Medium-Term Budget Strategy Paper FY2023-24 to FY2025-26
The Medium-Term Budget Strategy Paper FY2023-24 to FY2025-26 is part of the federal budget for FY 2023-24. This page reproduces the text of its 12 PDF pages, extracted automatically from the official PDF published by the Finance Division, Government of Pakistan.
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Medium-Term
Budget Strategy Paper
FY2023-24 to FY2025-26
9th June, 2023
Government of Pakistan
Finance DivisionPage 2
Foreword
Medium-Term Budget Strategy Paper for FY2023-24 to FY2025-26 lays down
the economic priorities and objectives of the Government over medium-term. The
document embodies a transition from a period of economic vulnerability to stability and
growth. With FY2023-24 as base year, the Government aims to continue with its fiscal
consolidation drive and focus public investments towards productive sectors to generate
economic activity and create employment opportunities in the country. It is also
imperative for the Government to protect the vulnerable segments of the society during
these testing times. This paper provides a multi-pronged strategy, both on resource and
expenditure side, to overcome prevailing economic woes and move towards a sustainable
and inclusive growth trajectory.
I would like to commend the efforts of Dr. Aisha Ghaus Pasha, Minister of State
for Finance & Revenue, Mr. Tariq Bajwa, Special Assistant to the Prime Minister on
Finance, Mr. Imdad Ullah Bosal, Finance Secretary, and the officers and officials of
Finance Division for their hard work in preparation of this document.
Senator Mohammad Ishaq Dar
Minister for Finance and RevenuePage 3
Preface
Approval of the Medium-Term Budget Strategy Paper, containing macroeconomic and
fiscal projections, by the Federal Government is a legal requirement under Section 3 of the Public
Finance Management Act, 2019. This paper presents the priorities of the Government for
revenue collection, both tax and non-tax, and the spending policies and indicative spending
levels for ministries, divisions and other entities of the Federal Government. Maximizing
revenues and ensuring fiscal discipline and consolidation is the bedrock of this document.
The medium-term projections have been prepared on a three-year rolling basis, with
FY2023-24 budget as base year. Projections for the outer two years take into account domestic
and external factors as well as the medium-term strategic priorities of the Government for
achieving macroeconomic stability and sustainable growth. The document also reflects upon the
emphasis placed by the Government on improved fiscal management, responsive budgeting,
transparency and accountability.
I would like to acknowledge the commendable work of all officers and officials of
Finance Division. In particular, I would like to express my appreciation for Mr. Muhammad
Tanvir Butt, Additional Finance Secretary (Budget) for leading this effort.
It was, foremost, the support, guidance and insight of Senator Mohammad Ishaq Dar,
Minister for Finance & Revenue, Dr. Aisha Ghaus Pasha, Minister of State for Finance &
Revenue, and Mr. Tariq Bajwa, Special Assistant to the Prime Minister on Finance which was
instrumental in preparation of this document.
Imdad Ullah Bosal
Finance SecretaryPage 4
Table of Contents I. Medium-Term Macroeconomic Framework ..................................................................... 1 II. Medium-Term Fiscal Framework ..................................................................................... 2 III. Priorities of the Government for Revenue Mobilization ................................................... 3 a) FBR Revenue .................................................................................................................... 3 b) Non-Tax Revenue ............................................................................................................. 4 IV. Indicative Budgetary Spending Levels ............................................................................. 5 V. Fiscal Risk Statement FY2023-24..................................................................................... 6 VI. New Initiatives .................................................................................................................. 6 i. Climate and Green Budgeting ........................................................................................... 6 ii. Gender-Responsive Budgeting .......................................................................................... 6 iii. Treasury Single Account ................................................................................................... 6 iv. Human Resource Module .................................................................................................. 7 VII. Public Debt ........................................................................................................................ 7 VII. Conclusion ......................................................................................................................... 7
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I. Medium-Term Macroeconomic Framework
Despite pressing economic circumstances, the Government is confident and is fully
committed towards economic recovery and stability over medium term. Optimal revenue
mobilization and fiscal discipline are cornerstones of the Federal Budget for FY2023-24.
Addressing the twin deficits through robust and persistent efforts is also a strategic necessity as
the country grapples with the economic mismanagement of the recent past.
The aim is to achieve growth in exports specifically targeting agriculture, information
technology and industrial sectors. This will improve the economy's competitiveness, enhance
ease of doing business, and create job opportunities. Steps are also being taken to strengthen
social safety nets and human capital development for sustainable growth. The medium-term
growth target is set at 3.5 - 5.5 percent, with price stability along with fiscal and external sector
sustainability. The Federal and Provincial Governments continue to collaborate to achieve this
goal and take all necessary measures to ensure long-term economic development.
Based on the Government’s pro-growth initiatives, the medium-term macroeconomic
framework is presented as under:
Table 1: Medium-Term Macroeconomic Framework
B.E. R.E. Projections
2022-23 2023-24 2024-25 2025-26
Economic Growth - % 5.0 0.3 3.5 5.0 5.5
Inflation - % 11.5 29.0 21.0 7.5 6.5
Imports - $ bn 66.4 54.5 58.7 67.1 71.9
Exports - $ bn 32.4 28.0 30.0 34.5 37.0
Current A/c Deficit - $ bn 9.0 3.7 6.0 7.9 9.6
GDP - Rs bn 78,197 84,658 105,817 117,664 132,307
- GDP growth was targeted at 5.0 percent for FY2022-23. However, the devastating floods
hit the economy hard with damages estimated at PKR 3.2 trillion (US$14.9 billion). The
loss to GDP is estimated at PKR 3.3 trillion (US$15.2 billion) and rehabilitation
requirements at PKR 3.5 trillion (US$16.3 billion). Economic activity was severely
disrupted and livelihoods critically impacted. With international factors also coming into
play, the GDP growth for FY2022-23 is projected at 0.3 percent.
- The pass-through of global energy prices has had a dampening effect on economic activity
in the country. Similarly, the loss of purchasing power due to inflationary pressures has
restrained domestic demand. Assuming sustained policy reforms implementation, growth
is expected to gradually return to its medium-term potential of 5.0 percent by FY2024-25
and 5.5 percent by FY2025-26. This will translate into economic activity and creation of
employment opportunities.
- The global supply chain disruptions due to the Ukraine war have had adverse impact on
the cost of living. Pakistan being a net importer of energy and food items has been a
victim of external price shocks. The cost of imports has increased, and inflation remained
in double-digits during FY2022-23. Floods caused widespread damage to major and
minor crops, disrupting domestic food supply. This amplified the price hike.Page 6
- In FY2023-24, the crop outlook is expected to improve owing to special focus of the
Government on agriculture sector through measures such as the Kissan Package. Inflation
is expected to normalize over medium-term due to improvements in agriculture sector
productivity and favorable global commodity prices. Furthermore, effective
implementation of policies geared towards sustainable economic growth will address
inflationary pressures.
II. Medium-Term Fiscal Framework
A primary objective of the Medium-Term Fiscal Framework is to facilitate policy
formulation based on reliable projections of revenues and expenditures. It reflects upon various
sources of revenue and heads of expenditure considering historical trends as well as emerging
challenges. It also indicates specific requirements of the Government and its strategic priorities
in the medium-term, with fiscal balance and primary balance of the Federal and general
Government. To project overall fiscal balance, the estimated levels of provincial surpluses are
also taken into account. Furthermore, gross federal revenue is expected to be around 11.5% of
GDP in FY2023-24 and is likely to improve over medium-term.
The Government endeavours to enhance revenues and rationalize expenditures to manage
fiscal deficits. Non-essential spending has been curtailed with introduction of austerity
measures, untargeted subsidies are being reviewed, and losses of public sector enterprises are
being addressed through improved governance. Substantial allocations are being ensured
towards pro-poor initiatives for protecting the vulnerable segments of the society.
The reform agenda under the Public Finance Management Act, 2019 will continue for
improving governance and accountability in public expenditure. All entities of the Federal
Government are geared towards performance-based budgeting, and the scope of Treasury
Single Account (TSA) is being enhanced for effective accounting of public money. Budget
execution is being monitored regularly to address any deviations. Focus on cash forecasting and
management will facilitate optimal utilization of available resources.
It is also important to revisit the basis for expenditure sharing with all Provincial
Governments, specifically for social sector expenditures involving health, education and pro-
poor spending.
Table 2: Medium-Term Fiscal Framework (Rs bn)
B.E. R.E.* Projections
2022-23 2023-24 2024-25 2025-26
FBR Revenue 7,470 7,200 9,200 10,869 12,621
Non-Tax Revenue 1,935 1,618 2,963 3,358 3,771
Gross Federal Revenue 9,405 8,818 12,163 14,227 16,392
Transfer to Provinces 4,373 4,129 5,276 6,491 7,350
Net Federal Revenue 5,032 4,689 6,887 7,736 9,042
Total Federal Expenditure 9,579 11,090 14,460 14,430 13,780
Federal Deficit (4,547) (6,401) (7,573) (6,694) (4,738)
as % of GDP -5.8% -7.6% -7.2% -5.7% -3.6%
Primary Balance (Federal) (597) (889) (270) (278) (142)
as % of GDP -0.8% -1.1% -0.3% -0.2% -0.1%
Provincial Surplus 750 459 650 671 690Page 7
Overall Fiscal Deficit (3,797) (5,942) (6,923) (6,023) (4,048)
as % of GDP -4.9% -7.0% -6.54% -5.1% -3.1%
Overall Primary Balance 153 (430) 380 393 548
as % of GDP 0.2% -0.5% 0.4% 0.3% 0.4%
GDP 78,197 84,658 105,817 117,664 132,307
*Revised Estimates for FY2022-23 are as of 31st May, 2023
III. Priorities of the Government for Revenue Mobilization
The Federal Government has two main sources of revenue collection, that are (i) FBR
taxes, and (ii) Non-tax revenue.
a) FBR Revenue
The Government is committed to take all necessary steps towards optimal collection of
FBR revenue. Projections of FBR collection for FY2023-24 to FY2025-26 is tabulated below
followed by major initiatives:
Table 3: FBR Collection (Rs bn)
Projections
FY2023-24 FY2024-25 FY2025-26
Direct Taxes 3,759 4,470 5,260
Customs Duty 1,178 1,367 1,509
Sales Tax 3,538 4,230 4,970
Federal Excise Duty 725 802 882
Total 9,200 10,869 12,621
Source: FBR
i. Ease of Doing Business
The Government is committed to bring about improvement in trading across borders
by simplifying and automating processes and procedures of cross border trade.
ii. Digitization and Use of Technology
Several initiatives are underway to promote use of technology and digitization of
systems to reduce time and cost of doing business. These include Automated Duty
Drawback Payment System to facilitate exporters, Pakistan Single Window to digitize
and facilitate cross border trade, WEBOC to automate customs clearance system at all
seaports, dry-ports and land border stations, automation of audit monitoring
system/Audit Dashboard which is a software solution to provide documentation and
assistance to auditors, and automated issuance of refunds to facilitate taxpayers. These
initiatives aim at using technology to facilitate taxpayers, simplify procedures,
promote systemic cross border trade and enhance efficiency in the taxation processes.
iii. Enhance Regional Connectivity
Agreements are being signed and operationalized at with several countries, most
recently with Uzbekistan, China, Russia and Tajikistan. Objective is to enhance cross
border trade, simplify transit procedures and automate clearances.
iv. Track and Trace System
Track and Trace system has been implemented in sugar, fertilizer and tobacco sectors,
while implementation in cement sector is planned to be initiated in FY2023-24.
Furthermore, the Inland Revenue Enforcement Network (IREN) has been establishedPage 8
to curb illicit tobacco and sugar movement across the country.
v. Risk-based Audit
This initiative aims to adopt a scientific approach through Risk Based Audit
Management System (RAMS) in order to identify and select non-compliant taxpayers
and improve compliance behavior. Selection of a scientific matrix through allocation
and distribution of weightage to different parameters in the Risk Grid will segregate
the potential and high-risk cases for audit through parametric computer balloting. This
will enable FBR to not only focus on non-compliant taxpayers but also ensure that the
audit process is effective, fair and conducted with integrity, thus building the
confidence of compliant taxpayers in the audit system.
vi. Enhance Inter-provincial Coordination and Data Sharing
The aim is to work in coordination with all Provincial Governments to standardize and
harmonize tax management. For the purpose, MoUs on data sharing and immovable
property valuation tables have been signed.
vii. Broadening the Tax Base (BTB)
Key priority of the Government is to broaden and deepen the tax base. Devoted BTB
units have been established at Regional Tax Offices of FBR for registration of new
taxpayers. FBR has registered 912,392 new taxpayers during the current year as of 31st
March, 2023 against the initial target of 700,000. The aim is to expand the tax base
from existing 1.2 million filers to 3.5 million by FY2023-24. It will be ensured that
there is a consistent broadening of tax base to enhance revenue collection.
b) Non-Tax Revenue
Non-Tax Revenue (NTR) of the Federal Government includes taxes other than FBR
(PDL, GIDC, ICT and others) and receipts including surplus profits of regulatory bodies,
dividends, mark-ups and others. Government has enacted special provisions in the Public
Finance Management Act, 2019 for collection of this revenue. The Government aims to
increase NTR through efficient recovery and rationalizing rates where possible.
Table 4: NTR Collection (Rs bn)
Projections
FY2023-24 FY2024-25 FY2025-26
PDL 869 977 1,047
Natural Gas Development Surcharge 40 46 55
GIDC 40 49 59
Petroleum Levy on LPG 12 16 20
Receipts from Civil Administration & 29 59 72
other functions/ICT Administration
SBP Profit 1,113 1,169 1,204
PTA 74 103 175
Royalties on Oil/Gas/Windfall Levy 160 170 190
against Crude Oil
Markup (Provinces, PSEs, and others) 195 411 481
Other NTR 431 358 468
Total 2,963 3,358 3,771Page 9
IV. Indicative Budgetary Spending Levels
Medium-term indicative budgetary spending levels are based on the priorities of the
Government for developmental and essential non-developmental expenditures. However, focus
remains on fiscal discipline by linking public expenditures to performance for efficient
utilization of public funds. The indicative budgetary spending levels are provided in the table
below:
Table 5: Indicative Budgetary Spending Levels (Rs bn)
Projections
FY2023-24 FY2024-25 FY2025-26
Interest Payment 7,303 6,416 4,596
Defense Services 1,804 1,926 2,090
Grants 1,464 1,697 2,105
Subsidies 1,074 998 738
Pension 761 879 977
Running of Civil Government 714 802 1,046
PSDP 950 1,200 1,475
Emergency and others 200 402 578
The Federal Government is following the Medium-Term Budgetary Framework for
performance-based budgeting to ensure that service delivery outcomes and spending levels are
finalized as per targets outlined in ‘Green Book’. A year-end performance report is also
formulated to keep track of performance against set targets and goals.
It is noteworthy that substantial allocations have been kept in FY2023-24 budget for pro-
poor initiatives, and BISP allocation has been increased to Rs. 450 billion (increase of 27.8
percent over FY2022-23). The intent is to provide targeted subsidies for the deserving and
vulnerable segments of the society. Subsidies, especially for power and petroleum sectors, are
being rationalized, and all entities are being pursued to move towards financial self-sufficiency.
Despite fiscal constraints, the Government aims to invest in social development and
productive sectors to generate economic activity and create employment opportunities. Focus
is primarily on completion of prioritized ongoing projects particularly of infrastructure, social
sector development, and regional connectivity. Private sector will also be taken on board to
invest in viable projects.
Under policy directions of the Prime Minister, the FY2023-24 PSDP has several unique
initiatives covering areas and sectors such as solarization of tubewells, youth employment
through provision of soft loans, endowment fund for education, support to IT sector especially
startups and venture capital, women empowerment, agriculture and green revolution, and skills
development for youth. Over the coming years, these initiatives will be key to sustainable and
inclusive growth. PSDP spending projections for FY2023-24 and succeeding two years are as
follows:
Table 6: Indicative PSDP Spending Levels (Rs bn)
Projections
FY2023-24 FY2024-25 FY2025-26
PSDP, of which 950 1,200 1,475Page 10
Infrastructure 491 620 763
Social 241 304 374
Science & IT 34 43 53
Regional Development 118 149 183
Others 66 84 102
V. Fiscal Risk Statement FY2023-24
Prepared in compliance to Section 4 of the Public Finance Management Act, 2019 the
Fiscal Risk Statement for FY2023-24 quantifies potential risks that may lead to deviations
from the projected fiscal numbers. Published separately, the Statement applies the
principle of ‘reasonableness’, which is that only those fiscal risks which have a reasonable
chance of materializing over medium-term are included. The possible sources of fiscal
risks are as follows:
i. Macroeconomic risks: fiscal position vulnerability to key macroeconomic
variables, including GDP growth, interest rates, inflation and exchange rate
ii. Environmental risks: vulnerability in terms of natural disasters especially floods,
drought and earthquakes
iii. State Owned Enterprises (SOEs): Federal Government’s exposure to SOEs, in the
form of outstanding stock of loans and guarantees
iv. Debt: public and publicly guaranteed debt stock, external debt entailing currency
risk, and refinancing risks
v. Guarantees: stock (guarantees issued against commodity operations are not part of
the guarantee stock since they are self-liquidating
vi. Public Private Partnerships: guarantees issued for PPP projects are recorded as part
of guarantee stock
vii. Provincial Governments: short term risks arising from provincial surplus targets
and long term risks arising from PPP capital stock and spending pressures
viii. Policy implementation and Governance: delays in implementing structural measure
to reduce debt and to reform the power sector, governance and capacity shortfalls
in oversighting SOEs and PPPs
VI. New Initiatives
i. Climate and Green Budgeting
Pakistan is one of the most vulnerable countries in the world to climate change risks. The
Government is initiating effective measures for climate change mitigation and adaption.
One such initiative is Climate and Green Budgeting which will use budgetary tool to help
achieve environmental and climate goals. Incorporating green budgeting in the public
finance management cycle will be an important step to track and monitor climate related
expenditures.
ii. Gender-Responsive Budgeting
The Government has undertaken a significant initiative for gender-responsive budgeting,
in line with the Constitution which enshrines provision of equal rights and equal treatment
to all citizens without any gender discrimination. This initiative will support incorporating
gender-related objectives into fiscal policies and administration.
iii. Treasury Single Account
Treasury Single Account (TSA) is a unified structure of Government bank accounts for
consolidation and optimal utilization of cash resources of the Government. TSA separatesPage 11
transaction level control from overall cash management, providing visibility of cash
position at the end of each day. Effective TSA calls for an interface between the treasury
and the banking network and requires the Government to comprehensively map out
accounts. Currently, the TSA-II framework implementation is underway, and Finance
Division has mapped accounts of public entities (ministries/divisions) and autonomous
organizations. This will support the Federal Government in improving its budgetary
controls and monitoring.
iv. Human Resource Module
Finance Division has taken the initiative to reflect human resource data in the Budget Call
Circular in terms of filled, vacant and redundant posts to achieve allocative efficiency in
terms of employees-related expenses. Moreover, implementation of the Organizational
Management (OM) module is also being ensured for reconciliation of payroll with
sanctioned posts for automation of data on SAP system.
VII. Public Debt
Debt to GDP ratio will increase to around 73.7 percent at the end of FY2022-23 primarily
due to higher federal fiscal deficit and depreciation of Pak rupee against USD. However, debt-
to-GDP ratio is expected to reduce to 66.5 percent at the end of FY2023-24 on back of fiscal
consolidation efforts of the Government. Over the medium term, the Government’s objective
is to bring and maintain its public debt-to-GDP ratio to sustainable levels through a combination
of greater revenue mobilization, rationalization of current expenditure and efficient/productive
utilization of debt.
Government also aims to reduce its ‘Gross Financing Needs (GFN)’ through various
measures, including (i) better cash flow management through Treasury Single Account (ii)
lengthening of maturities in the domestic market keeping in view cost and risks trade-off (iii)
developing regular Islamic based lending program, and (iv) avail maximum concessional
external financing from bilateral and multilateral development partners.
Table 7: Public Debt (Rs tr)
FY22 FY23 (P) FY24 (P)
Stock of Public Debt
Public Debt 49 63 71
External 18 25 27
Domestic 31 38 44
As percentage of GDP
Public Debt 73% 74% 67%
VII. Conclusion
Medium-Term Budget Strategy Paper for FY2023-24 to FY2025-26. presented under
Section 3 of the Public Finance Management Act, 2019 reaffirms the commitment of the
Government to uphold and implement the principles of transparency, responsiveness,
inclusiveness and improved financial management over the medium-term. The Government is
committed to ensure fiscal consolidation through revenue mobilization and expenditure
rationalization. The aim is to stabilize the economy and move towards sustainable and inclusive
growth in the medium-term. The Government is committed to achieve the targets and objectives
presented in this document.Page 12
Medium-Term Fiscal Framework
FY2023-24 to FY2025-26
Rs bn
FY2022-23 FY2023-24 FY2024-25 FY2025-26
B.E. R.E.* B.E. Projections
Gross Revenue 9,405 8,818 12,163 14,227 16,392
FBR Revenue 7,470 7,200 9,200 10,869 12,621
Non-Tax Revenue 1,935 1,618 2,963 3,358 3,771
Transfer to Provinces 4,373 4,129 5,276 6,491 7,350
Net Revenue Receipts 5,032 4,689 6,887 7,736 9,042
Total Expenditure 9,579 11,090 14,460 14,430 13,780
Current Expenditure 8,708 10,412 13,320 13,120 12,130
Markup Payments 3,950 5,512 7,303 6,416 4,596
Domestic Loans 3,439 4,795 6,430 5,608 3,872
Foreign Loans 511 717 873 808 724
Defence 1,563 1,510 1,804 1,926 2,090
Emergency and others 195 - 200 402 578
Grants 1,174 1,090 1,464 1,697 2,105
Subsidies 664 1,093 1,074 998 738
Pension 609 654 761 879 977
Running of Civil Govt 553 553 714 802 1,046
PSDP 727 567 950 1,200 1,475
Net Lending 144 111 190 110 175
Federal Deficit (4,547) (6,401) (7,573) (6,694) (4,738)
as % of GDP -5.8% -7.6% -7.2% -5.7% -3.6%
Primary Balance (Federal) (597) (889) (270) (278) (142)
as % of GDP -0.8% -1.1% -0.3% -0.2% -0.1%
Provincial Surplus 750 459 650 671 690
Overall Fiscal Deficit (3,797) (5,942) (6,923) (6,023) (4,048)
as % of GDP -4.9% -7.0% -6.54% -5.1% -3.1%
Overall Primary Balance 153 (430) 380 393 548
as % of GDP 0.2% -0.5% 0.4% 0.3% 0.4%
GDP 78,197 84,658 105,817 117,664 132,307
*Revised Estimates for FY2022-23 are as of 31st May, 2023
-.-.-.-.-.-