
Rawalpindi, Multan and Sukkur. It takes cognizance of performance of his functions to nay officer of NAB
all offences falling within the National Accountability
Ordinance (NAO). Procedure for reporting of an offence to NAB
During initial three years, NAB focused mainly on

NAB entertains only those complaints that pertain
detection, investigation and prosecution of white-collar
to offence(s) mentioned in Section 9-A of the NAB
crime and prosecuted politicians, public service officials
Ordinance. A holder of a public office, or any other
and other citizens who were either guilty of abuse of
person, can be tried under this Ordinance if the person
powers, or had deprived the national exchequer of
is said to have committed the following offence(s) of
millions of rupees through corruption or resorted to
corruption and corrupt practices:
other corrupt practices.
•• Acceptance of gratification
After its role re-defined under the National •• Accepting any valuable thing without consideration
Anticorruption Strategy (NACS) project in February
•• Misappropriation of property
2002 and relevant amendments made in NAO, NAB
•• Obtaining any valuable thing or pecuniary
is now empowered to undertake prevention and
advantage by corrupt, dishonest or illegal means
awareness in addition to its enforcement functions.
NAB can initiate enquiries for cases involving •• Acquiring, owning or possessing wealth/assets
corruption and corrupt practices, misuse and abuse of disproportionate to his known sources of income
authority, creation of assets beyond known sources of •• Misuse of authority for personal favors
income as specified in the NAO 1999. •• Issuing any policy, directive or other order to grant
undue benefit himself
NAB is headed by a Chairman who is appointed by
•• Wilfully committing an offence of default
the Federal Government in consultation with the
•• Committing an offence of cheating
Opposition Leader in the National Assembly. Key
powers vested in Chairman NAB include the following: •• Committing an offence of criminal breach of trust
•• Committing an offence of criminal breach of trust
•• order freezing of movable or immovable property (by banker, merchant, broker, attorney, etc.)
•• authority to file a reference •• Providing assistance to someone on committing
•• may request the concerned court for transfer of the above offences
•• Key steps involved in lodging a complaint with NAB against a person who has allegedly committed an offence
under Section 9-A are listed as under:
•• Prepare an application addressed to the Chairman of NAB
•• Attach necessary documentary evidence in support of the complaint
•• Attach an affidavit certifying correctness and genuineness of the evidences attached and also mentioning that
the matter is not sub-judice under any court or other investigation agency in Pakistan
•• Attach a copy of National Identity Card and mention personal details (name, address and phone number)
•• Attestation of affidavit by notary public
•• Submit the completed application to the nearest Regional Office of NAB (may be hand-delivered or couriered).
NAB Regional Offices are located at Karachi, Lahore, Peshawar, Quetta, Rawalpindi, Sukkur and Multan.
The Sindh Enquiries and Anti-Corruption Act, 1991:
The Act constitutes a special agency for the investigation of certain offences relating to corruption by, or enquiry
into misconduct of, public servants and for holding preliminary enquiries against such servants in Sindh.
Suggested Readings:
•• Sindh Internal Audit Charter: http://fdsindh.gov.pk/site/userfiles/IA%20Charter%20-%20Approved%20(1).pdf
•• Constitution of Pakistan (Provisions relating to the Auditor-General of Pakistan)
•• Rules of Business of the Sindh Assembly
•• Sindh inquiries and anti-corruption Act, 1991
Chapter 13. Policy Review and PFM Diagnostic Tools
13.1 Policy Reviews The reviews involve assessment of actual versus desired
government policy outcomes. Adaptations of strategic
The last phase of the budget cycle concentrates on policy mix based on outcomes of government policy
the evaluation of government policies. Based on effectiveness and efficiency in service delivery.
policy evaluation, a government can decide to alter
its policies. Such policy changes need to be taken into Policy review should be an integrated phase of the
account in the strategic planning stage of the next budget cycle. In Pakistan, however, policy reviews are
budget. not carried out as an integrated phase of the budget
cycle, but only on an ad hoc basis by way of Public
It is not necessary to evaluate all government policies Expenditure Reviews (PER), Public Expenditure Tracking
in-depth each year. This would be too costly and add Survey (PETS), annual progress reviews and other
too little value. A more efficient approach is to schedule reviews usually initiated by the donor community.
evaluation at intervals of various years. The planning These are more frequently referred to as ‘PFM
and control of such an evaluation schedule forms part diagnostic tools’ discussed in the next section.
of the budget cycle.
Learning Objective 1: Gain an overview of various diagnostic tools available for PFM
assessment
13.2 PFM Diagnostic Tools36 clear; (ii) information on government activities should
be provided to the public; (iii) budget preparation,
Financial diagnostics are undertaken in the public execution and reporting should be undertaken in an
sector to provide information on the status of the open manner; and (iv) fiscal information should attain
financial management system. Diagnostic tools have widely accepted standards of data quality and be
largely been developed by donor agencies but are subject to assurances of integrity.
undertaken in close collaboration with government
counterparts. Country ownership of the reports and Public Expenditure Review (PER) and Public Expenditure
findings is promoted. Financial diagnostics are used to Tracking Survey (PETS)
inform the development of a PFM reform strategy and
progress on the reforms. Diagnostic tools are also used PER is used to understand a country’s fiscal position
by donors to inform a fiduciary risk assessment, which and its expenditure policies (particularly if they are
can be used to guide funding and lending operations. pro-poor). It is intended to aid expenditure allocation
and management decisions made during budget
Code of Good Practice on Fiscal Transparency formulation and help strengthen the composition and
management of the budget to deliver policy priorities.
This diagnostic tool is used to identify principles PER is usually undertaken by the World Bank.
and practices for the structure and finances of
PETS has been closely associated with PER. This is
government. It sets out a code of good practices on
a quantitative survey of the supply side of public
fiscal transparency, based on four key principles: (i)
services, which traces the flow of resources from origin
the roles and responsibilities in government should be
to destination and determines the location and scale of
36 Based on “A guide to public financial management literature - For any anomalies.
practitioners in developing countries” - by Overseas Development
Institute.
116 Chapter 13. Policy review and pfm diagnostic tools
Country Financial Accountability Assessment (CFAA) other diagnostic tools such as the PEFA to develop
an integrated fiduciary assessment, which is used to
The Wodld Bank’s Country Financial Accountability inform the World Bank’s Country Assistance Strategy.
Assessment (CFAA) is a diagnostic tool used to examine The tool is primarily used by the World Bank and other
the strengths and weaknesses of a country’s financial donors, and is developed in close consultation with
accountability arrangements. It is used alongside governments.
Learning Objective 2: Understand PEFA concept and methodology
13.3 Public Expenditure and Financial Governments use PEFA to obtain a snapshot of their
Accountability (PEFA) Assessment37 own PFM performance. PEFA offers a common basis for
examining PFM performance across national and sub-
The Public Expenditure and Financial Accountability national governments. PEFA scores and reports allow all
(PEFA) program provides a framework for assessing users of the information to gain a quick overview of the
and reporting on the strengths and weaknesses of PFM strengths and weaknesses of a country’s PFM system.
using quantitative indicators to measure performance.
Composition of PEFA Framework
PEFA is designed to provide a snapshot of PFM
performance at specific points in time using a
The purpose of a good PFM system is to ensure that the
methodology that can be replicated in successive
policies of governments are implemented as intended
assessments, giving a summary of changes over time.
and achieve their objectives. An open and orderly PFM
The PEFA framework includes a report that provides system is one of the enabling elements needed for
an overview of the PFM system and evidence-based desirable fiscal and budgetary outcomes:
measurement against 31 performance indicators. It also •• Aggregate fiscal discipline requires effective control
provides an assessment of the implications for overall of the total budget and management of fiscal risks.
system performance and desirable public financial •• Strategic allocation of resources involves planning
management outcomes. It provides a foundation for and executing the budget in line with government
reform planning, dialogue on strategy and priorities, priori-ties aimed at achieving policy objectives.
and progress monitoring.
•• Efficient service delivery requires using budgeted
PEFA helps governments achieve sustainable revenues to achieve the best levels of public
improvements in PFM practices by providing a means services within available resources.
to measure and monitor performance against a set PEFA identifies seven pillars of performance in an open
of indicators across the range of important public and orderly PFM system that are essential to achieving
financial management institutions, systems, and these objectives. The seven pillars thereby define the
processes. key elements of a PFM system. They also reflect what
is desirable and feasible to measure. The pillars are as
The PEFA methodology draws on international
follows:
standards and good practices on crucial aspects of
PFM, as identified by experienced practitioners. PEFA •• Budget reliability. The government budget is
incorporates a PFM performance report for the subject realistic and is implemented as intended. This
government that presents evidence-based indicator is measured by comparing actual revenues and
scores and analyzes the results based on existing expenditures (the immediate results of the PFM
evidence. It emphasizes a country-led approach to system) with the original approved budget.
performance improvement and the alignment of •• Transparency of public finances. Information on
stakeholders around common goals. PFM is comprehensive, consistent, and accessible
to users. This is achieved through comprehensive

37
Based on information available at www.pefa.org
budget classification, transparency of all What institutions PEFA covers or does not cover
government revenue and expenditure including
intergovernmental transfers, published information The PEFA indicator set is focused on the financial
on service delivery performance and ready access operations of the entire level of government covered
to fiscal and budget documentation. by the assessment. Sub-national governments
•• Management of assets and liabilities. Effective (provinces/districts) with a direct relationship to central
management of assets and liabilities ensures government are also separately covered as part of the
that public investments provide value for money, performance indicators. PEFA examines operations
assets are recorded and managed, fiscal risks are outside of the government being assessed only to
identified, and debts and guarantees are prudently the extent that they have an impact on the fiscal
planned, approved, and monitored. performance of the central government.
•• Policy-based fiscal strategy and budgeting. The
fiscal strategy and the budget are prepared with The PEFA indicators focus on the operational
due regard to government fiscal policies, strategic performance of key elements of the PFM system rather
plans, and adequate macroeconomic and fiscal than on all the various inputs and capabilities that
projections. may enable the PFM system to reach a certain level
•• Predictability and control in budget execution. of performance. PEFA thus does not measure every
The budget is implemented within a system of factor affecting PFM performance, such as the legal
effective standards, processes, and internal controls, framework or human resource capacities within the
ensuring that resources are obtained and used as government.
intended. PEFA does not involve fiscal or expenditure policy
•• Accounting and reporting. Accurate and reliable analysis that would determine whether fiscal policy is
records are maintained, and information is sustainable. It does not evaluate whether expenditures
produced and disseminated at appropriate times to incurred through the budget ultimately have their
meet decision-making, management, and reporting desired effect on reducing poverty or achieving other
needs. policy objectives, or whether value for money is
•• External scrutiny and audit. Public finances achieved in service delivery. International organizations
are independently reviewed and there is and research institutions have such tools at their
external follow-up on the implementation of disposal to perform more detailed analysis, such as
recommendations for improvement by the public expenditure reviews (PER) performed by the
executive. World Bank. PEFA focuses on assessing the extent
Each pillar comprises a group of indicators that capture to which the PFM system is an enabling factor for
the performance of the key systems, processes, and achieving such outcomes.
institutions of government. Each indicator in turn
includes one or more performance dimensions. A PEFA Assessments of Sindh Government
complete listing of the individual indicators and their
constituent performance dimensions is provided in Two PEFA assessments for Sindh were carried out
Annexure - M. in 2009 and 2013. A comparison of the assessments
suggests that in 2013, scores against:
Each dimension of the indicators measures
performance against a four-point ordinal scale •• 11 Performance Indicators remained unchanged;
from A to D. The highest score is warranted for an •• 7 Performance Indicators demonstrated
individual dimension if the core PFM element meets improvement;
an internationally recognized standard of good •• 11 Performance Indicators showed deterioration
performance. Dimension-specific scores are aggregated over the 2009 assessment.
to reach an overall score for each indicator using an
A Table showing comparison of the two assessments
appropriate method based on the degree of linkage
for each Performance Indicator is given below:
between the individual dimensions.
118 Chapter 13. Policy review and pfm diagnostic tools
PERFORMANCE INDICATORS SCORE 2009 SCORE 2013
PI-1 Aggregate expenditure out-turn compared to original approved budget C C

PI-2 Composition of expenditure out-turn compared to original approved budget D C
PI-3 Aggregate revenue out-turn compared to original approved budget B D
PI-4 Stock & monitoring of expenditure payment arrears D+ NR [not
reported]
PI-5 Classification of the budget A A
PI-6 Comprehensiveness of information included in budget documentation A B
PI-7 Extent of unreported government operations D+ D+
PI-8 Transparency of inter-governmental fiscal relations B A
PI-9 Oversight of aggregate fiscal risk from other public sector entities D C+
PI-10 Public access to key fiscal information C C
PI-11 Orderliness and participation in the annual budget process B+ B+
PI-12 Multi-year perspective in fiscal planning, expenditure policy & budgeting C D
PI-13 Transparency of taxpayer obligations & liabilities C B
PI-14 Effectiveness of measures for taxpayer registration & tax assessment D+ D+
PI-15 Effectiveness in collection of tax payments C+ B+
PI-16 Predictability in the availability of funds for commitment of expenditures B+ C+
PI-17 Recording and management of cash balances, debt & guarantees B C+
PI-18 Effectiveness of payroll controls C+ D+
PI-19 Transparency, competition and complaints mechanism in procurement NA C+
PI-20 Effectiveness of internal controls for non-salary Expenditure C C
PI-21 Effectiveness of internal audit D NR
PI-22 Timeliness & regularity of accounts reconciliation C+ D+
PI-23 Availability of information on resources received by service delivery unit B A
PI-24 Quality and timeliness of in-year budget reports C+ C+
PI-25 Quality & timeliness of annual financial statements B C+
PI-26 Scope, nature & follow-up of external audit D+ C+
PI-27 Legislative scrutiny of the annual budget law D+ D+
PI-28 Legislative scrutiny of external audit reports D+ D+
D-1 Predictability of Direct Budget Support C+ D
D-2 Financial information by donors for budgeting & reporting on project & program C+ D+
aid
D-3 Proportion of aid that is managed by use of national procedures B B
HLG-1 Predictability of Transfers from Higher Level of Government A D+
Suggested Readings:
•• A guide to public financial management literature - For practitioners in developing countries - by Overseas
Development Institute
•• For PEFA, see www.pefa.org
Chapter 14. Resource Transfers under National

Finance Commission Award
Learning Objective 1: Identify key taxing powers of the Federal and Provincial
Governments under the relevant constitutional provisions of 18th Constitutional
Amendment
14.1 18th Amendment to the Constitution

The 18th Amendment to the Constitution deleted the list of federal/provincial concurrent responsibilities and
reassigned selective functions to the federation to be guided by the Council of Common Interest (CCI) and
devolved others to the provinces.
The federal government has also been constrained in terms of its authority over banking, finance, and insurance
as its regulatory authority no longer extends to provincially owned entities or private entities operating in a single
province.
The federal government has been mandated to consult the provinces prior to initiating any hydroelectric projects.
The provinces, on the other hand, have been given a free hand in all public services delivered within their territory,
and control over all local government institutions.
All the residual functions not enumerated in the constitution also fall within the provinces’ domain.
14.2 Re-assignment of functions under the Constitution

Federal functions - Federal Legislative List I
RE-ASSIGNED FUNCTION
Defence
External affairs and international treaties Immigration and citizenship
Post and telecommunications
Central banking, currency, foreign exchange
Corporate regulation, including banking and insurance
Fishing beyond territorial waters
Standards of weights and measures
International and interprovincial trade
Nuclear energy
Airports, aircraft, air navigation, air and sea travel and shipment, lighthouses
Patents, trademarks, copyrights
120 Chapter 14. Resource transfers under national finance commission award
Stock exchanges and futures markets

National highways and strategic roads
Federal geological surveys and meteorological organizations
Local government in cantonment areas
Joint Federal-Provincial tasks (Federal Legislative List - I, Part II)
Electricity
Minerals, oil, and natural gas
Railways
Major ports
Censuses
Public debt
Federal corporate entities, including the Water and Power Development Authority and Pakistan Industrial Development
Corporation
Legal, medical, and other professions
Provincial police operations beyond provincial boundaries
Industrial policy
National planning and national economic coordination
Coordination of scientific and technological research
All regulatory authorities under a federal law
Standards in higher education and research, scientific and technical institutions
Interprovincial matters and coordination
According to the Fourth Schedule of the Constitution, the re-assigned functions of the Federal and Provincial
Governments are as follows:
•• Provincial Functions
•• Provincial governments perform all residual functions.
•• Functions of the local governments are determined by the provincial governments.
14.3 Re-assignment of Taxing Powers

There has also been a limited reassignment of taxing powers of federal and provincial governments. Following
matrix shows the types of taxing powers added / deleted:
GOVERNMENT TAXING POWERS ADDED TAXING POWERS DELETED
Federal Government Taxes on the sale and purchase of goods Estate and inheritance taxes (wealth tax,
including agricultural wealth)
Taxes on the capital value of assets, excluding
immovable property Value Added Tax (VAT) / General Sales Tax
on services
Zakat and usher

Provincial Government Value Added Tax (VAT) / General Sales Tax on
services
Taxes on immovable property
Zakat and usher
International and domestic borrowing, subject

to limits and conditions imposed by National
Economic Council
Local Government No change in taxing powers of the local
governments
Learning Objective 2: Appreciate the concept of fiscal transfers under NFC Award
14.4 Why Fiscal Transfers?

Generally, central governments collect taxes and re-distribute to sub-national governments (Provincial / Local
Governments).
Provincial share in the overall national resources is generally significantly less when compared to the tax
collections by central governments, resulting in fiscal imbalances in the provinces.
The purpose of fiscal transfer system is to equalize vertical fiscal imbalances between the central governments and
the provinces and correct horizontal imbalances in fiscal capacity among the provinces.
14.5 Transfers from the Federal Government under NFC Award

National Finance Commission (NFC) Award
Pakistan is a federation with centralized Government structure. The federation comprises four provinces, namely
Balochistan, Khyber Pakhtunkhwa, Sindh and Punjab.
A large portion of Direct & Indirect taxes are collected by the Federal Government through its tax collecting
agencies/departments with offices throughout the country, which are later distributed between the Federal
Government and Provinces according to a defined formula.
A National Finance Commission (NFC) has been set up which is responsible for devising mechanism for this
distribution. Article 160 of the Constitution provides for guidance for NFC Award.
Taxes collected in each province redistributed according to the NFC formula. Since its inception in 1973, 7 NFC
awards have been announced.
Charter of NFC
•• Distribution of the net proceeds of the taxes between the Federation and the Provinces
•• Making of grants-in-aid by the Federal Government to the Provincial Governments
•• Exercising borrowing powers by the Federal Government and the Provincial Governments
•• Any other matter relating to finance referred to the Commission by the President
NFC Composition
Chronology of NFC Awards
AWARDS STATUS FISCAL YEAR
First NFC Award 1974 Conclusive 1974–79

Second NFC Award 1979 Inconclusive 1979–84
Third NFC Award 1985 Inconclusive 1985–90
Fourth NFC Award 1991 Conclusive 1991–96
Fifth NFC Award 1997 Conclusive 1997-98
Sixth NFC Award 2002 Inconclusive 2002-2003
Seventh NFC Award 2009 Conclusive 2010-11
Learning Objective 3: Name ‘Divisible Pool’ Taxes and understand the resource
distribution criteria under the 7th NFC Award
14.6 Divisible Pool Taxes

Taxes subject to distribution
•• Taxes on income
•• Wealth tax
•• Capital value tax
•• Taxes on sales and purchases of goods imported, exported, produced, manufactured or consumed
•• Export duties on cotton
•• Customs-duties
•• Federal excise duties excluding the excise duty on gas charged at well-head
•• Any other tax that may be levied by the Federal Government
Distribution Criteria:
INDICATOR % WEIGHT
Population 82.00
Poverty/backwardness 10.30
Revenue Collection/ generation 5.00
Inverse population density 2.70
TOTAL 100
Federal and Provincial Share:
SHARE/ 6TH NFC AWARD 7TH NFC AWARD EFFECT

PROVINCE
Federal Share 52.7% 44% (2010-11) Reduced
42.5% (2011-12 onwards)

Provincial Share 47.3% 56% (2010-11) Increased
57.5% (2011-12 onwards)

NET EFFECT
Punjab 53.01% 51.74% 1.27% Decreased
Sindh 24.94% 24.55% 0.39% Decreased
Khyber 14.88% 14.62% 0.26% Decreased
Pakhtunkhwa
Balochistan 7.17% 9.09% 1.92% Increased
Box : How are NFC Resources Distributed Vertically and Horizontally?
Divisible Pool =
Taxes on Income
Plus Wealth Tax
Plus Capital Value Tax
Plus Taxes on sales & purchase of goods
Plus Export duties on cotton
Plus Customs duties
Plus Federal excise duties (excluding the excise duty on gas charged at
wellhead prices)
Less Federal Government’s Collection Charges (1%)
Less 1% charge on war on terror (for KP only)

Net Divisible Pool
Vertical Distribution:
Federal Government’s Share --> 42.5% (FY2011-12 onwards)
Provincial Share (Consolidated) --> 57.5% (FY2011-12 onwards)
Horizontal Distribution (amongst Provinces)
Punjab 51.74%
Sindh 24.55%
Khyber Pakhtunkhwa 14.62%
Balochistan 9.09%
Learning Objective 4: Practically apply the concepts discussed in this Chapter
Activity: Calculating share of Federal and Provincial Governments under the 7th NFC Award
A simplified summary of Divisible Pool Taxes for a financial year is given in Table 1. Using the concepts explained in
this Chapter, calculate:
•• Share of the Federal Government and combined share of all Provinces (under Veridical Distribution)
•• Individual share of the Provinces (under Horizontal Distribution)
Write the respective share of the Federal and Provincial Governments in Table 2.
TABLE 1: SUMMARY OF DIVISIBLE POOL TAXES
Taxes / Duties (Rs. In Million)
Income Tax 890,000

Capital Value Tax 2,000
Taxes on sales & purchase of goods 925,000
Export Duties on cotton 5,000

Customs Duties 345,000
Federal Excise Duties (excluding the excise duty on gas charged 115,000
at wellhead prices)
Wealth Tax -
Total 2,282,000
Table 2: Share of Federal and Provincial Governments (to be calculated)
Government Share in Divisible Pool Taxes

(Rs. In Million)
Vertical Distribution:
Federal Government
All Provinces
Total
Horizontal Distribution:
Balochistan
Khyber Pakhtunkhwa
Punjab
Sindh
Total
Suggested Readings:
•• Presidential Orders on NFC Award
•• Constitution of Pakistan (Article 160-163)
•• Constitution of Pakistan (Fourth Schedule)
126 Chapter 15. Service delivery under public private partnership arrangements
Chapter 15. Service Delivery under Public Private

Partnership Arrangements
Learning Objective 1: Understand the concept of Public Private Partnership (PPP) and
appreciate various PPP models
15.1 What is PPP? fixed price. The private-sector partner assumes all
risk.
World Bank’s38 ‘PPP knowledge lab’ defines a PPP as •• Operation & Maintenance Contract (O & M): The
“a long-term contract between a private party and private-sector partner operates a publicly-owned
a government entity, for providing a public asset or asset for a specific period of time. The public
service, in which the private party bears significant risk partner retains ownership of the assets.
and management responsibility, and remuneration •• Design-Build-Finance-Operate (DBFO): The
is linked to performance”. PPPs mostly do not include private-sector partner designs, finances and
service contracts or turnkey construction contracts, constructs a new infrastructure component and
which are categorized as public procurement projects, operates/maintains it under a long-term lease. The
or the privatization of utilities where there is a limited private-sector partner transfers the infrastructure
ongoing role for the public sector. component to the public-sector partner when the
lease is up.
PPP is a broad term that can be applied to anything
from a simple, short term management contract •• Build-Own-Operate (BOO): The private-sector
(with or without investment requirements) to a partner finances, builds, owns and operates the
long-term contract that includes funding, planning, infrastructure component in perpetuity. The public-
building, operation, maintenance and divestiture. PPP sector partner’s constraints are stated in the original
arrangements are useful for large projects that require agreement and through on-going regulatory
highly-skilled workers and a significant cash outlay to authority.
get started. •• Build-Own-Operate-Transfer (BOOT): The
private-sector partner is granted authorization to
An increasing number of countries are enshrining finance, design, build and operate an infrastructure
a definition of PPPs in their laws, each tailoring the component (and to charge user fees) for a specific
definition to their institutional and legal particularities. period of time, after which ownership is transferred
back to the public-sector partner.
•• Buy-Build-Operate (BBO): This publicly-owned
15.2 PPP Models asset is legally transferred to a private-sector
Different models39 of PPP funding are characterized partner for a designated period of time.
by which partner is responsible for owning and •• Build-Lease-Operate-Transfer (BLOT): The
maintaining assets at different stages of the project. private-sector partner designs, finances and builds
Examples of PPP models include: a facility on leased public land. The private-sector
partner operates the facility for the duration of
•• Design-Build (DB): The private-sector partner
the land lease. When the lease expires, assets are
designs and builds the infrastructure to meet the
transferred to the public-sector partner.
public-sector partner’s specifications, often for a
•• Operation License: The private-sector partner
38 http://ppp.worldbank.org/public-private-partnership/overview/
what-are-public-private-partnerships is granted a license or other expression of legal
39 http://whatis.techtarget.com/definition/Public-private- permission to operate a public service, usually for
partnership-PPP
a specified term. (This model is often used in IT / financial viability due to, for example, private
projects.) sector being unable to fully provide the required
•• Finance Only: The private-sector partner, usually a amount of funds. VGF represents a cash fund that
financial services company, funds the infrastructure pre-empts the requirement for Finance Department
component and charges the public-sector partner to process approvals for each and every PPP
interest for use of the funds. payment. Allocations for VGF are made as part of
•• Viability Gap Fund (VGF): Sometimes a VGF annual budget process and money is held in the
is created to fund projects which are generally VGF so that cash availability is ensured at the time
economically viable but fall short of commercial of processing of payments to the private sector
partner.
Learning Objective 2: Explain the process followed in Sindh for selecting a private
sector partner for PPP projects
15.3 PPP in Sindh Government40 or private sector entity.
Step 3 - Project proposal submitted to PPP Unit of

Government of Sindh has taken the initiative of Public
Finance Department.
Private Partnership to build large infrastructure projects
and improve service delivery in the public sector by Step 4 - PPP Unit convenes steering committee
engaging private-sector partners in different sectors of meeting consisting of relevant Planning and
economy. Development Department wing, relevant
administrative department and Finance Department.
A Public Private Partnership Act was promulgated in
2010 and a high-powered PPP Policy has been created Step 5 - Steering Committee examines proposal
under the chairmanship of Chief Minister to issue PPP feasibility study for:
policy guidelines and oversee the implementation/
administration of PPP projects in the Province. •• Relevance of project to government’s stated
priorities
A PPP Unit has also been established within the Finance •• Future financial commitment required of
Department, Government of Sindh, under the technical government in the context of government’s sectoral
assistance of Asian Development Bank, to facilitate and resource constraints
develop PPP projects and procedures to improve the •• Practical issues in relation to legal and operating
socio-economic milieu of Sindh. environment
PPP Unit has delivered projects like Hyderabad •• Potential impact on various stakeholders
Mirpurkhas Dual Carriageway, Karachi Thatta Dual Step 6 - Decision by PPP Unit to proceed or discard
Carriageway, Jhirk Mulla Katiar Bridge, NICH Security proposal
& Fire Safety project, Sindh Nooriabad Power Projects,
Education Management Organizations amongst others. Step 7 - Proposal forwarded to Advisory Board (AB) for
endorsement in case decision is to be obtained from AB
15.4 PPP Process41 Step 8 - Decision by Advisory Board to proceed or

discard
Step 1- Department or private sector entity identifies
Step 9 - Selection of Project Manager appointed and
opportunity for a PPP consistent with government
Project Group established (or Director General PPP or
needs and priorities.
Director PPP can assume this responsibility, however,
Step 2 - Project feasibility undertaken by department this is purely internal issue which can be decided at
This Chapter describes PPP-related processes/projects for Sindh .
40 local level)
Sindh PPP Policy Guidelines, 2008
41
128 Chapter 15. Service delivery under public private partnership arrangements
Step 10 - Project advisers identified and appointed Department:

•• Intercity Bus Project (Rs. 2 billion)
Step 11 - Tender structure and evaluation procedure
•• Rapid Bus Transit project for Karachi
defined with panel input
•• Karachi Thatta Dual Carriageway
Step 12 - Tender specifications prepared •• Vehicle Inspection and Certification System (VICS)
•• Malir Expressway Project
Step 13 - Project contract documentation drafted with
assistance of commercial law firm •• Jhirk Mulla-Katiyar Bridge (JMK)
•• Performance Based Contracts for Health Facilities
Step 14 - Tender procurement notice issued •• Education Management Organizations (EMOs)
Step 15 - Tender proposals submitted and ranked by Similarly, Energy Department has administered
PPP Unit evaluation panel a 100MW Sindh Nooriabad Power Project on PPP
mode, while Health Department is implementing
Step 16 - Negotiations on project documentation and a management and services contract with the
clauses entered into with first ranked tender assistance of various partners of the private-sector for
improvement of health services and facilities in RHCs/
Step 17 - If negotiations fail with first ranked tender,
THQs/DHQs and hospitals.
move to next ranked tender or retender
In Education sector, service delivery improvement
Step 18 - Project documentation executed
initiative is being implemented through Education
Step 19 - Project implementation commenced Management Organizations (EMOs).
Step 20 - Completion certificates issued in relation to PPP projects in Health sector are being implemented
any infrastructure construction, commissioning and with private partners like Indus Hospital, Aman
operational issues Foundation, Merlin International and Integrated Health
Services (IHS) through management and services
Step 21 - Delivery of good and/or service commences contract for RHCs/THQs/DHQs, other hospitals and
Ambulance Services for improving infrastructure and
Step 22 - Ongoing contract management, performance availability of health services. Health Department
monitoring and subsidy payments/receipts from/to also signed a management contract under PPP mode
government by the relevant administrative department for outsourcing the Security and Safety at National
Step 23 - Closure of PPP activity Institute of Child Health in Karachi.
Suggested Readings:
42
15.5 Key PPP Projects in Sindh •• Sindh PPP Unit: www.pppunitsindh.gov.pk
•• Sindh Budget Analysis
PPP projects administered by Works and Services
Department:
•• Hyderabad-Mirpurkhas Dual Carriageway (Rs. 6.5
billion)
•• Jhirk Mullah Katiar Bridge (Rs. 4.2 billion)
•• Karachi Thatta Dual Carriageway (Rs. 9.9 billion)
•• PPP projects administered by Transport
42 Budget Analysis 2015-16, Sindh Finance Department
Chapter 16. Local Government Structures and

Financial Management
Learning Objective 1: Understand the key provisions of Sindh Local Government law
on financial management
16.1 Local Government System •• Rural Local Councils:

•• District Council
In Pakistan, Local Government is the third tier in the •• Union Council
executive branch of government after the Federal
and Provincial Governments. Article 140-A of the Local Government Board in Local Government
Constitution stipulates that “each Province shall, by Department deals with matters relating to Local
law, establish a local government system and devolve Councils. These may include service issues, financial
political, administrative and financial responsibility and matters, rules, regulations pertaining to the Local
authority to the elected representatives of the local Councils.
governments”. Population size is a key determinant for constitution of
Sindh Government has enacted laws for setting up a local council and is given in the table below:
and administering local governments. The Local
Governments exercise administrative and financial Key functions of Metropolitan Corporation
powers as defined by the Sindh Government.
A Metropolitan Corporation covers a population of
3.5 million people or more. Some of the compulsory
16.2 Local Government Structures in Sindh functions performed by the Metropolitan Corporation
include:
Sindh promulgated Local Government (LG) Act in
2013. The objectives of the Act are to establish an •• Planning development and maintenance of Inter-
elected local government system to devolve political, district roads, bridges, street lights and storm water
administrative and financial responsibility and drains
authority to the elected representatives of the local •• Special Development Programme
governments; to promote good governance, effective •• Co-ordination. Monitoring and supervision of all
delivery of services and transparent decision making inter-district development / maintenance work
through institutionalized participation of the people at •• Maintenance of Abattoirs and Cattle Colonies to be
local level; and, to deal with related matters. specified by Government
The Act specifies various local councils to be formed •• Medical Colleges and Teaching/Specialized
as part of the local government system. These are Hospitals and such other institutions as were being
classified under Urban Local Councils and Rural Local managed by City District Government Karachi or
Councils as mentioned below: Karachi Metropolitan Corporation or as may be
specified by Government before commencement of
•• Urban Local Councils: this Act
•• Metropolitan Corporation •• Zoological Gardens, Safari Park, Aquarium, Sports
•• Municipal Corporation Complex and Beeches
•• Municipal Committee; •• Art Gallery, Museum and Metropolitan Library
•• Town Committee; •• Municipal Watch and Ward
130 Chapter 16. Local government structures and financial management
•• Fire Fighting Service vehicles)

•• Civil Defence •• Take such measures as may be necessary for
•• Traffic Engineering promotion of adult education.
•• Milk Supply Schemes •• Monitor Primary Education and related facilities
•• Control of Land owned by Metropolitan and report any violations, failures, omissions in
Corporation and Removal of Encroachments from provision thereof by the authority concerned to the
the properties owned by Metropolitan Corporation Government
•• Celebration of National Days •• Provide protection against stray animals and animal
trespass and establish cattle pounds
•• Reception of foreign dignitaries / distinguished
guests •• Regulate or prohibit establishment of brick kilns,
potteries and other kilns within the residential areas
•• Providing protection against stray animals and
animal trespass, and establishing cattle pounds Key Functions of the District Councils
•• Regulation or prohibition of the establishment
of brick kilns, potteries and other kilns within the
Key functions are summarized below:
residential areas
•• Aggregation of the financial allocations and
Key functions of Corporations (other than Metropolitan physical programmes and targets received from the
Corporations), Municipal Committees and Town Committees Sindh Government in different sectors and to draw
up a District Development Programme.
Key compulsory functions are summarized below: •• To make proposals to the Sindh Planning and
Development Department for modifications in the
•• Make adequate arrangements for the removal
aggregate District Programme
of refuse from all public streets, public latrines,
urinals, drains and all buildings and lands vested in •• To discharge the overall responsibility for the
the Council concerned and for the collection and identification of projects and appraisal and approval
proper disposal of such refuse of projects prepared and to be constructed by
Union Councils in various sub-sectors (e.g. Primary,
•• Register all births, deaths and marriages within the
Middle and Secondary education; Rural Health
Local Area
Centres, etc.).
•• Adopt measures to prevent infectious diseases and
•• To supplement the programme of the District
for restraining infection within the Local Area
derived from the Sindh Development Programme
•• Control, regulate and inspect all private sources of
with financial and other resources.
water supply within the concerned Local Area
•• Disbursement of ADP funds for the approved
•• Provide adequate system of public drains in the
projects (placed at the disposal of District Council
Local Area
by the Provincial Government) to various Union
•• Provide and maintain at such site or sites within Councils.
or without Local Area as may be approved by
•• To arrange the procurement and distribution of
Government one or more Slaughter Houses for the
locally made equipment and material for Health
slaughter of animals generally or of any specified
Centres and Schools.
description of animals for sale
•• To take appropriate measures for the development
•• Provide and maintain such public streets and
of skills, Crafts and Cottage Industries.
other means of public communication as may be
•• To review the implementation of the District
necessary for the comfort and convenience of local
Development Programme
inhabitants and visitors to the local area
•• To monitor the supply of agricultural inputs and
•• Lay out new streets
to make appropriate recommendations to the
•• Take such measures as may be necessary for the
concerned authorities.
proper lighting of the public streets and other
•• To formulate Union Development Programmes
public streets and other public places vesting in the
derived from the District Development Programme
Council concerned by oil, gas, electricity or such
in consultation with the respective Union Councils
other illuminate as the Council may determine
and to review periodically its implementation.
•• Grant licences for public vehicles (other than motor
•• Provision and maintenance of public Libraries and •• Fees and charges for the use of utility services
Reading Rooms. provided by the Councils such as water supply,
•• To promote adult education. sanitation, etc.
•• Provision and maintenance of Hospitals and •• Procurement and distribution of equipment and
Dispensaries including Veterinary Hospitals and materials for Health Centres, and Schools.
Dispensaries. •• Take appropriate measures, on its own or on behalf
•• Provision, maintenance and improvement of public of the District Council, for the development of rural
roads, culverts and bridges. skills, crafts and cottage industry.
•• Plantation and preservation of trees on road sides •• Monitor the implementation of development
and public places. 18. Provision and maintenance projects of line departments by regular review
of Public Gardens, Public Playgrounds and Public meetings, inspections and review of periodic
Places. progress reports and to take appropriate action
•• Maintenance and regulation of Public Ferries within the sphere of their jurisdiction.
other than those maintained by Government •• Make recommendations about the location of
Departments. various facilities to the District Council.
•• Maintenance and regulation of Cattle Pounds. •• Identify gaps in various sectors (e.g. non-availability
•• Provision and maintenance of Serais, Dak of teachers and medicines in the schools and
Bungalows, Zailghars, Rest Houses and other dispensaries) for the provision of facilities in the
buildings for the convenience of travellers. Union Area and to take steps within the available
sources and in accordance with priorities laid down
•• Prevention, regulation and removal of
by District Council.
encroachments.
•• Keep a watch over the actual supplies and delivery
•• Holding of fairs and shows.
of various agricultural and service inputs within the
•• Promotion of public games and sports.
Union Area and to report any inadequacies to the
•• Celebration of public festivals. supplies Organization/District Council.
•• Promotion of sanitation and Public Health. •• To encourage and to facilitate the formation of
•• Prevention, regulation and control of Infectious associations for collective use and collection of
Diseases. charges for services such as electric supply and
•• Enforcement of Vaccination. water course management, co-operative tube-well
•• Protection of foodstuffs and prevention of development, co-operative for input supplies and
adulteration. output marketing, water-course management, etc.
•• Permission to organize Cattle Piri (Mall Piri). •• Provision and maintenance of public ways and
•• Provision of water supply, construction, repair and public streets. Provision and maintenance of Eid
maintenance of water work and other sources of Gahs, public open spaces, public gardens and
water supply. public playgrounds, common meeting places and
other common property.
Key Functions of the Union Councils •• Lighting of public ways, public streets and public
places.
Key functions are summarized below: •• Plantation and preservation of trees in general, and
plantation and preservation of trees on public ways,
•• To act as construction agency for sub-sectors
public streets and public places in particular.
like Primary, Middle and Secondary Schools;
Rural Health Centres; Family Welfare Clinics; Basic •• Management and maintenance of graveyards,
Health Units; Piped Water Supply; Potable Water/ shamilats and cremations and burial grounds.
Storage Tanks/Tube-wells, and Wells; Hand Pumps; •• Provision and maintenance of accommodation for
Sanitation; Rural Roads. travellers.
•• To raise local resources through •• Prevention and regulation of encroachments on
•• Voluntary resources; labour, land and cash public ways, public streets and public places.
contribution •• Prevention and abatement of nuisances in public
•• Taxes; property, consumption and other sources ways, public streets and public places.
identified by the community (except on trade). •• Sanitation, conservancy, and the adoption of other
measures for the cleanliness of the Union. •• Union Council Fund in the case of a Union Council.
•• Regulation of collection, removal and disposal of The Local Fund consists of proceeds of money from
manure and street sweepings. various sources as shown the diagram, see below:
•• Regulation of offensive and dangerous trades.
•• Regulation of the disposal of carcasses of dead
animals.
•• Regulation of the slaughter of animals.
•• Regulation of the erection and re-erection of
buildings in the Union.
•• Regulation of dangerous buildings and structures.
•• Provision and maintenance of wells, water pumps,
tanks, ponds, and other works for the supply of
water.
•• Adoption of measures for preventing the
contamination of the sources of water supply for
drinking.
•• Prohibition of the use of the water of wells, ponds,
and other sources of water supply suspected to be
dangerous to Public Health.
•• Regulation or prohibition of the watering of cattle,
bathing or washing at or near wells, ponds or other
sources of water reserved tor drinking purposes.
(30) Regulation or prohibition of the steeping of
hemp jute or other plants in or near ponds or other
sources of water supply.
16.3 Financial Powers of the Local Government

A Local Council is empowered to levy taxes, rates, tolls
and fees as mentioned in Schedule V of the Act. The
Provincial Government can direct a Council to increase,
decrease or to abolish any rate, tax, toll or fee.
Under Clause 104 of the Sindh LG Act, a local fund

can be created to deal with the financial matters of
the relevant tiers of the government. Local Fund has
the same purposes as the Consolidated Fund has at
the provincial of federal levels. The Local Fund can
be operated at all tiers of the local government and
can have different nomenclatures according to the
respective tier, e.g.
•• Corporation Fund in the case of a Corporation;
•• Municipal Committee Fund in the case of Municipal
A Local Council is not authorized to borrow any
Committee;
money or give any guaranty without prior approval
•• Town Committee Fund in the case of Town of Government. However, if there any surplus funds,
Committee; the same may be invested in Government-approved
•• Union Committee Fund in the case of Union securities and financial institutions.
Committee;
•• District Council Fund in the case of a District The Council can utilize the Local Fund to meet
Council; expenditure / pay off liabilities as specified in the Act.
These include: •• Cess on any taxes levied by the Government.

•• Salaries and allowances to the Council employees •• Taxes permissible for Municipal Corporations,
Municipal Committees and Town Committees
•• Repayment of loans and utility bills
•• Property Tax (as may be determined by the
•• Share of expenses on conduct of elections,
Provincial Government)
maintenance of the Sindh
Council Unified Grades and the Auditing of •• Tax on the transfer of immovable property.
Accounts •• Tolls on road and bridges and ferries owned and
•• Payment against other liability/ obligation resulting maintained by Council.
from the discharge of any duty under the Act •• Tax on professions, trades and callings.
•• Expenditure charged on the local fund under this •• Fee on births, marriages, adoptions and feasts.
Act •• Advertisements including hoarding and billboard.
•• Amount payable under a decree or award against •• Taxes on Animals.
the Council by Court or Tribunal •• Tax on cinemas, dramatic and theatrical shows and
There is an annual budgeting process at the council other entertainments and amusements as may be
level. Every council prepares a separate budget determined by Government.
comprising estimates of grants from the Government, •• Tax on vehicles, other than motor vehicles and
amounts available in the Local Fund, receipts for the boats.
next year and expenditure to be incurred for the next •• Street lighting Rate and Fire Rate.
year. •• Conservancy Rate.
•• Rate for the execution of any work of Public Utility.
Demands for a grants are made on the
recommendation of the Mayor or the Chairman. The •• Rate for the provision of water works or the supply
functionaries of a Council are empowered to re- of water.
appropriate budget in accordance with the powers of •• Cess on any of the taxes levied by Government.
re-appropriation delegated to them by Government. •• School Fees.
•• Fees for benefits derived from any works of public
Local Councils maintain their Funds outside the SAP/ utility maintained by the Council.
IFMIS system. However, for all budgeting, accounting
•• Fees at fairs, agricultural shows, industrial
and reporting purposes, the Local Councils follow the
exhibitions, tournaments and other public
same Chart of Accounts as is used by the Provincial /
gatherings.
Federal Governments.
•• Fees for Markets.
Taxes permissible for Metropolitan Corporation43 •• Fees for licences sanctions and permits granted by
the Council.
•• Fire Tax. •• Fees for specific services rendered by the Council.
•• Conservancy Tax. •• Fees for the slaughtering of Animals.
•• Drainage Tax. •• Parking Fee on roads.
•• Fees for slaughtering of Animals. •• Taxes permissible for Union Councils and District
Councils
•• Fee on conversion of land use all over the City.
•• Tax on the annual value of buildings and lands.
•• Fee on licences / sanctions / permits granted by
KMC. •• Tax on lands not subject to local rate.
•• Market fee on land owned by KMC. •• Tax on the transfer of immovable property
•• Tolls on roads and bridges owned and maintained •• Tax on professions trades and callings.
by KMC. •• Fee for registration and certificates of birth and
•• Charged Parking on the roads maintained by KMC. death, marriages and divorces.
•• BTS Towers. •• Advertisements including bill board and hoarding
as determined by Government.
•• Entertainment Tax.
•• Cinemas, dramatic and theatrical shows, and other
•• Tax on transfer of immovable property.
entertainments and amusements.
43 This refers to Karachi Metropolitan Corporation
•• Animals. •• A Chairman of a Municipal Committee to be

•• Vehicles (other than motor vehicles but including nominated by Government
carts bi-cycles and all kinds of boats). •• Two professional members from the private sector
•• Tolls on roads, bridges and ferries. to be nominated by Government
•• Street Lighting Rate. Key functions of the PFC are to make recommendations
•• Drainage Rate. to the Government on a resource distribution formula
•• Rate for the execution of any works of Public Utility. and distribution between the Provincial Government
•• Conservancy Rate. and the councils out of the proceeds of the Provincial
Consolidated Fund into a provincial retained amount
•• Rate for the provision of water works or the supply
and a Provincial allocable amount. Similarly, the PFC
of water.
also makes recommendations on distribution of
•• Fees on application for the erection and re-erection
provincial allocable amount amongst the Councils as
of building.
share of each council and matters relating to finances
•• Schools fees in respect of schools established or of the Councils.
maintained by the Council.
•• Fee for the use of benefits derived from any works The horizontal resource distribution formula takes into
of public utility maintained by the Council. account the principles of population, backwardness,
•• Fees at fairs, agricultural shows, industrial need and performance of a council. The Government
exhibitions, tournaments and other public has authority to approve or alter the recommendations
gatherings. of the PFC. The PFC award remains in force for a period
of four years.
•• Fees for Markets.
•• Fees for licences, sanctions and permits granted by
Maintenance of Accounts
the Council.
•• Fees for specific services rendered by the Council.
An annual statement of accounts is prepared at
•• Fees for the slaughtering of Animals.
each council after the close of a financial year and
•• Parking Fee. transmitted to Government and the Audit Authority
•• Fee on BTS Tower. separately within thirty days of the close of the financial
•• Surface minerals. year.
•• Fisheries.
Audit
Provincial Finance Commission
The Provincial Director, Local Fund Audit of
Local government share in fiscal resources is Government is the designated authority for pre-
determined under a Provincial Finance Commission auditing payments from the Local Fund of the Councils.
(PFC) award. In Sindh, PFC consists of the following A Council is not allowed to withdraw or disburse
members: money from the Local Fund unless it is pre-audited by
•• Minister for Finance (Chairperson) the Provincial Director.
•• Minister for Local Government (Co-Chairperson)
The accounts of every Council are subject to audit. The
•• Two members of the Provincial Assembly of the Audit Authority will have access to all books, records
Sindh and other documents pertaining to accounts and may
•• Finance Secretary also examine the Mayor, Deputy Mayor, Chairman, or
•• Secretary Planning and Development Department Vice-Chairman, or any Member or Employees of the
•• Secretary Local Government Council.
•• Mayor of the Metropolitan Corporation
Report of the audit authority is submitted to
•• A Mayor of a Corporation to be nominated by Government and the Council. This report covers cases
Government of (a) embezzlement, fraud and mis-appropriation of
•• A Chairman of a District Council to be nominated by Local Fund; (b) loss, waste or misapplication of Local
Government Fund; (c) irregularities in the maintenance of accounts;
(d) unauthorized and excess expenditure. gathering;

•• Fees for specific services rendered by an Urban
The Council is required to comply with the instructions
Council;
and rectify the irregularities given in the audit report
•• Tax for the construction or maintenance of any work
and furnish to Government a detailed report in that
of public utility;
behalf. The audit report is forwarded to the PAC of the
Sindh Assembly. •• Parking fees.
District Councils:
In addition to the routine / annual audit, the
Government may require that a special audit of a •• Tax on the transfer of immovable property;
Council be conducted. This may be conducted either •• Fees for licenses, sanctions and permits granted by
by the Provincial Director Local Fund Audit or any other the District Council;
audit agency, or an independent Auditor. •• Market fees for the markets maintained by the
District Council
•• Rates on the services provided by the District
16.4 Local Government Structures and Council;
Functions •• Fees at fairs, agricultural shows and industrial
Municipal Committees, Municipal Corporations and exhibitions tournaments and other public
Metropolitan Corporation: gathering;
•• Fees for specific services rendered by the District
•• Tax on the annual rental value of buildings and Council;
land;
•• Tax on the annual rental value of buildings and
•• Tax on cinemas and cinema tickets; lands;
•• Entertainment tax on dramatical and theatrical •• Toll on roads and bridge and ferries maintained by
shows; the District Council;
•• Tax on the transfer of immovable property; •• Tax on vehicles other than motor vehicles and
•• Water rate; including carts, bicycles, and tongas.
•• Drainage rate; •• Tax for the construction or maintenance of a work
•• Conservancy rate; of public utility;
•• Tax on all kinds of vehicles; •• Fee on advertisement and billboards, other than on
•• Lighting rate; radio, print media and television.
•• Tax on the birth of children; Union Councils:
•• Fee for the erection and re-erection of buildings;
•• Tax on cinemas and cinema tickets.
•• Marriage tax;
•• Entertainment tax on dramatical and theatrical
•• Fee for the licenses, sanctions and permits granted show;
by an Urban Council;
•• Fees for registration and certification of birth,
•• Fees on the slaughter of animals; marriages, and deaths;
•• Tax on professions, trade, callings and employment; •• Fees for licenses, sanctions and permits granted by
•• Market fees for market established by the respective a Union Council;
Urban Council; •• Fee on the slaughter of animals;
•• Fee on advertisement and billboards, other than on •• Fee for erection and re-erection of buildings;
radio, print media and television;
•• Rate for the remuneration of village guards;
•• Tax on feasts when more than twenty persons,
•• Market fees for the markets established by the
not belonging to the household of the persons
Union Council;
arranging the feast are entertained with foodstuffs;
•• Rates on the services provided by the Union
•• Tax on animals and sale of animals;
Council;
•• Toll tax on roads, bridges and ferries maintained by
•• Rate for the execution or maintenance of any
an Urban Council;
work of public utility like lighting of public places,
•• Fees at fairs, agricultural shows, industrial drainage, conservancy and water supply operated
exhibitions, tournaments and other public
by Union Council;
•• Fee at fairs, agricultural shows, industrial exhibitions, tournaments and other public gathering;
•• Tax on feasts where more than twenty persons, not belonging to the household of the person arranging the
feast, are entertained with foodstuffs;
•• Community tax for the construction of public work of general utility for the inhabitants of the Union.
Case Study: Preparing Non-Development/Current

Budget Estimates
Specific objectives of the Case Study are as follows:
•• Using basic concepts of calculations, prepare budget estimates for Salaries, Operating Expenditure, Drug &
Medicines, Physical Assets and Repair & Maintenance
•• Fill relevant budget Forms as given in Budget Call Circular
•• Use basic codes of Government’s Chart of Accounts
This Case Study is about preparation of expenditure budget for Lyari General Hospital, Karachi. This will require
estimating for individual expenditure components, assigning Chart of Account codes and then filling the relevant
budget forms with the relevant data/information. Relevant Information is given as under:
Key objectives of Lyari General Hospital, Karachi: Helping the Government in achieving health policy
objectives by improve the quality of Public Health and decreasing the mortality rate by providing medical facilities
to population of Sindh
Key activities: Protecting people against hazardous diseases, promoting public health, upgrading curative health
facilities, enhancing equity, efficiency and effectiveness in health sector
Department Name: Health Department

Attached Department: None
Grant No. : SC21025 (025)
Grant Name: Health
Function Code of Chart of Accounts: 073101-General Hospital Services
Fund Centre Name: Lyari General Hospital, Karachi
Applicable DDO Code / Fund Centre Code: KQ5119
Key Performance Indicators : A list of key targets / Key Performance Indicators (KPIs) for
2017-18 to 2019-20 and achievements for 2016-17 is given in
Table A
Table A: Key Performance Indicators
UNIT OF ACHIEVEMENTS TARGETS

MEASUREMENT (BASELINE)
2016-17 2017-18 2018-19 2019-20
a) Patients Treated (Indoor) Number 1200 1300 1350 1320

b) Patients Treated (Outdoor) Number 12000 12000 12000 12000
c) Operations carried out in Operations Number 1000 1050 1070 1100
Theatre
Annexures
Annexures
Annexures
Annexures
Annexures
Annexures
Annexures
Annexures
Annexures
Annexures

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2 ﻿

Najam Ahmed Shah

8.17 Communication of Authorized Budget 12.3 Budget Oversight Role of Public

ANNEXURES: Annex H: Budget Form BCC-X -Proposal for

Annex G: Budget Form BCC-V - Proposal for

CFAA Country Financial Accountability

List of Acronyms CGA

CoA Chart of Accounts

CVT Capital Value Tax

DAO District Accounts Officer

APCC Annual Plan Coordination Committee EMO Education Management Organizations

APPM Accounting Policies and Procedures ERP Enterprise Resource Planning

P&D Planning & Development

PAC Public Accounts Committee

Departments and administrative departments; •• Chapter 13 describes PFM diagnostic tools

Chapter 1. Key Concepts and Definitions

spending unit / department. and Actual Expenditure.

records, conducted at some interval of time after a Assembly having principle functions to examine

expenditure heads. Supplementary Budget: This refers to additional

Chapter 2. Introduction to Public Finance

Learning Objective 1: Define Public Finance

2.1 Definitions of Public Finance of a country’s budget process… including strategic

Learning Objective 2: Identify key elements of Public Finance

Sales and excise taxes are also a major source of categories:

Learning Objective 3: Name Three objectives of Public Finance

Means allocating and spending public resources

These objectives are: •• Use of liquidity (loans, cash management)

Maintaining a sustainable balance between a

Strategic allocation of resources

Also referred to as ‘allocative efficiency’. Broadly, refers

Activity: Identifying PFM Institutions

District Accounts Office, Karachi Y N

Jinnah Post-Graduate Medical College (Hospital), Karachi Y N

Lady Health Workers Programme Y N

Planning & Development Department Y N

Accountant General, Sindh Y N

Government Higher Secondary School, Shikarpur Y N

Chapter 3. Budget Concepts, Objectives and Principles

Learning Objective 2: Name key budgeting principles

3.3 Budget Principles multi-year budget must also be prepared for a

Learning Objective 3: Describe key features of different budget methodologies

3.4 Budget Methodologies The incremental budgeting has two identifying

Incremental Budgeting Incremental budget is particularly troublesome when

Chapter 4. Administrative Structures of the

Learning Objective 1: Define ‘government’ and describe key functions of a modern

4.1 What is a Government?

G enera lG overnm ent Pu blic Coorpora tion

4.2 Functions of a Modern Government •• Improving economic efficiency.

Learning Objective 2: Gain an overview of the overall structure of Provincial

Sindh is the second largest province in terms

4.4 Typical Organogram of a Provincial Government

4.5 Sindh Rules of Business

Department and Agriculture Department. Economic Inquiry

•• Soil conservation in canal-irrigated zones

Learning Objective 3: Understand the typical structures of a Provincial Department

4.6 Typical Administrative Structures within a Provincial Department

4.7 Example of an Organizational Chart - Sindh Health Department21

Chapter 5. Roles and Responsibilities of Different

Learning Objective 1: Identify key categories of stakeholders in the budgetary process

2