#1WHITE PAPER Budget FY2020-21 Finance Department Government of the Punjab ཐར་ ཤ3#2Government of the Punjab Finance Department White Paper Budget FY 2020-21 June 15, 2020#3PREFACE White Paper on the Budget is rooted in tradition. It is a lucid interpretation of the Annual Budget and aims to highlight, in a most readable manner, the Revenues and Expenditures of the Province. It provides a succinct commentary on the myriad Policy standpoints that the Provincial Government aims to adopt in the financial year. A focused overview of macroeconomic challenges and situation sets the context of this White Paper. The Budget formulation for Fiscal Year 2020-21 has been impacted overwhelmingly by the Covid-19 Crisis. The Finance Department's work was already cut out for the last quarter of FY 2019-20, with major realignments and a calibrated revisionary approach. The Finance Department had to make serious judgment calls and enforce a fiscal discipline regime of the sternest order. The discerning eye had no time to even blink. This very approach was resorted to in the making of the Annual Budget 2020-21 as well. A Covid-19 centric modulation of Punjab Growth Strategy was initiated and has given purposive underpinning to both the Development and Non-Development Budgets. This approach has led to targeted allocations for addressing Health care deficit, Social Protection, Economic Regeneration and employment generation. With Federal and Provincial Revenues sliding sharply, Expenditure Management without compromising Development and improved service delivery has been the single, most important concern for the Finance Department. The atypical and calibrated rationalization of the Current Budget has, hence, thrown up an impressive ADP of the size of PKR 337 billion in a crisis-infested FY. The Finance Team also draws comfort in introducing two unique Fiscal instruments for this Financial Year. Both, put together, have the makings of a paradigmatic shift in Budget formulation and implementation. Inclusive Budgeting was launched with modest expectations but has evidently resulted in eliciting useful opinions on budgetary priorities from the public at large. These were subjected to analytics and used for appropriation of funds. We draw a great sense of gratification from this promising beginning. The Framework for Rolling Expenditure will keep us in good stead in a crisis-stricken FY by enabling us to modulate and prioritize Non-Development Expenditure through a colour-coded, calibrated matrix over the four quarters of the FY. In addition to this, the White Paper brings to the fore the utility and evolution of institutional forums like the Standing Committee of the Cabinet on Finance and Development, and institutional interventions like the Ready Reckoner. Ready Reckoner is fast-becoming an instrument of pro-active disclosure that is generated every month. The out-going FY has been immensely challenging for the entire Finance Department team for reasons of a deeply stressed economy and a seemingly protracted Covid-19 crisis. Budget making in such a situation is an onerous exercise in undertaking intricate balancing acts. I I am honour-bond, therefore, to acknowledge the continuous and resolute hard work of the entire team working on the Budget. As for the assiduous compilation of the White Paper, I would like to acknowledge the efforts of the entire team; in particular Mujahid Sherdil (SSF-Budget & Resources), Rana Ubaid Ullah Anwar (AFS-Budget), Sarah Hayat (DS-Resource-1), Faisal Rashid (Senior Consultant), Farhan Abbas and Hammad Uddin Khan (IDAP). The first two cited here had bereavements in the family (in one case really tragic) right in the middle of the busiest period of Budget formulation. Both kept contributing in difficult days for them and were back in office in no time. The Finance Team relied heavily on the wise counsel of Makhdoom Hashim Jawan Bakht, Minister Finance, right through the effort. Gratitude is also due to the Chief Minister and the Chief Secretary for their continued guidance. June 15, 2020 ABDULLAH KHAN SUMBAL Finance Secretary Government of the Punjab "As countries contain the pandemic and shutdowns end, broad-based, coordinated fiscal stimulus - depending on countries' financing constraints - will become a more effective tool to foster the recovery. Page 1 IMF Fiscal Monitor, April, 2020#4Page II#5MACROECONOMIC OUTLOOK AND CHALLENGES TABLE OF CONTENTS 01 2 ESTIMATES OF RECITES 05 3 ESTIMATES OF EXPENDITURES 19 SECTION 1: ANNUAL DEVELOPMENT PROGRAMME 29 4 SECTION II: RISE PUNJAB 41 5 PUBLIC ACCOUNT OF THE PROVINCE 45 6 DEBT, PENSION AND GPF LIABILITIES 47 7 IMPACTS OF COVID-19: FISCAL PRESSURES AND HEALTHCARE DEFICIT 59 DO 65 8 - MSMES REVITALIZING PUNJAB'S ECONOMY 9 PUBLIC FINANCIAL MANAGEMENT (PFM) REFORM 71 BREAKING THE MOULD: 10 77 INCLUSIVE BUDGETING, FRAMEWORK FOR ROLLING EXPENDITURE AND THE REST#6Page IV#7LIST OF ABBREVIATIONS ABS Annual Budget Statement ADB Asian Development Bank L&DD LFY ADP Annual Development Programme LG & CD AIT Agriculture Income Tax LIBOR APDP Automated Pension Disbursement Project LNFBE BE Budget Estimate Livestock and Dairy Development Last Financial Year Local Government & Community Development London Inter-Bank Offered Rate Literacy & Non-Formal Basic Education Department BF Benevolent Fund LRMIS BOR Board of Revenue MDGs Land Record Management Information System Millennium Development Goals CDC Central Depository Company MICS Multiple Indicator Cluster Survey CDLs Cash Development Loans MIS Management Information System CFU Corporate Finance Unit MPDD Management & Professional Development CFY Current Financial Year Department CLC Community Learning Centres MTDF Medium Term Development Framework CMSES Chief Minister's Self Employment Scheme MTFF Medium Term Fiscal Framework CTD Counter Terrorism Department NFBE Non Formal Basic Education CVT Capital Value Tax NFC National Finance Commission C&W Communication & Works NFIS National Financial Inclusion Strategy DFID Department for International Development NHP DMU Debt Management Unit NLTA E&T Excise & Taxation NSS FBR Federal Board of Revenue OSR EPS Estimated Provincial Surplus PCF FD Finance Department P&D Net Hydel Profit Non Lending Technical Assistance National Savings Scheme Own Source Revenue Provincial Consolidated Fund Planning & Development FIEDMIC Faisalabad Industrial Estates Development & PCGIP Punjab Cities Governance Improvement Project Management Company PEEF Punjab Education Endowment Fund FRE Framework for Rolling Expenditure PEF Punjab Education Foundation FY Financial Year PEOP Punjab Economy Opportunities Program GDP Gross Domestic Product PESP Punjab Education Sector Project GDS Gas Development Surcharge PFC Provincial Finance Commission GI Group Insurance PFM Public Financial Management GIS Geographic Information System PGPIF Punjab General Provident Investment Fund GP Fund General Provident Fund PHNP Provincial Health & Nutrition Program GoPb Government of Punjab PHSRP Punjab Health Sector Reforms Program GPF General Provident Fund HRITF Health Reforms Innovation Trust Fund GRP Gross Regional Product PIAIPP Punjab Irrigated Agriculture Improvement GRR General Revenue Receipt Program Project GSDP Gross Subnational Domestic Product PIBS Pakistan Investment Bonds GST General Sales Tax PIEDMIC HUD & PHED Housing Urban Development & Public Health Punjab Industrial Estates Development & Management Company Engineering Department PIFRA Project to Improve Financial Reporting & Auditing IBRD International Bank for Reconstruction and PKLI Punjab Kidney Liver Institute Development PLA Personal Ledger Account IC&YA Information Culture & Youth Affairs PPB Punjab Privatization Board IDA International Development Agency PPF Punjab Pension Fund J&C Program Job & Competitiveness Program PPIC3 JICA Japan International Cooperation Agency Punjab Police Integrated Command, Control & Communication Centre KIBOR Karachi Inter Bank Offered Rate PPMRP KPRRP Khadam-e-Punjab Rural Roads Programme PPP Punjab Public Management Reform Program Public Private Partnership Page V#8PRA PRAL Punjab Revenue Authority SNG Sub-National Governance Programme Pakistan Revenue Automation (Pvt.) Limited SPPAP PSDP Public Sector Development Programs S&GAD Southern Punjab Poverty Alleviation Project Services & General Administration Department PSDP Punjab Skills Development Project TEVTA PSIC PSPA Punjab Small Industries Corporation Technical Education and Vocational Training Authority Punjab Social Protection Authority TFCs PSPC Punjab Saaf Pani Company TMAS Town Municipal Administrators RIMS Restaurant Invoice Monitoring System TRU RE Revised Estimate UIPT Term Finance Certificates Tax Reform Unit Urban Immovable Property Tax RLNG Regasified Liquefied Natural Gas UNICEF United Nations Children Fund SBP State Bank of Pakistan WDD Women Development Department SBS SED SDG Sector Budget Support School Education Department Sustainable Development Goals Page VI#9FINANCIAL SNAPSHOT OF THE PROVINCE FY 2020-21 2021 COVID-19 Mitigation Expenditure PKR 68.3bn FY 2020-21 Estimate Existing Healthcare Workforce (20%) New Healthcare Recruitment COVID Block Allocation Tax Relief 35 bn 10 bn 13bn 10 bn 02 Current Expenditure 01 PKR 1,318.3bn FY 2020-21 Estimate Development Expenditure 1,5% Higher than FY 2019-20 Budget Estimates Public Order & Safety Affairs PKR 172.5 bm FY 2020-21 Estimate 04 Health PKR 157.0b 08 FY 2020-21 Estimate 80 Programs/Outputs Receipts/Inputs Education Affairs PKR 71.8bn 06 FY 2020-21 Estimate 03 PKR 337.0 bn 07 FY 2020-21 Estimate 05 General Public Administration PKR 778.1bn FY 2020-21 Estimate 9.9% Higher than FY 2019-20 Budget Estimates Capital Expenditure PKR 460.4 bn FY 2020-21 Estimate 47.1 bm Foreign Project Assistance 1,433 bn Federal Divisible Pool 220.9 bm Provincial Tax Revenue 96.2 bm Non-Tax Revenue 133.7bn Total Current Capital Receipts (A/C-I) 25.0 bm Innovative Financing 331.9 bm Capital Receipts (A/C-II) Urban vs. Rural 36% 62% Services 18% Agriculture 20% Industry 54% Punjab's Contribution to the National Economy as at FY 2019-20 110 mn Population 64% Population#10Page VIII#11EXECUTIVE SUMMARY Economic and Financial Management have assumed the most complex dimension of late. Among these, the most glaring, have been the issue of the Current Account Deficit which had peaked to USD 19 billion (equal to 6.1% of GDP) in FY 2017-18. The previous Government had artificially maintained an over-valued exchange rate (PKR to USD) leading to a higher volume of Imports versus Exports and thus depleting the Foreign Exchange reserves. With the national debt soaring to PKR 30.0 trillion, Fiscal Deficit at PKR 2,279 billion or 6.6% of GDP and inflation on a rising trajectory the Government had to take a number of drastic measures to set the Country on a path of prudent macroeconomic management. A major reform programme to overcome these macroeconomic imbalances was signed with the IMF in May 2019. The Exchange Rate regulation was discontinued and a market pricing regime was adopted. Taxation policy was reviewed and incentives were created to reduce Imports and to restore Trade balance. These steps helped overcome the issue of Trade Deficit through Import contraction and increase in Exports. The Government completely stopped borrowing from State Bank of Pakistan and set itself the tough tasks of increasing Tax-to- GDP ratio, cutting down wasteful and inefficient expenditures, reduction in losses of public sector enterprises, creating incentives to mobilize higher level of savings and increasing the level of private investments to boost Economic Growth. The efforts of the new Government started to reap results towards the start of the FY 2019-20. However, these efforts of the Government for an economic turnaround received a major setback in March 2020 when the COVID-19 Pandemic reached Pakistan. The country came to a standstill both in terms of human mobility and economic activity. Coming to the Punjab, the Province followed a trajectory similar to the National one. With various Service activities like domestic trade and transport in a state of recession due to COVID-19, a fall in private consumption expenditure and fall in the volume of exports of goods and services, it will be difficult for the economy of Punjab to face this major shock, especially with a heightened risk perception in large and small industries and commercial enterprises operating in different sectors. COVID-19 resulted in a major adjustment in the Fiscal position of the Government of Punjab. The Government's revenue fell short of its target by PKR 635 billion compared to the Budget Estimates. This included shortfall of PKR 509 billion in Federal transfers and PKR 126 billion in Provincial Own Source Revenues. Major expenditure cuts had to be imposed on Development and non-development expenditure. The Revised Estimate for Current Expenditure of the Government was brought down from a start-of-the-year estimate of PKR 1,299 billion to PKR 1,257 billion. The Government used all available resources to protect ADP spending from falling below PKR 250.3 billion from the original estimate of PKR 350.0 billion. Budget 2020-21 is, thus, being presented in the backdrop of tough economic conditions. The Estimates have been framed under the Macroeconomic assumptions that the real GDP growth will be 2.1%, inflation at 6.5% and FBR revenue at PKR 4,962 billion during next Financial Year. The total Receipts of the Government have been pitched at PKR 2,240.6 billion. This includes General Revenue Receipts of PKR 1,750 billion; including Federal Divisible Pool transfers of PKR 1,433 billion and Provincial Revenues of PKR 317.0 billion. The Current Expenditure of the Government has been pitched at PKR 1,318.0 billion which is only 1.4% higher than the BE for 2019-20. Due to the tight fiscal situation, the Government has almost kept the major expenditure heads like Salary, Pension, Non-salary etc. frozen at the level of the allocation during 2019-20. The size of Development Expenditure is estimated to be PKR 337 billion as against PKR 350.0 billion in 2019-20. The Budget also stipulates an EPS of PKR 125.0 billion which, of course, is conditional to achievement of revenue targets by the FBR. The Government has formulated Punjab's Post COVID-19 Public Investment Strategy titled "Responsive Investment for Social Protection and Economic Stimulus (RISE)". The Strategy presents targeted interventions and policy responses to contain the COVID-19 crisis. It also includes ADP prioritization framework which has not only set the direction for ADP 2020-21, but has also supported in developing the Mid-term Development Framework of Punjab. ADP 2020-21 includes China Pakistan Economic Corridor as one of the important priority areas. The two major ongoing projects being implemented by Government of the Punjab are Orange Line Metro Train Project and Allama Iqbal Industrial City, Faisalabad. For FY 2020-21 adequate resources have been prioritized for the timely completion of both the projects. Government also intends to use PPP financing to enlarge its portfolio of Development interventions. In this regard effort has been made to create an enabling environment for PPP projects. The ADP will continue to pursue Sustainable Development Goals agenda. While putting massive pressure on the Healthcare systems, the Covid- 19 has pushed a large portion of the population into extreme poverty and hunger in the largest Province of Pakistan, which requires a strong sustainable recovery approach. Government of the Punjab believes that the response to the Pandemic cannot be de-linked from actions on Page IX#12the SDGs. Rather, it seeks to continue working on accelerating Sustainable Development Goals as a tool to 'recover better' and build a healthier and a safer Punjab. The Government of Punjab had also adopted a proactive approach to mitigate the negative impact on livelihoods by announcing a Tax Relief Package worth more than PKR18 billion in the last quarter of FY2019-20 along with increased Expenditure on Healthcare facilities, preventive and curative measures and Social Protection Package to offset the unemployment effect. Chief Minister's Insaf Imdad Programme 2020 for targeted monetary relief to the unemployed population segments, was launched with a total outlay of PKR 10.0 billion, PKR 1.0 billion was earmarked for disaster relief response and PKR 2.6 billion was transferred directly to the lowest District tier for relief measures. Furthermore, since it has been estimated that the negative impact of COVID-19 will continue till at least the first half of FY2020-21, the Government has adopted a multi-pronged Fiscal Strategy with a focus on striking a balance between i) Revenue generation through economic growth and broadening of the tax base rather than increasing taxes ii) Relief/economic stimulus for businesses especially the Construction Sector iii) Social Protection by providing relief to the COVID-19 affected sectors of the economy COVID-19 and its economic and social fallout overshadowed the contemporaneously lurking locust infestation peril that directly threatens Food Security. Pakistan, being a predominantly Agricultural economy, stands to be massively hit by the menace. As an emergency response measure, Government of Punjab acted swiftly and allocated PKR 500.0 million for locust control, in addition to the budget for disaster relief measures. The pragmatic and economically sound Provincial Financial Management owes in a large measure to the forum of Standing Committee for Cabinet on Finance and Development (SCCFD). Its mandate has already witnessed an evolution of sorts. The White Paper encapsulates some salient decisions of the SCCFD which enabled major course corrections, occasionally with Policy implications. The initiatives of Inclusive Budgeting and Framework for Rolling Expenditure (FRE) constitute paradigmatic shifts and are expected to take Financial Management a few notches higher in calibre and standard. Inclusive Budgeting is already off to a very promising start and FRE shall be employed rigorously for modulating Expenditure management adroitly. Page X#13Following tables provide the key fiscal numbers for Budget 2020-21: CLASSIFICATION A - CURRENT BUDGET Budget at a Glance (PKR Billion) BE 2019-20 RE BE 2019-20 2020-21 General Revenue Receipts 1,989.8 1,408.4 1,750.0 Current Revenue Expenditure 1,298.8 1,257.9 1,318.3 A-Net Revenue Account - Surplus (+) / Deficit (-) 691.1 150.5 431.7 B- CURRENT CAPITAL BUDGET Current Capital Receipts (A/C-I) 84.3 55.4 111.6 Current Capital Expenditure (A/C-I) 210.6 82.6 128.4 B-Net Capital Account - Surplus (+) / Deficit (-) (126.3) (27.2) (16.8) C-Surplus for Development (A+B) 564.8 123.3 414.9 D-ADP Resources Foreign Assistance for Projects E-TOTAL RESOURCES (C+D) F - Annual Development Program Estimated Provincial Surplus/Deficit (E-F) 18.2 13.4 47.1 583.0 136.7 462.0 350.0 136.7* 337.0 233.0 125.0 *Opening balance of PKR 42 billion and partial use of Ways & Means facility put the R.E for ADP at PKR 255.03 Billion. Page XI#14BE (PKR Billion) BE DESCRIPTION DESCRIPTION 2020-21 2020-21 A - GENERAL REVENUE RECEIPTS A - CURRENT REVENUE EXPENDITURE General Revenue Receipts 1,750.0 General Revenue Expenditure 1,318.3 Divisible Pool Transfers 1,433.0 - 01 General Public Service 778.1 Provincial Tax Revenue 220.9 02 Public Order and Safety Affairs 172.5 Provincial Non-Tax Revenue 96.2 - 03 Economic Affairs 118.1 Straight Transfers (Excl. excise duty on NG) 6.1 04 - Environment Protection 0.5 Net Hydel Profit 5.0 Net Hydel Profit Arrears 5.0 05 - Housing and Community Amenities 06 - Health 7.8 157.1 Federal Grants 4.2 Provincial Own Non-Tax Revenue 75.9 07 Recreational, Culture and Religion 08 Education Affairs and Services 09 - Social Protection 3.8 71.8 8.6 B-CURRENT CAPITAL EXPENDITURE CAPITAL EXPENDITURE 460.3 B-CURRENT CAPITAL RECEIPTS CAPITAL RECEIPTS 443.5 Recoveries of Loans and Advances (A/C-I) 1.3 Public Debt - Debt (A/C-I) 85.4 Repayment of Principal 55.1 Innovative Financing including PPP mode 25.0 Investments 43.8 Recoveries of Investment-State Trading (A/C-II) 173.9 Loans and Advances (Principal) 29.3 Cash Credit Accommodation (A/C-II) 157.9 State Trading in Medical Stores 0.1 State Trading (Wheat) (A/C -II) 217.2 Repayment of Commercial Bank Loans (A/C - II) 114.7 C-DEVELOPMENT RECEIPTS C-DEVELOPMENT EXPENDITURE Foreign Project Assistance 47.1 Annual Development Program Core ADP 337.0 337.0 Other Development Initiatives Total Receipts A/C-I Total Receipts A/C-II 1,908.8 Total Expenditure A/C-I 1,783.7 331.8 Total Expenditure A/C-II 331.9 Provincial Surplus 125.0 Total Provincial Consolidated Fund 2,240.6 Total Provincial Consolidated Fund 2,240.6 Page XII#151 اختصاریہ موجودہ دور میں معاشی و مالیاتی تنظیم نے ایک انتہائی پیچیدہ جہت اختیار کر لی ہے۔ موجودہ حکومت کو 2018 میں حکومت سنبھالتے ہی بڑی معاشی مشکلات ورثے میں ملیں۔ دیگر مشکلات کے مابین ایک نمایاں مسئلہ تجارتی خسارے کا معاملہ تھا جو مالی سال 18-2017 میں 19 ارب ڈالر (جی ڈی پی کا 6.1 فیصد کی حد کو چھو رہا تھا۔ سابقہ حکومت نے روپے اور ڈالر کی شرح تبادلہ کو مصنوعی طور پر برقرار رکھا ہوا تھا جس کے سبب برآمدات کے مقابلے میں درآمدات کا مسلسل بڑھتا ہوا حجم زرمبادلہ کے ذخائر میں کمی کا موجب بن رہا تھا۔ قومی سطح پر قرضے 30 کھرب روپے کی خطرناک حد تک بڑھ چکے تھے جو مالیاتی ذمہ داری اور قرضوں کو محدود کرنے کے قانون کی کھلی خلاف ورزی تھی ۔ جس نے وطن عزیز کو غیر ملکی قرضوں کی ادائیگیوں (Foreign Debt Payments) کے ضمن میں دیوالیہ پن کی طرف دھکیل دیا تھا۔ 2.3 ارب یا جی ڈی پی کے 6.6 فیصد مالیاتی خسارے اور مہنگائی میں ہوش ربا اضافے کے پیش نظر حکومت کو مشکل اقدامات اٹھانے پڑے تا کہ ملک کو دانشمندانہ معاشی تنظیم کے راستے پر ڈالا جا سکے۔ اس سلسلے میں مالیاتی عدم توازن کو کم کرنے کی خاطر مئی 2019 میں آئی ایم ایف کے ساتھ اصلاحاتی پروگرام کا آغاز ایک اہم اقدام تھا۔ شرح تبادلہ میں مصنوعی کمی بیشی کی پالیسی کو ختم کر کے بازاری قیمت کے مطابق لایا گیا۔ محصولات کی پالیسی پر نظر ثانی کی گئی اور درآمدات میں کمی کرنے کی خاطر ضروری مراعات دی گئیں تا کہ تجارتی توازن کو قائم رکھا جا سکے۔ ان اقدامات کے باعث درآمدات میں کمی اور برآمدات میں اضافے کے ذریعے تجارتی خسارے پر قابو پانے میں خاطر خواہ مدد ملی۔ حکومت نے اسٹیٹ بنک آف پاکستان سے قرض لینا ترک کر دیا اور اپنی توجہ محصولات بمقابلہ جی ڈی پی کی شرح کو بڑھانے کی طرف مائل کر لی، غیر ضروری اخراجات کو کم کیا گیا، سرکاری اداروں Public Sector) (Enterprises کے نقصانات میں کمی کی گئی ، بچت میں اضافے اور نجی شعبے کی شمولیت کے لئے مراعات دی گئیں تا کہ معاشی ترقی میں اضافہ کیا جا سکے۔ موجودہ حکومت کی ان کاوشوں کے طفیل مالی سال 20-2019 کے آغاز میں بہتر نتائج سامنے آنا شروع ہو گئے ۔ بدقسمتی سے مارچ 2020 میں 19-Covid وبا کی پاکستان آمد کی وجہ سے معاشی بہتری کے لئے کی جانے والی ان کاوشوں کو شدید دھچکا لگا۔ ملک میں معاشی سرگرمیاں اور لوگوں کی سماجی زندگی معطل ہو کر رہ گئی۔ ۔ جہاں تک پنجاب کا تعلق ہے، یہ صوبہ بھی قومی سطح پر اپنائی گئی حکمت عملی پر عمل پیرا ہوا ہے۔ 19-Covid کی وجہ سے صوبائی تجارت اور نقل و حمل میں بحران، انفرادی سطح پر اخراجات میں کمی تجارتی اشیاء و خدمات کی برآمدات کے حجم میں تخفیف کے باعث صوبائی معیشت کو ان بڑے دھچکوں کا سامنا کرنے میں کافی وقت ہو گی خصوصاً چھوٹی بڑی صنعتوں اور بڑے پیمانے کے کاروباروں کو نقصان پہنچنے کا اندیشہ ہے۔ 19-Covid کے تناظر میں حکومت پنجاب کی مالیاتی تنظیم میں کئی تبدیلیاں رونما ہوئی ہیں۔صوبائی حکومت کے#162 محصولات میں اپنے سالانہ ہدف کے مقابلے میں 635 ارب روپے کی کمی واقع ہوئی ہے جس میں وفاقی وصولیوں کی ترسیل میں 509 ارب روپے اور صوبائی محصولات کی مد میں 126 ارب روپے کا نقصان شامل ہے۔ حکومت کو ترقیاتی اور غیر ترقیاتی اخراجات میں نمایاں کمی کرنا پڑی ہے۔ جاری اخراجات کی مد میں 1299 ارب روپے کے سالانہ تخمینے کو کم کر کے 1257 ارب روپے کیا گیا ہے۔ حکومت نے بھر پور کوشش کی ہے کہ سالانہ ترقیاتی پروگرام کے اخراجات میں کمی اپنے ابتدائی ہدف یعنی 350 ارب روپے کے مقابلے میں 250.3 ارب روپے سے مزید نیچے نہ آنے پائے۔ بجٹ برائے مالی سال 21-2020 ان مشکل معاشی حالات کے تناظر میں پیش کیا جا رہا ہے۔ تمام تخمینہ جات کا تعین ان وسیع معاشی اندازوں کو مدنظر رکھ کر کیا گیا ہے کہ اصل جی ڈی پی کی شرح نمو 2.1 فیصد، مہنگائی 6.5 فیصد، وفاقی محصولات کی وصولیاں 4963 ارب روپے تک ہوں گی۔ مجموعی طور پر صوبائی حکومت کو 2240.6 ارب روپے کی وصولیاں ہوں گی۔ جن میں سے عمومی وصولیوں کا حجم 1750 ارب روپے ہو گا، جس میں وفاقی ترسیلات 1433 ارب روپے اور صوبائی محصولات 317 ارب روپے ہوں گے۔ حکومت کے جاری اخراجات کا تخمینہ 1318 ارب روپے لگایا گیا ہے جو گزشتہ مالی سال کے مقابلے میں صرف 1.4 فیصد زائد ہے۔ اس کڑی مالیاتی صورت حال میں حکومت نے اپنے بڑے اخراجات جن میں تنخواہیں، پنشن اور روزمرہ کے عمومی اخراجات شامل ہیں کو مالی سال 20-2019 کی سطح پر منجمد کرنے کا فیصلہ کیا ہے۔ ترقیاتی اخراجات کے حجم کا تخمینہ 337 ارب ہے جو گذشتہ مالی سال میں 350 ارب روپے تھا جبکہ صوبائی EPS کو 125 ارب روپے رکھا گیا ہے جو ایف بی آر کی وصولیوں کے ہدف کے ساتھ منسلک رہا ہے۔ حکومت نے 19-Covid کی صورت حال کے رونما ہونے کے بعد اپنی سرکاری سرمایہ کاری کی حکمت عملی کو "Responsive Investment for Social Protection and Economic Stimulus "(RISE) کے نام سے موسوم کیا ہے۔ یہ حکمت عملی 19-Covid کی وجہ سے پیدا ہونے والے بحران سے نمٹنے کے لئے جوابی اقدامات لینے کے لیے ایک اہم دستاویز ہے۔ یہ سالانہ ترقیاتی پروگرام کے لئے ترجیحاتی بنیادوں پر رہنمائی فراہم کرتی ہے جو نہ صرف سالانہ ترقیاتی پروگرام 21-2020 کی درست سمت متعین کرتی ہے بلکہ پنجاب کے وسط مدتی ترقیاتی پروگرام (MTDF) پر عملدرآمد میں بھی معاون ہے۔ سالانہ ترقیاتی پروگرام 21-2020 میں ایک اہم ترجیحی شعبہ پاکستان چین اقتصادی راہداری (CPEC) کا ہے۔ اس ضمن میں حکومت پنجاب میں دو اہم ترقیاتی پروگرام یعنی اورنج لائن میٹرو ٹرین پراجیکٹ اور علامہ اقبال انڈسٹریل سٹی فیصل آباد کے منصوبوں پر کام جاری ہے۔ مالی سال 21-2020 میں ان دونوں منصوبوں کو ترجیحاتی بنیادوں پر مکمل کرنے کے لئے مناسب وسائل مہیا کئے جا رہے ہیں۔ حکومت اپنے ترقیاتی اقدامات کے حجم کو بڑھانے کے لئے پبلک پرائیویٹ پارٹنرشپ (PPP) کے تحت بھی سرمایہ کاری کرے گی۔ اس ضمن میں PPP پراجیکٹس کے#173 لئے سازگار ماحول فراہم کرنے کے لئے اقدامات کئے جا رہے ہیں۔ سالانہ ترقیاتی پروگرام Sustainable (Development Goals (SDG کو مدنظر رکھ کر تشکیل دیا گیا ہے۔ 19-Covid کی وجہ سے صحت عامہ کے شعبہ میں کئے جانے والے اخراجات پر شدید دباؤ آیا ہے۔ پنجاب کی آبادی کا ایک بڑا حصہ شدید غربت اور افلاس میں مبتلا ہو گیا ہے جس سے باہر نکلنے کے لئے ایک پائیدار حکمت عملی وضع کی گئی ہے۔ حکومت پنجاب کو اس بات کا ادراک ہے کہ وبا کی وجہ سے رونما ہونے والی صورت حال میں بھی لئے جانے والے تمام اقدامات کے SDGS سے منسلک رہنے کو نظر انداز نہیں کیا جا سکتا۔ بلکہ یہ صورت حال اس امر کی متقاضی ہے کہ SDGS اہداف کے حصول کو صحت مند اور محفوظ پنجاب بنانے کے لئے بطور حکمت عملی استعمال کیا جائے گا۔ 19-Covid کی وجہ سے لوگوں کے روزگار پر رونما ہونے والے منفی اثرات کو کم کرنے کے لئے حکومت پنجاب نے دوررس حکمت عملی کو اپناتے ہوئے مالی سال 20-2019 کے اواخر میں ٹیکسوں کی وصولی میں خاطر خواہ رعایتیں فراہم کی ہیں جن کا حجم 18 ارب روپے سے زائد ہے۔ اس کے ساتھ ساتھ صحت عامہ اور حفظان صحت کی سہولیات کی بروقت فراہمی کے لئے اخراجات میں اضافہ کیا گیا ہے اور سماجی تحفظ کا جامع پیکیج مہیا کیا گیا ہے تا کہ بے روزگاری سے نمٹا جا سکے۔ وزیر اعلیٰ کے انصاف امداد پروگرام 2020 کے تحت آبادی کے بے روزگار طبقے کو خصوصی ریلیف فراہم کیا گیا ہے جس کے لئے 10 ارب روپے کی رقم مختص کی گئی اور اس آفت سے فوری طور پر نمٹنے کے لئے ایک ارب روپے کی رقم مہیا کی گئی جبکہ تمام اضلاع کی سطح پر ریلیف کے فوری اقدامات کے لئے 2.6 ارب روپے فراہم کئے گئے۔ چونکہ اس بات کا قوی امکان ہے کہ 19-Covid کے منفی اثرات آئندہ مالی سال کے وسط تک موجود رہیں گے لہذا حکومت نے کثیر الجہتی مالیاتی حکمت عملی اپنانے کا فیصلہ کیا ہے تاکہ محصولات میں بذریعہ معاشی ترقی اور ٹیکس دہندگان کی تعداد میں اضافے، معاشی ترقی میں تیزی لانے کے لئے کاروباری طبقے بالخصوص تعمیراتی شعبہ کے لئے مراعات، 19-Covid کی وجہ سے متاثر ہونے والے معاشی شعبہ جات اور سماجی طبقے کا تحفظ، میں توازن برقرار رکھا جائے۔ 19-Covid اور اس سے رونما ہونے والے سماجی اور معاشی بحران نے ٹڈی دل (Locust) کے حملے جیسے سنجیدہ مسئلے کو مبہم کر دیا ہے جو غذائی قلت کا موجب ہو سکتا ہے۔ پاکستان بالخصوص پنجاب کو ایک زرعی معیشت ہونے کی وجہ سے ان حالات میں شدید مشکلات درپیش ہوں گی۔ ان حالات میں ہنگامی طور پر حکومت پنجاب نے بروقت فوری اقدامات لیتے ہوئے ریلیف کے لئے کئے جانے والے دیگر اقدامات کے علاوہ ٹڈی دل (Locust) کے حملے سے بچاؤ کے لئے 50 کروڑ روپے کی رقم مختص کی ہے۔ صوبے میں مضبوط اور عملی مالیاتی تنظیم صوبائی کابینہ کی فنانس اور ڈویلپمنٹ کی سٹینڈنگ کمیٹی کی کاوشوں کی#184 بدولت ممکن ہو سکی۔ اس کمیٹی نے اپنے اختیارات کو برتنے میں مسلسل ارتقائی رجحانات کا مظاہرہ کیا۔ اس دستاویز میں اس کا بینہ کمیٹی کے چیدہ چیدہ فیصلوں کا ہی ایک جامع احاطہ کیا گیا ہے ۔ ان فیصلوں کی بدولت کئی ایسے اصلاحاتی اقدامات لیے گئے ہیں جو صوبائی مالیاتی پالیسیوں پر دُور رس اثرات مرتب کریں گے۔ شمولیتی بجٹ سازی اور اخراجات کے تعین کے لیے وضع کردہ ضابطہ کار ایسے عملی اقدامات ہیں جو صوبائی مالیاتی تنظیم کو اپنے معیار اور اعتبار میں بتدریج بہتری کی طرف گامزن کر دیں گے۔ شمولیتی بجٹ سازی کے متعارف کروائے جانے کو اس کے آغاز سے ہی سراہا جا رہا ہے اور قوی امکان ہے کہ اخراجات کے تعین کے ضابطہ کار کی بدولت اخراجات کی محتاط اور کڑی نگرانی ممکن ہو سکے گی۔#191 Macroeconomic Outlook and Challenges#20T Chapter I - Macroeconomic Outlook and Challenges he Government of Pakistan was recovering from the twin deficit (Current Account and Fiscal Account deficit) problem it inherited from the previous Government. Overall, Pakistan booked a trade deficit of USD 17.36 billion in first 10 months (Jul-Apr) of current fiscal year 2019-20 as compared to USD 23.61 billion in the same period of previous year showing a decline of 26.45%. FBR tax collection was showing a growth of over 13% in the first 09 months of the Financial Year. Similarly, the Non-Tax collection by the Federal Government was showing a very healthy growth trend compared to LFY. Punjab Government's fiscal situation had a positive outlook with the Provincial Own Source Revenue exhibiting a growth rate of 29% upto February 2020 compared to the corresponding period LFY. Post February 2020 the onslaught of the Coronavirus Pandemic caused the economic situation to deteriorate. National Economic Outlook Pakistan's Trade Deficit LLY USD 23.61 Billion FY 2018-19 26.4% 颿 USD 17.36 Billion FY 2019-20 Current Account Deficit narrowed 71% to USD2.8 Billion in the nine months of the CFY as foreign inflows and balance of trade continued to improve during the period. The Deficit had shrunk to 1.3% of GDP in the July-March period compared to 4.7% in the corresponding period a year earlier. In addition stable Exchange Rate, healthy growth in FDI at 126.8%, improved ranking in World Bank's Ease of Doing Business Index, and 'Stable" credit outlook to B3 from 'Negative' by Moody's, reaffirmed the successful policies of Government in stabilizing the economy and laying a foundation for robust growth. The Country came to a standstill both in terms of human mobility and economic and activity. With the increase in Coronavirus cases, the Government of Punjab imposed a lockdown from 23rd of March 2020 for a period of roughly two months. As of June 13, 2020 the number of Coronavirus cases in Punjab stood at 50,087 confirmed cases, is the highest among all Provinces in Pakistan and the numbers are rising. Unemployment 4-6 Million Increase in poverty 58.6% 24.3% -00 The spread of Coronavirus has not only put the healthcare system under great stress but has also resulted in colossal economic loss for the Province, like all the other Provinces. The Country is projected to go through an economic recession for the first time after 1952. The real GDP growth projections vary although there is a general consensus on a recessionary outcome for the CFY. IMF estimates a growth rate of - 1.5% for the year. The Federal Government has projected that the country's GDP will shrink by 0.4% of GDP. The scale of the economic loss for Punjab has been estimated by World Bank and Asian Development Bank which suggests that Punjab may lose around three to four percent of its GDP per month during the lockdown. The economic loss to Punjab is estimated to be US USD3-5 billion and short-term employment loss of 4-6 million people. Most of those who will be unemployed are already on the brink of the poverty line, with high probability of being pushed into poverty. PIDE has estimated the poverty to increase significantly from 24.3 percent to 33.7 percent in low case scenario, or to 44.2% in medium case and up to 58.6% in case of high impact scenario. 19 percent of the population already falls in the vulnerable category who may potentially fall below poverty line due to the Pandemic. PIDE has estimated GDP losses of between 0.3% to 4.64%, implying that Punjab can have economic losses ranging between USD 0.5 billion to USD 8.1 billion. 2018-19 Potential Loss to PGDP due to Pandemic 2019-20 USD 0.5 Billion 0.3% -4.64% Page 1 USD 8.1 Billion#21Chapter - Macroeconomic Outlook and Challenges Income loss due to unemployment amongst informal and daily wage workers is estimated to be USD 2.2 billion. Though this unemployment is expected to be temporary and will recover as soon as the Pandemic ends. The combined effect of unemployment and economic slowdown has potentially resulted in the economy going into a recession. To understand the impact on unemployment it is important to realise that Punjab's economy comprises 62% of Services, 20% Industry (includes mining and construction) and 18 percent Agriculture. In terms of its employment structure, there are more than 37 million people employed in the Province. Approximately 16 million are in the non-Agriculture labour force and informally employed or engaged in small self- employment. The impact of COVID-19 has been tilted towards the urban areas so far, with the Agriculture sector mostly stable. However, the sector depends on various inputs and effective logistics that need to be managed as this sector employs 14.5 million people and provides food to the entire Province. Punjab's Economy & Effects of COVID - 19 The effect of the Pandemic has been felt by various industries. Businesses, including large businesses, have already experienced significant slowdown resulting in many workers being sent home. Liquidity across supply chains have shrunk; requiring the State Bank to propose measures that ease out flow of capital. Punjab's Contribution to Pakistan's GDP 62% 18% O Agriculture Industry ■ Servives 20% Garment, textile and sporting goods sector have been impacted due to the lockdown in Europe and export orders and payment for export orders I have gone down. The Small and Medium Enterprise sector is finding it difficult to retain all workers. Auto parts business is in a critical state as imports have been badly affected, with the automobile industry already suffering from low sales pre-COVID-19. The hospitality and entertainment industry are also facing significant difficulties; marriage halls closure alone has resulted in unemployment of 200,000 people. Closure of eateries, retail, transport and other activities have impacted the 7 million informally employed in the wholesale, retail and transport sectors. Surgical, cutlery and hunting knives, and leather and footwear sectors have experienced reduction in exports. Pharmaceutical sector's exports have stopped as countries have closed borders and imports are uncertain. Only food processing and plastic industry have not been impacted yet. The Agriculture sector, while not affected much by COVID-19, has been impacted by pests and locust attack leading to lower output than predicted. “The COVID-19 pandemic of 2020 has strengthened the case for fiscal policy actions and heightened its emergency. Sustained high and inclusive growth is critically needed for development in emerging market and developing economies." IMF Fiscal Monitor, April, 2020 A recent IMF document on financial assistance under Rapid Finance Instrument (RFI), projects that taxes collected by FBR will drop from a pre-COVID-19 estimate of PKR 4,803 Billion in FY 2020 to PKR3,908 billion, implying a revenue shock of more than two percent of GDP, the bulk of which would have been received by Provincial Governments. Similarly, the Government's own Tax & Non-Tax revenues are expected to fall short as compared to pre-COVID-19 forecast. Such a sudden revenue shock towards the end of the Financial Year is likely to cripple Provincial Budget management. FBR revenue has decreased from PKR5,550 billion to PKR3,907 Billion, a reduction of PKR1,643 billion. The Fiscal Deficit has increased from PKR3,560 Billion to PKR3,800 Billion which may further slip (increase from 7.1% of GDP to 9.3% of GDP). While the initial response of the Government has been to ensure Social Protection for the most vulnerable along with food and essential goods supply chain remaining operational, there is a need to develop a comprehensive plan enabling businesses to restart. It is important to note that beyond the lockdown the economic recovery won't be quick as businesses that have closed will struggle to reopen with some being unable to sustain the shock and be permanently closed. WTO has estimated global trade to reduce by 30-40 percent, export-oriented companies will find themselves out of orders. Supply chain of imported inputs will be disturbed affecting production of several industries and the Service Page 2#22Chapter I - Macroeconomic Outlook and Challenges Industry will have to reorient itself to become functional again in the new norms of social distancing. The entire value chain of the Country has been disrupted requiring short to long term measures to bring them back to normal functioning. To respond to the Coronavirus Pandemic, the Federal Government has announced a PKR 1.2 trillion relief and stimulus package, the largest ever stimulus package, focusing on healthcare, social protection and economic stability and stimulus. With regards to healthcare, the Federal Government has released PKR 25 billion to National Disaster Management Authority for procurement and distribution of equipment. An additional PKR 50 billion is set aside for incentivizing health workers and healthcare equipment. An emergency fund has been established having a budget of PKR 100 billion. Federal Government relief package PKR 1.2 Trillion PKR 15 Billion on food and health items. PKR 70 Billion relief on POL Defer Electricity Bill Payments PKR 50 Billion for Health Workers PKR 25 Billion National Disaster Management Authority PKR 150 Billion for Emergency Cash Program ED PKR 200 Billion for daily wage workers/ employees Under social protection, the Federal Government has launched the Ehsaas Emergency Cash Program of PKR 150 billion for vulnerable families out of which PKR 81 billion has been disbursed to 6.6 million families. PKR 200 billion has been allocated for daily wage workers/ employees. For economic stability and stimulus, various measures have been undertaken. Tax relief has been provided amounting to PKR 15 billion on food and health items. Relief of amount PKR 70 billion has been provided by reducing petrol and diesel prices. Low usage consumers of power and gas can defer their payments. Similarly, relief of PKR 200 billion has been provided to Exporters, Agriculture and SME sector. Funds (PKR 50 billion) have been provided to Utility Store Corporations to ensure provision of food items at affordable prices. The SBP has also cut the policy rate to 8% and has given relaxation of one year in repayment of principle under various refinance schemes. SBP will also provide a refinance scheme to support employment of workers. Credit limit to SMEs has been increased to PKR 180 million. The construction sector has been given a special stimulus package that includes amnesty scheme, tax exemptions and PKR 30 Billion subsidy for Naya Pakistan Housing Project. The Construction Sector has been allowed an increased advance payment of up to USD 25,000 by the SBP for import of raw materials and spare parts. The Government has also been provided with external financing from World Bank USD1.79 Billion, IMF USD1.4 Billion, Asian Development Bank USD1.75 Billion, Islamic Development Bank, G-20/ Paris Club USD1.8 Billion, United Nations and countries such as USA, Japan, China. These include both loans and grants. The funding is earmarked for emergency medical supplies, relief funds, National Disaster Risk Management Fund, Development Policy Credit, reduction in interest payment and budgetary support. The IMF has also announced a Rapid Financing Facility of USD 1.4 billion. External Financing of USD 6.74 Billion to Federal Government through Loans & Grants World Bank (USD 1.79 billion) Asian Development Bank (USD 1.75 billion) Page 3 IMF (USD 1.4 billion) ISDB Islamic Development Bank, G- 20/ Paris Club (USD 1.8 billion)#23Chapter - Macroeconomic Outlook and Challenges In order to face the challenges posed by the Coronavirus, the Government has developed a comprehensive and holistic response through the Responsive Investment in Social Protection and Economic Stimulus Framework. It integrates seven critical pillars to help Punjab fight back health, economic and special protection challenges. Macroeconomic Outlook As explained above, the Government had made considerable progress towards resolving the issue of Macroeconomic imbalances. However, after March 2020 the situation changed drastically as a result of Coronavirus Pandemic and subsequent lockdowns. This resulted in reduction of Economic output of the country by 0.4% for FY 2019-20 as against a budget projection of 2.4%. Likewise tax collection and fiscal balance situation deteriorated as shown in the table below. Inflation eased down to single digit as a result of decrease in aggregate demand. Going forward, the economy is projected to start growing again. The Federal Government has projected real GDP to grow by 2.1% in 2020-21. The growth should further pick up to 4.5% by 2022-23. Inflation is expected to hover around 6% during next 3 years. The Government is target to improve its Fiscal balance by increasing FBR tax collection from 9.4% of GDP in FY 2019-20 to 12.6% of GDP. The table below summarizes the Medium Term Macroeconomic Framework, as projected by Federal Government: Macroeconomic outlook 2019-20 to 2022-23* Target for Items Budget 2019-20 Revised 2019-20 Budget 2020-21 2021-22 2022-23 =L lil Real GDP Growth (%) 2.4 -0.4 2.1 4 4.5 Inflation (%) 11-13 11-12 6.5 6.2 6 FBR Tax Revenue 12.6 9.4 10.9 11.8 12.6 A Fiscal Balance -7.1 -9.1 -7.0 -5.6 -4.8 GDP at market prices (Billion PKR) 44,003 41,727 45,567 50,443 55,991 In the above Macroeconomic scenario, the Punjab Budget 2020-21 aims to provide maximum healthcare facilities to fight the Coronavirus Pandemic. Similarly, the Budget includes Social Protection schemes to protect the poor and vulnerable. Economic stimulus would be another important priority of the Budget 2020-21. Investments will be made in public infrastructure with the objective of creating greater employment and to help construction related industries in the Province. No new tax has been suggested in the budget. The rate of taxes has been reduced for construction sector in line with the vision of the Prime Minister. The Government would further aim to improve business climate in the Province to help businesses recover from the existing problems. Further details regarding the Budget 2020-21 are provided in the following chapters. iAnnual Budget Statement 2020-21, Government of Pakistan Page 4#242 Estimates of Receipts#25Chapter II - Estimates of Receipts Estimates of Receipts A nnual Budget is regarded as the primary manifestation of the Service Delivery plan of a Government. For administrative purposes, however, the plan is reflected in terms of estimates of Receipts and Expenditure during a Fiscal Year. This Chapter is aimed at providing a comprehensive analysis of the Receipts of the Provincial Government in FY 2019-20 and projected for FY 2020-21. Classification of Receipts by the Provincial Government 1 General Revenue Receipts & 2 Capital Receipts The following flow diagram provides different sub-categories of the Receipts under the two main categories of Provincial Receipts: General Revenue Receipts Punjab's Share in Federal Divisible Pool Provincial Tax Receipts Non-Tax Receipts Provincial Consolidated Fund Capital Receipts Current Capital Receipts Development Capital Receipts As highlighted in Chapter 1, Punjab, like the global economy, has been hit adversely by the COVID-19 pandemic. The Government of Punjab adopted a proactive approach to mitigate the negative impact on livelihoods by announcing a Tax Relief Package worth more than PKR18 billion (discussed in detail below). Furthermore, it has been estimated that the negative impact of COVID-19 will continue till at least the 1st half of FY 2020-21. Keeping this in view, the Ministerial Committee of the Cabinet on Resource Mobilization (RMC) also adopted a multi-pronged Fiscal Strategy with a focus on striking a balance between: Relief Relief/economic stimulus for businesses Revenue Generation Revenue generation through economic growth and broadening of the tax base rather than increasing rates Social Protection Social Protection by providing relief to the COVID-19 affected segments of the society Based on multiple rounds of Finance Department's meetings with major Tax and Non-Tax Departments and efforts of the RMC, a rigorous tax- by-tax analysis of Punjab's Tax Relief Package and Departmental proposals for the FY2020-21 has been conducted resulting in the following key recommendations: Page 5#26Chapter II - Estimates of Receipts Punjab's Tax Relief Package: Key Recommendations Punjab Sales Tax on Services (PSTS) will not be charged on Construction Services provided by Property Developers, Builders and Promoters PSTS on Health Insurance and Services provided by doctors and hospitals at 0% PSTS reduced to 5% for 14 sectors affected by COVID-19 Adoption of new Valuation Table for UIPT postponed for 1 year COVID-19 centric administrative relief measures in collection of UIPT, Token Fee and Vehicle Registration Fee etc The table below summarizes the estimates of total Provincial Receipts of the Government: (PKR Billion) Receipts BE 2019-20 RE 2019-20 BE 2020-21 a. General Revenue Receipt Federal Divisible Pool 1,989.826 1,408.398 1,750.035 1,601.468 1,127.878 1,432.968 Provincial Taxes 294.963 191.088 220.886 Provincial Non-Tax b. Capital Receipts A/C-I Current Capital Receipts Development Capital Receipts (Foreign Projects Assistance) c. Capital Receipts A/C-II 93.395 89.432 96.181 60.496 68.864 133.724 42.307 55.419 86.630 18.189 13.445 47.094 208.255 334.545 331.869 d. Innovative Financing 42.000 0.000 25.000 Total Provincial Consolidated Fund (a+b+c+d) 2,300.577 1,811.807 2,240.628 General Revenue Receipts The main elements of General Revenue Receipts as per Annual Budget Statement are Federal Divisible Pool, Provincial Tax Receipts and Provincial Non-Tax Receipts. The table below shows the details of Budget Estimates and Revised Estimates of General Revenue Receipts for FY 2019-20 in comparison with the anticipated Budget Estimates for FY 2020-21. General Revenue Receipts Federal Divisible Pool Taxes Tax on Income Land Customs Sales Tax Capital Value Tax Federal Excise BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 1601.468 1127.878 1432.968 598.349 467.029 587.887 286.448 157.012 184.043 613.241 415.506 558.763 1.136 0.704 0.887 101.577 87.188 100.882 Page 6#27Chapter II - Estimates of Receipts Excise Duty on Natural Gas 0.717 0.438 0.507 Provincial Tax Revenue 294.963 191.088 220.886 Board of Revenue 81.156 62.500 56.000 Excise, Taxation & Narcotics Control Department 39.700 23.001 32.364 Transport 0.710 0.431 0.675 Finance (Punjab Revenue Authority) 166.550 105.000 125.000 Energy 6.847 0.156 6.847 Provincial Non-Tax Revenue (Excluding Straight 93.395 89.432 96.181 Transfers and Grants) Income from Property and Enterprise 32.354 8.035 10.208 Receipts from Civil Administration and Other Functions 18.285 13.512 16.479 Miscellaneous Receipts 42.756 67.885 69.494 Total General Revenue Receipts 1,989.826 1,408.398 1,750.035 FEDERAL DIVISIBLE POOL TAXES The major source of revenue for the Provincial Government is the receipt of Federal Divisible Pool share which constitutes 82% of the General Revenue Receipts projected for FY 2020-21. Under the 7th NFC Award, the Divisible Pool of Taxes as collected by FBR has been laid down as under: Federal Share Divisible Pool of Taxes as collected by FBR (under the 7th NFC Award) Provincial Share 42.50% 57.50% Taxes on income Wealth Tax CVT Taxes on sales of goods & purchase of goods imported-exported, produced, manufactured and consumed Export duties on Cotton Customs Duties Federal Excise Duties excluding the excise duty on gas charged at well heads Page 7 Punjab 51.74% Sindh 24.55% KPK Balochistan 9.09% 14.62%#28Chapter II - Estimates of Receipts As per NFC Award, the distribution of resources among Provinces is based on multiple criteria iiii including + Population Inverse Population Density Revenue Poverty Since the Divisible Pool transfers constitute a large proportion of General Revenue Receipts, even a small percentage variation between Federal Board of Revenue's Budgeted Estimates and Actual Collection leads to a major re-adjustment in Provincial Receipts. The following table shows the variance between Budget Estimates and Actual Tax Collection by FBR during the last four years: Budget Estimates Actual Collection Excess/Shortfall 2015-2016 2016-17 2017-18 (PKR Billion) 2018-19 3,104 3,621 4,013 4,435 3,113 3,361 3,841 3829 -260 -172 -606 Excess/Shortfall (in Percentage) 0.29% -7.18% -4.29% -13.66% Punjab's Estimated Federal Divisible Pool Receipts PKR 1,601.468 bn B.E. FY 2019-20 -10% PKR 1,432.968 bn B.E. FY 2020-21 The last tranche of the FDP is received around the 28th of June each Financial Year. The common practice is to conduct the settlement and reconciliation exercise for the entire FY as well as the last two to three days of June and transfer the balance amounts to the Provinces in the form of arrears in the first quarter of the next FY. In FY 2019-20, an amount of PKR 62.9 billion of Punjab's FDP share for FY 2018-19 was transferred from the Federal Government to the A/C-I of the Provincial Government as arrears of FDP. PROVINCIAL TAX REVENUE The second component of the General Revenue Receipts is termed as Provincial Tax Revenue. The tax revenue is collected by the following agencies of the Government: Page 8#29Chapter II - Estimates of Receipts Provincial Tax Revenue Sources + TAX Punjab Revenue Authority Sales Tax on Services, Infrastructure Development Cess Board of Revenue Agricultural Income Tax, Stamp Duty, Land Revenue etc. Excise & Taxation Department Motor Vehicle Tax, Urban Immovable Property Tax, Provincial Excise, Professional Tax etc. The details of taxes budgeted for FY 2020-21 is presented below: Energy Department Electric Duty Transport Department Route Permit Fee (PKR Billion) Tax Receipts Punjab Revenue Authority BE 2019-20 166.550 RE 2019-20 105.000 BE 2020-21 125.000 Sales Tax on Services 161.550 101.820 121.000 Punjab Infrastructure Development Cess 5.000 3.180 4.000 Board of Revenue 81.156 62.500 56.000 Agricultural Income Tax 2.074 2.074 2.500 Registration of documents 0.075 0.181 0.074 Land Revenue 18.286 14.500 20.000 Capital Value Tax 0.000 0.118 0.000 Stamp Duty 60.721 45.627 33.426 Excise, Taxation & Narcotics Control Dept. 39.700 23.001 32.364 Urban Immovable Property Tax 14.362 9.690 14.500 Tax on Professions, Trades and Callings 1.800 0.704 1.200 Receipts under Motor Vehicles 15.850 9.703 13.031 Other Direct Taxes Provincial Excise Tax on Luxury Houses Other Indirect Taxes 0.000 0.000 0.000 7.140 2.518 3.114 0.100 0.088 0.092 0.448 0.298 0.427 Energy 6.847 0.156 6.847 Electricity Duty 6.847 0.156 6.847 Transport 0.710 0.431 0.675 Motor Vehicles fitness certificate and permit fee 0.710 0.431 0.675 Total Provincial Tax Revenue 294.963 191.088 220.886 The above table shows that tax collection by the Punjab Government during FY 2020-21 is estimated at PKR 220.89 billion, as compared to BE 2019-20 of PKR 294.96 billion. Major decrease in Provincial revenue is expected due to decline in economic activity as a consequence of COVID-19. Furthermore, as highlighted earlier the fiscal strategy adopted is one of providing maximum relief to the public which includes reduced rates on PSTS for around 23 sectors. Page 9#30Chapter II - Estimates of Receipts Punjab Revenue Authority (PRA) PRA was assigned a revenue collection target of PKR 166.550 billion for FY 2019-20. The target was based on the revenue collection trends of the preceding years, the revenue generation potential of the assigned taxes and tax policy measures taken by the Government. However, due to overall impact of COVID-19 on the service sector and the reduction of PSTS on 20 plus sectors from 16% to 0% for the last quarter of FY19-20 under the Tax Relief Package the R.E for FY19-20 has been set at PKR 105 billion. This amount also includes the transfer of PKR 4.288 billion claim pending with the Federal Government regarding wrong transfer of PRA funds to FBR by NBP. Services such as Telecommunications, Banking/ Insurance, Contractual Execution, etc. were expected to be the primary revenue spinners for PRA during the financial year and have also generated the highest revenue amongst different sectors as shown below. The following table shows the Revised Estimates of collection from major Services during the year: & PKR 125.0 bn -25% decrease over Budget Estimates of FY 2019-20 Sales Tax on Service Collection 2019-20 (PKR Billion) Service Telecommunication Withholding Agents Banking/Non-Banking/ Insurance Franchise services Contractual execution of work or furnishing supplies. Courier services Revised Estimates of Collection 23.0 18.0 13.5 7.0 4.0 2.8 Manpower recruitment agents including labour and manpower supplies. 2.7 Restaurants including cafes, food (including ice-cream) parlors, coffee houses, coffee shops, deras, food huts, eateries, resorts and similar cooked, prepared or ready-to-eat food service outlets etc. Construction services 2.6 2.4 Security Agency 2.1 Information Technology-enabled or Information Technology-based services 2.0 Services in relation to transport of goods other than water, through pipeline, conduit or any other medium Other Services 1.8 15.64 Transfer from FBR (previous wrong credit) 4.28 PIDC 3.18 Total Revised Estimate of Collection 105.0 PRA has done exceedingly well to maintain very high growth in revenue collection over the past 4-5 years. Based on the revenue trends, PRA has been assigned a target of PKR 125.000 billion for FY 2020-21 with a decrease of 25% over Budget Estimates of FY 2019-20. The Government has reduced the PSTS for nine sectors from 16 to 5% to incentivize compliance. Furthermore, the Government of Punjab has consented to a Memorandum of Agreement (MOA) with the Federal Government geared towards 'Harmonization of Sales Tax' across the country. This MOA has come in the wake of the creation of a National Tax Council under the FCC by the Federal Government. Page 10#31Chapter II - Estimates of Receipts Board of Revenue (BOR) BOR's collection is estimated at PKR 56.0 billion for FY 2020-21. The major tax heads under BOR's purview are elaborated for the purpose of clarity: Agricultural Income Tax: STAMP Stamp Duty Agriculture Income Tax Board of Revenue Responsibilities Registration Fee E Agricultural Income Tax (AIT) is an important Direct Tax of Provinces, collected under the AIT Act of 1997. It is levied as a fixed amount per acre of land, or as a percent of income of owners of agricultural land, whichever is higher. After 2001, the Government had revised the land based AIT rates, w.e.f. from FY2019-20, by doubling the existing rates. Similarly, the exemption limit for the Income Based AIT rates had also been raised from PKR 80,000 income per annum to PKR 400,000 per annum in order to improve the horizontal equity between taxes on agricultural and non-agricultural income. The RE for AIT for FY 2019-20 is set at PKR 2.074 billion indicating 100% achievement of target. Land Revenue: Land Revenue Land revenue is a broad category and includes a number of receipts related to land revenue functions, the largest being mutation fee. This category of Provincial Tax Receipts has a lot of potential and is expected to contribute PKR 20.0 billion to the provincial exchequer during FY 2020-21 which is 38% higher than the R.E for previous year. PKR 14.5bn Revised Estimate 2019-20 PKR 20.0bm bn Budget Estimate 2020-21 Stamp Duty: Government has reformed the system by introducing e-Stamps to facilitate taxpayers, plug leakages in this tax collection and to ensure greater transparency in the process of transfer of property. This reform has shown a decent growth since implementation of reform initiative. A priority area for the Federal and Provincial Governments has been the Construction Sector. In order to provide impetus to the Sector, the Government of Punjab has reduced the Stamp Duty rates for transactions of land in Urban areas to 1% from 5%. This step was taken as part of the Tax Relief Package for the last quarter of FY19-20 and is expected to continue for the next FY. Keeping in view the incentive of a lower Stamp Duty rate coupled with the annual growth trajectory the Budget Estimates of Stamp Duty for FY 2020-21 have been pitched at PKR 33.426 billion. Excise, Taxation & Narcotics Control Department Excise, Taxation & Narcotics Control Department provides services for collection of eight different levies/ taxes. The Department aims to promote automation of its functions to optimize service delivery through reduced interface between public and Government officials. The major tax heads under purview of Excise, Taxation & Narcotics Control Department are as indicated below: Motor Vehicle Taxes: Excise, Taxation & Narcotics Control Department collects 'Tax on Registration' and 'Token Tax' on motor vehicles. The BE 2019-20 of MV Taxes was PKR 15.850 billion. The Revised Estimate for this tax has been pitched at PKR 9.7 billion, while the target for the next Financial Year has been estimated as PKR 13.031 billion. The Department has not been able to achieve the target set at the start of FY19-20 due to general slowdown in the economy whereby sale and purchase of vehicles was 40% lower than the previous year. Page 11#32Chapter II - Estimates of Receipts Urban Immoveable Property Tax (UIPT): This is a tax devolved to Municipal Committees, Municipal Corporations and Metropolitan Corporation under Local Government legislation in Punjab. However, for administrative purpose, it is being collected by the Provincial Government. The proceeds of this tax are passed on to the respective Local Governments/local agencies from where the tax is collected. The UIPT for FY 2020-21 stands at PKR 14.500 billion. The shortfall primarily arose as a result on non-implementation of decision to tax properties abutting major highways in the Punjab which had an estimated impact of PKR 2.0 billion. Valuation Tables Administrative Relief Proposed for FY2020-21 UIPT Reg. Fee and Token Tax Updation of Valuation Tables postponed for 1 year 1. Waiver of surcharge on UIPT for FY2020-21 2. Collection of UIPT in 2 installments 3. 10% rebate for early payment 4. 5% rebate for payment by ePayPunjab 1. Extension of rebate period for one month up to 30-09-2020 2. Increase in rebate from 10% to 20% for annual lump-sum payment 3. Waiver of enhanced rate of registration fee on late registration for the period from 01-04-2020 to 31-12-2020 4. Waiver of penalty on late payment of motor vehicle tax for the FY 2020-21 Professional Tax The B.E for FY 2020-21 with respect to Professional Tax has been pitched at PKR 1,200 billion against the Revised Estimates for FY2019-20 to the tune of PKR 0.704 billion. NON-TAX REVENUE Categories of Provincial Income from publicly owned property and enterprises Receipts from Civil Administration and other functions Extraordinary Receipts Non-Tax Revenue > Miscellaneous Receipts from toll, fees, cess etc. collected by Provincial Departments (excluding Federal Grants and Development Surcharges and Royalties) Revised Budget Estimates FY 2019-20 & Projected Budget Estimates FY 2020-21 are: Non-Tax Revenue Income from Property and Enterprises Electricity (Net Hydel Profit) Net Hydel Profit Arrears Interest on Loans to District Govts. /TMAS Interest on Loans to Financial Institutions. Interest on Loans to Non-Financial Institutions. Interest on Loans & Advances to Govt. Servants Interest on Loans - Others Page 12 (PKR Billion) BE 2019-20 RE 2019-20 BE 2020-21 32.354 8.035 10.208 10.000 5.000 22.000 6.500 5.000 0.045 0.045 0.040 0.175 0.225 0.129 0.120 0.163 - 0.005 0.005 0.005#33Empty#34Law and Order Chapter II - Estimates of Receipts Civil Administration & Other Functions Community Services Social Services Receipts collected by Law Department from sale proceeds of unclaimed and escheated property, court fees realised in cash, general fee, fines & forfeitures, receipt of official record room & recoveries of over-payments, etc. Receipts collected by Home Department include sale proceeds of articles manufactured in jail, fines, payments on services rendered including supplies made by workshop of department Receipts collected by Police Department on account of police personnel deputed at the strength of Railways, Federal Government, public departments, fees, fines, forfeiture, motor driving license fee, traffic fines, e-challans, police land receipts and recoveries of overpayments. The Receipts from 'Toll on Provincial Roads and Bridges' are the major sources of income in this category. Levy of toll on 13 new roads has already been approved by the Government since FY2019- 20. These Receipts pertain to different social services like Health and Education etc. The Budget Estimate for FY 2020-21 has been set at PKR 4.036 billion For Miscellaneous Receipts, the Budgetary Estimates for FY 2020-21 have been pitched at PKR 69.494 billion. Under Article 161 of the Constitution and the NFC Award, Straight Transfers to the Provinces include Net Proceeds of the Federal Excise Duty on Natural Gas, Net Proceeds of Royalty on Crude Oil and Natural Gas assigned to the Provinces under the Constitution. The table below compares Straight Transfers receipts: Component BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 Net Proceeds of Royalty on Crude Oil Net Proceeds of Royalty on Natural Gas Surcharge on Natural Gas-share of net 3.780 4.528 4.616 2.426 1.678 1.629 0.572 1.363 (0.097) Total 6.778 7.570 6.148 Federal Grants The PSDP grant are merely a pass-through item as far as Provincial budget is concerned as the same are passed on to different executing agencies for implementation of Federal Development Projects for which these Development grants are received from the Federal Government. Foreign Program Grants + Public Sector Development Programs (PSDP) = Federal Grants Page 14#35Chapter II - Estimates of Receipts Component Programme Grants (Foreign i.e. PESP-II, NISP etc.) PSDP Grants/Federal Grant (Dev + N.Dev) (PKR Billion) BE 2019-20 RE 2019-20 BE 2020-21 3.818 9.705 4.177 0.000 19.416 0.000 Total 3.818 29.121 4.177 (PKR Billion) Particulars DFID-Punjab Education Sector Project-II DFID-Punjab Skills Development Project BE 2019-20 RE 2019-20 BE 2020-21 0.757 6.973 1.998 1.478 2.434 National Immunization Support Project 0.402 0.686 Enhancing PPPs in Pakistan (Punjab) 0.661 0.568 0.643 Women's Income Growth and Self Reliance Program in Punjab (WINGS) 1.100 Total 3.818 9.705 4.177 CURRENT CAPITAL RECEIPTS Current Capital Receipts of the Province include all the new loans borrowed or raised by the Provincial Government (except for loans for specific Development projects) and recoveries of loans granted to provincial entities/authorities/financial institutions, provincial employees or the District Governments. Current Capital Receipts may be credited either to the Provincial Government's Account No. I (Non-Food Account) or Account No. II (Food Account), depending on the nature of the receipt. I PKR Account Money raised through loans Budgetary support programmes of multilaterals Recoveries of principal amount of loans advanced by the Government to its Employees and Autonomous Bodies Account || Receipts from sale of wheat Financing for procurement of wheat Credited to Account | Recorded in Account || For the Financial Year 2020-21, estimate of total Current Capital Receipts is pitched at PKR 443.499 billion compared to a Revised Estimate of PKR 389.964 billion during FY 2019-20. The table below provides a detailed comparison of Current Capital Receipts for FY 2019-20 and FY 2020-21 (in PKR Billion): Page 15#36Chapter II - Estimates of Receipts (PKR Billion) BE RE BE Receipts 2019-20 2019-20 2020-21 Loans & Advances/Recoveries of Loans and Advances 1.097 2.727 1.280 From District Governments/TMAs/Local Bodies 0.024 0.024 0.024 From Financial Institutions 0.000 2.000 0.000 From Non-Financial Institutions From Government Servants From Private Sector (Taccavi Loans) Debt Permanent Debt-Domestic Permanent Debt-Foreign Account No. | Total Recoveries of Investment-State Trading Schemes Cash Credit Accommodation 1.053 0.683 1.236 0.020 0.020 0.020 0.000 0.000 0.000 41.209 52.692 85.350 0.000 0.000 0.000 41.209 52.692 85.350 42.306 55.419 86.630 110.926 176.565 173.913 97.329 157.980 157.956 Account No. II Total 208.255 334.545 331.869 Innovative Financing 42.000 25.000 Total Current Capital Receipts (Account No.I & II) 292.561 389.964 443.499 Domestic and Foreign Loans borrowed directly or through the Federal Government comprise the Permanent Debt of the Provincial Government. Account No. 1-Permanent Debt: The Budget Estimates for FY 2020-21 for the permanent debt (foreign) have been estimated at PKR 85.350 billion. The Government would receive budgetary support loans from World Bank under Punjab Education Sector Reform Program, Punjab Skills Development Project, Punjab Jobs & Competitiveness Project, Strengthening Markets for Agriculture and Rural Transformation (SMART), Punjab Green Development Program and Punjab Cities Program including 02 new programs (Pipelines) amounting to PKR 7.014 billion which are expected to be signed during Financial Year 2020-21 and disbursements of these new programs will be received from World Bank accordingly. The Revised Estimates of FY2019-20 were higher than the Budget Estimates due to excess disbursement of PKR 11.483 billion owing to foreign currency fluctuation, it also includes PKR 8.179 billion which was credited in FY2019-20 whereas it was disbursed by donors in FY 2018-19. " Details of Permanent Debt (Foreign) Detail of Loan B.E. 2019-20 R.E. 2019-20 (PKR Billion) B.E. 2020-21 Punjab Health Sector Reforms Programme 2.400 Punjab Skills Development Project 1.878 1.248 1.587 Punjab Jobs & Competitiveness Project 2.800 4.056 2.291 Punjab Education Sector Reform Programme-III 6.720 6.582 12.464 Access to Clean Energy Investment Programme 3.500 4.485 3.300 National Immunization Support Program 0.401 0.683 Strengthening Markets for Agriculture and Rural Transformation (SMART) 4.900 6.126 7.425 Punjab-Pak Punjab Cities Program 6.860 7.564 3.878 Punjab Green Development Program 5.320 6.523 6.600 Punjab Resource and Revenue Management Program 1.650 Punjab Human Capital Investment (HCI) Project 5.364 Metro Rail Transit System (Orange Line) 8.830 13.025 40.791 Total 41.209 52.692 85.350 Page 16#37Chapter II - Estimates of Receipts Account No. II - Public Debt (Food Account): Food Account of the Province, commonly known as Account No. II, is also maintained with the State Bank of Pakistan like Account No. I. However, the former account is meant exclusively for transactions relating to state trading in food commodities by the Food Department. mmm Finances for Food Commodity purchases raised through 'Cash Credit Accommodation', carried out by a Consortium of Banks Wheat Grain procured directly from farmers by the Food Department with Financing from Banking Consortia 食 Receipts from sale of wheat are then deposited in Account No. II, from where these are utilised to retire the Consortia Loans During FY2020-21, an amount of PKR 331.869 billion is estimated to be received for commodity operations compared to the amount of PKR 334.470 billion realized during FY2019-20. Development Capital Receipts The loans borrowed from multilateral donor agencies through the Federal Government for specific foreign-assisted development projects are termed as Development Capital Receipts or Foreign Project Assistance. The estimated Receipts will be utilized for a number of Development projects for which, a total of PKR 47.094 billion worth of loans for Development projects are expected to be realized during the FY 2020-21 including 10 new projects (in pipeline) amounting to PKR 10.512 billion which are expected to be signed during next financial year and disbursements of these new projects will be received from respective donors accordingly. The difference between the BE and RE for FY 2019-20, PKR 4.744 billion less disbursed, arose as work could not be executed due to COVID-19 and subsequent lockdowns. The Provincial Government has taken up the issue with the Federal Government during various meetings at Secretarial as well as Ministerial levels. The Chief Minister of Punjab has also requested the Prime Minister for his intervention. However, the settlement might take longer than anticipated. It is, therefore, thought appropriate that these claims may not be budgeted as Receipts for the CFY as their reconciliation and settlement may not actualize during FY 2019-20. Moreover, at the start of FY19-20 claims of various Provincial Departments, pending with the Federal Government came to the tune of PKR 35.7 billion (excluding NHP)approximately PKR 55 Billion. However, this amount reached a total of PKR 85.39 billion after certain new claims were identified during the year. Of this PKR 4.288 billion of PRA was settled and credited to Punjab, leaving a net claim of PKR 81.2 billion (detail in table below) pending with the Federal Government. These claims, which if received, will create additional fiscal space in the Development budget of the Province. Details for pending claims are as below: (PKR Billion) Issues Department Amount Reconciliation of Cross-Adjustments of Taxes PRA 19.09 Federal share of Subsidy on Wheat Export CDA share for operation of RWP-ISB Metro Arrears of Lady Health Workers Programme Food 9.96 Transport 2.43 Primary Health 13.79 Workers Welfare Board Fund Labour & Human Resource 4.61 Payment of Mark-Up on 2.5 MMT of Federal Strategic Reserves of Wheat Claimed Food 31.321 Total 81.2 Page 17#383 Estimates of Expenditures#39Chapter III - Estimates of Expenditure Drivers of Public Sector Expenditures As COVID-19 pandemic hit Pakistan towards the end of the third quarter of Financial Year 2019-20, it had a proverbial hard-to-predict Black Swan impact on fiscal management. The consequential imposition of lockdown and social distancing controls caused economic slowdown that cannot be measured easily in Pakistan but the magnitude of impact was obviously very high, calling for immediate fiscal rearrangements. Revenues sloped downwards to a near collapse. Development spending received a similar shock. All public expenditure objectives had to be shelved at least temporarily. At the same time, needs for social sector spending surged. Government of Punjab responded immediately and the PKR25.22 billion COVID-19 package included, in addition to the PKR18.000 billion tax relief, increased expenditure on healthcare facilities, preventive and curative measures and Social Protection Package to offset the unemployment effect. Chief Minister's Insaf Imdad Programme 2020 for targeted monetary relief to the unemployed population segments, was launched with a total outlay of PKR10.000 billion, PKR1.000 billion was earmarked for disaster relief response and PKR2.600 billion was transferred directly to the lowest District tier for relief measures. COVID-19 and its economic and social fallout overshadowed the contemporaneously lurking locust infestation peril that directly threatens Food Security. Pakistan, being a predominantly agricultural economy, stands to be massively hit by the menace. As an emergency response measure, Government of Punjab acted swiftly and allocated PKR500.000 million for locust control, in addition to the budget for disaster relief measures. Budgetary outlays for Financial Year 2020-21 had to be formulated against the backdrop of these occurrences. Sources of Revenue receipts were difficult to predict and may dwindle substantially as uncertainty around COVID prevalence grows. Expenditure on Health sector and allied services can be expected to mount. Social Protection services shall require increased and targeted focus. Public Works program for employment generation is being promoted as an effective tool and will receive additional funds. It also coincides with Federal priority program of provision of low cost housing to public as well as a boost to construction sector in general. In order to safeguard output from the Non- Development and Development expenditures on production sectors, the threat of locust has to be averted. In the midst of these crises, essential expenditures cannot be curtailed and non-essential spending requires implementation of stringent austerity measures to achieve fiscal balance. Expenditures Overview Public spending holds critical significance in Pakistan's economy. In general, objectives of Government expenditure are to maximize public welfare through provision of Public Goods, investment in social sectors like Health and Education for improvement in labour productivity, provision of subsidies wherever necessary, equitable redistribution of income and increase in aggregate demand. Despite massive resource constraints consequent to the pandemic COVID-19, Government of Punjab has made strenuous efforts to ensure that spending in key areas is not compromised and the benefits of expenditure reach all segments of society. Development expenditure had to take a hit and is decreased due to serious resource constraints. Current Expenditure Major Components of Government Expenditure Enables Government to maintain the current level of service delivery Development Expenditure Enhances capacity of Government to provide services to citizens Capital Expenditure Consists of Loans made, Loans repaid, and Contributions made to separate funds for meeting Long-Term Liabilities, such as Pensions Page 19#40Current Expenditure .3 bn Chapter III - Estimates of Expenditure Development Expenditure PKR 337 .00 bn FY 2020-21 Estimate PKR 1,318.3 FY 2020-21 Estimate 1.5% 4% Higher than FY 2019-20 Budget Estimates Lower than FY 2019-20 Budget Estimates Capital Expenditure PXR 460292 bn FY 2020-21 Estimate 9.9% Higher than FY 2019-20 Budget Estimates Abstract of Expenditure FY 2020-21 (PKR Billion) CLASSIFICATION BE 2019-20 RE 2019-20 BE 2020-21 Current Revenue Expenditure 1,298.773 1,257.943 1,318.338 *General Public Services (including transfers to Local Governments) 754.681 726.511 778.129 Public Order & Safety Affairs 178.385 179.757 172.525 Economic Affairs 121.311 103.407 118.110 Environment Protection 0.503 0.499 0.489 Housing and Community Amenities 13.814 13.358 7.848 Health 145.151 153.983 157.071 Recreational, Culture and Religion 3.842 3.777 3.779 Education Affairs & Services 71.311 61.107 72.154 Social Protection 9.775 15.535 8.582 Current Capital Expenditure 418.9 417.118 460.292 Repayment of Principal Investments Loans and Advances (Principal) 49.150 47.178 55.084 84.400 6.720 43.800 76.977 28.418 29.411 State Trading in Medical Stores 0.093 0.257 0.127 State Trading (Wheat) (A/C-II) 157.000 225.561 217.211 Repayment of Commercial Bank Loans (A/C-II) 51.348 108.984 114.659 Development Expenditure 350.000 250.000 337.000 Annual Development Programme 350.000 255.028 337.000 Total Expenditure 2,067.386 1896.613 2,115.628 Page 20#41Chapter III - Estimates of Expenditure Budgetary Framework under the Constitution Articles 120-126 of the Constitution of Islamic Republic of Pakistan, 1973 provide framework for Annual Budget Statement, Demand for Grants, Charged and Voted Expenditure out of Provincial Consolidated Fund, procedure for Annual Budget Statement, Authentication of Schedule of Authorized Expenditure and procedure for Supplementary Grants for excess expenditure. After accommodating the demands of Current Revenue Expenditure and Current Capital Expenditure, the net surplus is available for financing the Development Expenditure, which may be additionally financed through foreign aided projects. The budgetary allocations tend to strike a balance between competing demands of Current and Development Expenditures. Without compromising on essential areas of Current and Capital Expenditure, the Provincial Budget bids to ensure maximum surplus for Development Expenditure. Budgetary Framework Federal Transfers Recurrent impact of Development 1*1 Macro-Economic Projections General Revenue Receipts Current Expenditure Provincial Receipts Revenue Surplus Development Expenditure Page 21 Development Priorities Sectoral Allocations#42Chapter III - Estimates of Expenditure Against the various components of expenditure, a comparison of allocations in year 2019-20 and 2020-21 is explained as follows: Classification Current Revenue Expenditure Current Capital Expenditure Development Expenditure Total Provincial Consolidated Fund BE 2019-20 1,298.773 RE 2019-20 1,257.934 (PKR Billion) BE 2020-21 418.876 417.118 1,318.337 460.292 350 2,067.649 255.03 337.000 1896.613 2,115.628 Current Expenditures The Current Expenditure, which is classified into nine Functional Heads, has been estimated at PKR 1,318.3 billion for FY 2020-21, which is 1.5% higher than the outgoing Financial Year's Budget Estimates. Classification General Public Services Public Order & Safety Affairs Economic Affairs Environment Protection Housing and Community Amenities Health Recreation, Culture and Religion Education Affairs & Services Social Protection Total Current Expenditure Proposed allocation for General BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 754.681 726.510 778.129 178.385 179.757 172.525 121.311 103.407 118.110 0.503 0.499 0.489 13.814 13.358 7.848 145.151 153.983 157 3.842 3.777 3.78 71.311 61.107 71.802 9.775 15.535 8.582 1,298.773 1,257.934 1,318.338 ☐ Public Services has increased by 3.1% from the Budget Estimate of last year For Health sector, an increase of 8.0% over Budget Estimates for last financial year is proposed Allocation for Social Protection remains at last year's level, however during last quarter of FY 2019-20, expenditure on Social protection rose by 59% over BE 2019-20 Despite challenged resources, allocations for Public Order, Economic Affairs and Education sector are maintained at current levels PKR 1,318.3bn FY 2020-21 BE PKR 1257.9 bm FY 2019-20 RE PKR 1,298.7bn FY 2019-20 BE Page 22#43Chapter III - Estimates of Expenditure General Public Service Encapsulating Current Expenditure of the Punjab Government's essential Departments, Attached Departments and legislative bodies among others, the Functional head General Public Services details Non-Development expenses of these Government institutions, Fiscal Transfers to Local Governments and others. Government of Punjab's commitment to devolution of financial powers to grass root level translates into fiscal transfers to Local Governments as apportioned through the Provincial Finance Commission (PFC) Award. The details for allocations for next Financial Year in comparison with those of the previous financial year are given as under: General Public Services Executive & Legislative Organs, Financial & Fiscal Affairs Transfers to Local Governments and other entities General Services General Public Services not elsewhere defined BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 300.564 285.465 313.882 442.368 433.393 456.738 11.747 7.651 7.508 0.002 0.002 0.002 Total 754.681 726.511 778.129 Budgetary estimates for Financial Year 2020-21 for General Public Services record 3.1% increase over last year's Budget Estimates. Punjab Government is fully committed to improving performance of its administrative and regulatory functions through provision of sufficient allowance for Current Expenditures. General Public Service PKR 754.7 +.7 bn +3% PKR BE FY 2019-20 778.1 bn BE FY 2020-21 PFC Share to LGS has been increased from BE 437.1 RE 418.8 to BE 448.5 for FY 2020-21. After promulgation of Local Government Act Punjab, 2019, funds are transferred to Metropolitan Corporation, Municipal Corporations, Union Councils, Town Councils, District Health Authorities and District Education Authorities with the objective of empowering Local Governments to incur expenditure in accordance with the wishes of local populace. Devolution of financial powers are expected to earn dividends of effective, efficient and representative expenditures. Budget Estimates for transfer of funds to Local Governments and other entities is PKR 456.738 billion, which is higher than last year's Revised Estimate of PKR 433.443 billion. Public Order and Safety Affairs While security remains highly priced, it is expected that the rising costs of policing shall address the overt or covert reasons for increasing crime rates, forestall possible security disasters and sustain reduction in the crime rate in general. In addition to the social costs of crimes, poor security directly translates into stalled economic growth. The general, accepted notion is that a hike in crime rate post-Covid socio- economic downturn cannot be ruled out. However hard it may be to determine economic impact of improved security system through higher expenditure on law enforcement services, Government of Punjab has consistently provided unflinching financial support to Public Order and Safety Affairs. In the financial year 2019-20, total outlay for corrective and judicial functions, policing, fire protection, prison administration and emergency services was a record high at 5% total increase and policing received the largest share of allocations with an increase of 3.5%. Despite financial stress, Government of Punjab has yet again expressed its resolve and commitment towards greater public sense of security for citizens and business through increased spending on law and order. As expenditure on law enforcement increases, Government of Punjab Page 23#44Chapter III - Estimates of Expenditure aims to develop indicators that can assess value of policing - a legitimate demand generated by the current financial crisis. Spending on judicial and policing services is expected to safeguard economic affairs and social sector public investments and hence the expectation for a sizeable return on security investment grows. PKR 115.6 bn BE FY 2019-20 Police +3% PKR 119.1 bn BE FY 2020-21 (PKR Billion) Public Order and Safety Affairs BE 2019-20 RE 2019-20 BE 2020-21 Law Courts (High Court & Lower Judiciary) 28.570 26.683 27.738 Police 115.633 129.480 119.122 Fire Protection (Civil Defence) 0.804 0.758 0.710 Prison Administration and Operations (Jails) 10.662 8.317 9.850 Administration of Public Order (including Rescue & Emergency Services) 21.034 13.065 13.623 Total 176.703 178.303 171.043 Economic Affairs Amid controversies among economic scholars regarding positive, mildly positive or negative effects of Government Expenditure on economic growth, Government of Punjab increases spending on Production Sectors through procurement of goods and administration of Developmental projects aimed at fostering growth and increase in investment in production sectors by the private enterprises. During Financial Year 2020-21, calibrated expenditures on support of Small and Medium Enterprises, skills development programs, development of Industrial estates and gender inclusion programs are expected to drive economic growth. A whopping amount of PKR9.500 billion is earmarked for Punjab Rozgar Program for increase employment opportunities. This could be a game changer if the multiplier effect is attained during its implementation. Economy of Pakistan, particularly that of the Province of Punjab, is predominantly agrarian and Punjab remains the food basket for the entire country. Government Expenditure on Agriculture sector in Pakistan has shown to have medium to long run positive relationship with economic growth. The Agriculture sector provides Food Security, raw inputs to Agri-based industry fetching sizeable exports revenue and provides livelihood to a large segment of population. In addition to the Current Non-Development Expenditure in FY 2020-21; Government of Punjab has committed resources for several initiatives that aim at strengthening the Agriculture sector and providing necessary support to struggling agriculturists. An amount of PKR1.350 billion is allocated for Crop Insurance Program, farmers shall be provided subsidy on agricultural inputs to the tune of PKR4.000 billion and an amount of PKR1.860 billion is earmarked for Interest Free Loan Schemes for farmers. Additionally, initiatives like construction of modern silos through Public-Private Partnerships, development of high value agricultural outputs through sprinkler and drip irrigation systems and establishment and improvement of food testing laboratories can potentially revolutionize the Agriculture sector, which still remains the backbone of the Province's economy. Budgetary allocations for agriculture during FY 2021-20 are expected to help in improving research, extension and field services to farmers. Irrigation sector acts as a necessary complement to Agriculture as well as Fisheries sectors. The sector requires high maintenance costs and in spite of the financial constraints, Punjab Government has allocated PKR15.410 billion for Current Expenditure in the sector. Resource constraints have dictated slight decrease in Current Expenditure on production sectors, however, an effort has been made to ensure that the allocations remain at the last financial year's level; this is depicted below: Page 24#45Chapter III - Estimates of Expenditure (PKR Billion) Economic Affairs BE 2019-20 RE 2019-20 BE 2020-21 General Economic, Commercial & Labor Affairs 1.006 1.607 2.942 General Economic Affairs 0.461 0.306 0.620 General Labor Affairs 0.545 0.471 0.826 State Trading 0.829 1.495 Agriculture, Food, Irrigation, Forestry & Fishing 72.352 58.865 69.501 Agriculture 44.248 36.502 41.188 Irrigation 16.205 15.336 15.410 Land Reclamation Forestry Fisheries 0.377 0.348 0.350 4.921 4.298 4.938 0.911 0.769 0.881 Food 5.691 1.612 6.733 Fuel and Energy 3.136 3.151 0.163 Administration 3.136 3.151 0.163 Mining and Manufacturing 10.328 9.453 10.903 Manufacturing 9.553 8.705 10.135 Mines 0.775 0.749 0.768 Construction and Transport 34.460 30.315 34.910 Roads & Transport 24.911 22.491 25.911 Construction & Works 9.550 7.824 8.999 Other Industries 0.029 0.017 0.092 Tourism 0.029 0.017 0.092 Grand Total 121.311 103.425 118.110 Government's capital spending in construction and infrastructure directly contributes to economic gains, net increase in physical capital assets and increase in employment opportunities. Efficient Government Expenditure in construction and public works fosters private sector investment opportunities. Annual Budget FY 2020-21 supports and finances several capital development programs particularly rural connectivity and accessibility initiatives. Housing and Community Amenities One of the major objectives of public sector spending is provision of Public Goods. Housing development, community development, provision of clean drinking water and sanitation services are fundamental to urban growth. Urban centers attract both foreign and local investments and thereby create job opportunities. The budgetary functional head Housing and Community Amenities includes Expenditure on Housing, Urban Page 25#46Chapter III - Estimates of Expenditure Development & Public Health Engineering Department, Environment Protection Department and Local Government & Community Development Department. Due to COVID-19 induced economic hiatus, allocations for the sector had to be reduced to save resources for essential health sector, education, economic affairs and maintenance of public peace. Details of expenditures for FY 2019-20 and estimated allocations for FY 2020-21 are given below. Housing and Community Amenities Housing Development Community Development Water Supply & Sanitation (PKR Billion) BE 2019-20 RE 2019-20 BE 2020-21 0.766 0.667 0.749 3.521 3.104 1.384 9.527 9.587 5.715 Total 13.814 13.358 7.848 Health Services As discussed earlier in this Chapter, in addition to its impact on public resources streams, COVID-19 and its serious threat to public health is the major driver for budgetary allocations for Non-Development and Development Expenditure especially in the Health sector. For formulation of budgetary estimates for healthcare and allied services for FY 2020-21, Government of Punjab had to resort to assumptions regarding intensity and duration of the pandemic during the year. Needless to say, some emergency measures are inevitable. Development and improvement of diagnostic facilities, establishment of special COVID related curative facilities to boost capacity for affected citizens and procurement of curative medicinal stocks and protective equipment of healthcare professionals require substantial increase in Government spending. Punjab, being a populous Province, has insufficient and ill-equipped public sector hospital facilities to cater to the disease burden. It has to adopt a very cautious approach towards the pandemic while simultaneously ensuring continued financial support to eradication of other communicable and non-communicable diseases. Health Hospital Services Public Health Services Health Administration BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 117.001 126.175 127.152 6.213 5.081 6.003 21.938 22.727 23.916 Total 145.151 153.983 157.071 Health sector receives 8.0% increase in budgetary estimates for FY 2020-21 to a total of PKR156.720 billion, in addition to similar increase in expenditure over allocations for the sector during FY 2019-20. Health PKR 145.2 bn +8% PKR 156.7 bn BE FY 2020-21 BE FY 2019-20 Additionally, an amount of PKR95.000 billion is earmarked for District Health Authorities as Primary Health is a devolved function in terms of Punjab Local Governments Act 2019. Page 26#47Chapter III - Estimates of Expenditure Government of Punjab commits to providing maximum resources for necessary procurement of medicines and equipment and repair of machinery & equipment. The allocations will help the Government in provision of better healthcare services to citizens in Punjab. Recreational, Culture & Religion Before COVID-19 took the entire world by surprise, Government of the Punjab was geared towards creating conducive environment for sporting events, promotion of cultural activities and development of tourism sector particularly cultural and religious tourism, tapping and highlighting the indigenous potential of the Province. Punjab has rich and diverse cultural history which deserves to be preserved for both present and future generations. Moreover, promoting cultural activities can attract investments and help in economic growth. Details of budgetary outlays are indicated below: Recreational, Culture & Religion BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 Recreational and Sporting Services 1.018 0.951 0.921 Cultural Services 1.036 0.819 1.029 Broadcasting and Publishing 1.036 0.827 1.142 Religious Affairs 0.571 1.029 0.517 Admn. of Info. / Recreation & Culture 0.182 0.152 0.171 Total 3.842 3.777 3.780 Education Affairs and Services One of the most significant social sectors, Education captures the interest of all policy makers and practitioners alike. Improvement in Human Capital and the quality of employable labour has a direct causal relationship with investments in Education sector. Government Expenditure in Education sector has clearly shown positive impact on economic growth after some time lag although it may show negative impact on growth in the short run. Increased and effective Government spending on Education sector improves social cohesion, indirectly affects Health sector through consequentially improved nutrition, preventive care and sanitation and the educated population has more informed participation in public decision making. Since Primary and Secondary education is a legislative subject devolved to Local Governments after promulgation of Punjab Local Government Act, 2019, an amount of PKR215 billion has been allocated for District Education Authorities. In addition to this, an allocation of PKR 71.802 billion is proposed for Education sector at the Provincial level. Table below shows breakup of different services under this functional classification and allocations against each for financial year 2020-21 along with Revised Estimates for FY 2019-20. Education Affairs & Services Pre. Primary Education Affairs & Services Secondary Education Affairs & Services Tertiary Education Affairs & Services Education Services Non-Definable by Level Subsidiary Services to Education Education Affairs, Services Not Elsewhere Classified Total Page 27 (PKR Billion) BE 2019-20 RE 2019-20 BE 2020-21 1.712 1.351 2.089 29.332 22.234 30.366 35.288 31.950 34.852 0.280 0.271 0.271 0.577 0.485 0.566 4.122 4.816 3.657 71.311 61.107 71.802#48Chapter III - Estimates of Expenditure PKR 61.1 bn RE FY 2019-20 Education Affairs & Services +18% PKR 71.8 bn BE FY 2019-20 At Provincial level, major spending shall be at Secondary and Tertiary levels of Education; i.e. Colleges and Universities. As against Revised Estimates for FY2019-20, the Current Year's allocation receives 18% increase over. Capital Expenditure in Account No. (Non-Food) i Principal Repayment of Domestic and/or Foreign Debt Loans and advances made to Government entities Capital Expenditure Contributions made to Pension and/or General Provident Fund Government of Punjab maintains Provincial Account No. II (Food) with the State Bank of Pakistan. Capital Expenditure out of this account is incurred on state commodity trading operations in food grains especially procurement of wheat for maintaining critical stocks of the staple food. Out of sale proceeds of the grains released to the Flour Mills, loans obtained from the commercial banks for trading operations of Food Department are repaid. Capital Expenditure Debt Management - Repayment of Principal Investment Loans and Advances Loans to other Non-Financial Institutions Loans to Government Servants State Trading in Medical Stores Total Account No. I Public Debt Account No. II Total Current Capital Expenditure BE 2019-20 RE 2019-20 (PKR Billion) BE 2020-21 49.150 47.178 55.084 84.400 6.720 43.800 76.977 28.418 29.411 76.977 28.418 29.411 0.000 0.093 0.257 0.127 210.621 82.573 128.518 208.255 334.545 331.869 418.876 417.118 460.292 Public Financial Management Reforms initiated shift from Incremental Budgeting to Medium-Term Budgeting Framework (MTBF) against the traditional yearly approach. On the basis of macroeconomic indicators, a Medium-Term Fiscal Framework (MTFF) was developed to finalize an indicative resource envelope for next three Financial Years. Faced with uncertainties this year, Finance Department intends to introduce Framework for Rolling Expenditure to control and monitor expenditure on the basis of demand as against traditional supply model. The Framework may make budgetary allocations resilient enough to combat unexpected macroeconomic challenges. With the introduction of the Framework, Administrative Department will be expected to demand release of allocated monies spread over the entire fiscal years based on actual needs at a given time. This constitutes a paradigm shift of sorts as well. Page 28#494 Section-I Annual Development Programme Section-II RISE Punjab#50P Chapter IV - Annual Development Programme Section - I Review of Development Program 2019-20 & Annual Development Program 2020-21 Economy of Punjab unjab has an estimated 54.2 percent share in the national GDP and a 53 percent share in Pakistan's total population. House to 110 million Pakistani's, the Province employs 61 percent of the country's workforce (37 million employed). A relatively young population of the Province presents an opportunity for the Government to develop Human Capital. Therefore, Punjab is considered to have an important role in sustaining the economy of Pakistan. GDP8 54.2% 53% 61% Punjab's share in National GDP Share in Country's Population with 110 million people Share in Country's Workforce with 37 million employed The Financial Year 2019-20 presented various economic challenges for Punjab. The COVID-19 pandemic has tested the healthcare system of the Province and at the same time has caused a massive decline in economic activity, especially in Services and Industry sectors that make major contribution to provincial GDP growth. The pandemic has caused a set back to the economic, social and development advances, not only in Punjab, but throughout Pakistan. The growth rates for 2019-20 were already slowing down due to a tough period of stabilization and are now predicted to be lower than those of 2018-19. Estimates of international agencies are also suggesting high cumulative losses to the Provincial GDP due to COVID-19, which may reverse progress on unemployment and poverty in Punjab. Taking account of this significant exogenous shock Figure - 1 below presents a revised GDP growth trajectory for Punjab over the next three years, suggesting that economy will reach a growth rate of around 3 percent by 2023. International Estimates suggest high losses to GDP due to COVID-19; may reverse progress on unemployment and poverty in Punjab. Revised GDP growth trajectory predict economy growth rate to reach 4% by 2023. Page 29#515.4 Chapter IV - Annual Development Programme Growth Rate Projections 5.9 5.1 4.2 3.7 PGS Base Scenario 2.7 PGS, Projected Scenario 7 6.3 5 4.8 4.4 3.9 3.5 Possible Projection based on the extent of economic recovery 0 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 7% Growth Scenario Base Scenario COVID Scenario Post COVID Source: Planning and Development Board, Government of the Punjab To achieve growth rate of 7 percent in 2022-23, ADP was needed to be increased to PKR 865 billion. Taking account of COVID-19, Figure - 2 below presents more realistic ADP projections trajectory for Punjab over the next three years, suggesting that the Development budget will increase to around PKR 550 billion by 2023. Annual Development Programme Projections 411 238 865 PGS, Projected Scenario 690 PGS Base Scenario 700 563 560 561 463 433 386 456 337 Possible Projection based on the extent of economic recovery 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 7% Growth Scenario Base Case Post COVID Source: Planning and Development Board, Government of the Punjab The sectoral share in Punjab's economic structure comprises 20 percent Agriculture, 17.6 percent Manufacturing and 62.4 percent Services. In FY 2019-20, Punjab's Large-Scale Manufacturing sector has been exhibiting negative growth. Some of the major crops, especially cotton, are likely to see significant output declines and various Service activities like domestic trade and transport are in a state of recession due to COVID-19. The private consumption expenditure is expected to fall, which will have negative implications on the nutritional status of the bottom Page 30#52Economic Recovery & Stability میرا Social Protection Chapter IV - Annual Development Programme 40 percent of the population. The volume of exports of Goods and Services in Punjab is also predicted to fall by almost 7 to 15 percent. Therefore, it will be difficult for the economy of Punjab to take the brunt of this major shock, especially with a heightened risk perception in larger and small industries and commercial enterprises in a wide range of sectors. Containing the spread of COVID-19 and providing support to the economic sectors to help recover from the losses, through substantial and effective public investment and policy will be the top priority of the Government this year. Public spending will be planned strategically and will be targeted at key Social and Economic sectors, at the same time ensuring availability of funds to tackle the health pandemic and support in Social Protection. Reforms to support the private sector and improve the investment climate will be pushed in FY 2020-21. Responsive Investment for Social Protection and Economic Stimulus (RISE) Punjab In order to achieve these objectives, Government of the Punjab has formulated Punjab's Post COVID-19 Public Investment Strategy titled "Responsive Investment for Social Protection and Economic Stimulus (RISE)". The Strategy presents targeted interventions and policy responses to contain the COVID-19 crisis. It also includes ADP prioritization framework which has not only set the direction for ADP 2020-21, but has also supported in developing the Medium-Term Development Framework of Punjab. RISE Framework integrates the following seven critical pillars of Punjab's economy in dealing with economic and Social Protection challenges. RISE PUNJAB Building Minimum Core Health Capacities Governance Capabilities Page 31 A Education and Human Capital Development Public Financial Management and Disaster Risk Financing Risk Communication#53Chapter IV - Annual Development Programme Key Priority Areas China Pakistan Economic Corridor The China Pakistan Economic Corridor will continue to be a priority area for Punjab. The two major ongoing projects being implemented by Government of the Punjab are Orange Line Metro Train Project and Allama Iqbal Industrial City, Faisalabad. For FY 2020-21 adequate resources have been prioritized for the timely completion of both projects. Trial runs of Orange Line project are nearing completion and the project will soon enter operationalization phase, which has been delayed due to the lockdowns in COVID-19. The project of Allama Iqbal Industrial City, Faisalabad has also faced delays in the development of civil and electrical CPEC CHINA PAKISTAN ECONOMIC CORRIDOR infrastructure due to the Corona crisis. Despite the effects, COVID-19 is expected to have some positive impact on the development of AIIC in terms of low prices of petroleum products, bitumen, reduction of transportation costs and withdrawal of certain duties and taxes on construction material. The incentives announced by Government for various categories of industries is also expected to have benefits which may lead to industrialization and colonization of the SEZ under CPEC. Development of AIIC will, therefore, be a top priority for Government of the Punjab in FY 2020-21. Furthermore, fast-track implementation of CPEC Socio-Economic projects in the fields of Education, Healthcare, poverty alleviation, and access to safe water supply will also be the focus. + Orange Line Metro Train, Lahore Allama Iqbal Industrial Estate, Faisalabad CPEC In FY 2019-20, Government of the Punjab initiated a yearly exercise for the preparation of new provincial project proposals under CPEC. Guidelines for provincial planning and implementation of CPEC project proposals were developed and circulated to the Administrative Departments to ensure that the process for identification and preparation of proposals for inclusion in CPEC are fully geared towards and informed by principles of value for money. In FY 2020-21 preparation of meaningful proposals for various CPEC Joint Working Groups, that are focused on improving economic and livelihood opportunities for the people of Punjab will be a priority. Leveraging Private Investment via Public Private Partnerships The regulatory mechanism of PPPs in Punjab has been reformed through promulgation of PPP Ordinance, 2019 which is now enacted as PPP Act, 2019 after approval of the Provincial Assembly of the Punjab, with a view to removing the existing bottlenecks and facilitate the private sector participation in infrastructure/service provision. The PPP Act, 2019 envisages a diverse institutional arrangement for regulating the PPPs in Punjab including (a) Punjab Public Private Partnership Authority - PPPPA, (b) Public Private Partnership Policy and Monitoring Board - PPP P&M Board, (c) Executive Committee of PPPPA, (d) Risk Management Unit, Finance Department - RMU, and (e) Public Private Partnership (PPP) Cell, P&D Board. In line with the requirements of new PPP Act, in FY 2019-20 all the legal and institutional framework of PPPs in Punjab has been strengthened. Palpable results are anticipated therefore. Page 32#54Chapter IV - Annual Development Programme Government of the Punjab has also developed a potential three years PPP Rolling Business Plan, a roadmap developed in 12 sectors in view of the fiscal constraints/scarce public funding for the overall development portfolio of the Province. Under this plan, 38 projects amounting PKR 488 Billion have been identified and are being planned for launching under Punjab Private Finance Initiative (PPFI). Project Development Facility (PDF) funding has already been approved for 20 such projects for hiring of Transaction Advisors/ development of detailed project proposals. A robust marketing strategy of PPP projects is also planned in collaboration with PBIT Punjab Board of Investment & Trade (PBIT) at national/international level to attract private investment for successful implementation of the Business Plan as well as PPFI. Having implemented an extensive reform process during 2019-20, Government of the Punjab in FY 2020-21 is aiming to create an enabling ecosystem for PPPs in Punjab which can attract private sector participation and capital investments in the Development projects and create synergy through public - private sector collaboration for mutually beneficial economic gains while delivering quality infrastructure and services. Sustainable Development Goals (SDGs) Government of the Punjab also extensively worked for the project development and endeavored to create an enabling environment for implementation of these projects; During FY 2019-20, mega project “Lahore Ring Road Southern Loop (SL-III)" worth PKR 10,448 million has been awarded. Similarly, "Construction of food grain silos" at two sites District Layyah and District Bhakkar have been completed with the private investment of PKR 300 million and trial run at Bhakkar site is completed whereas Layyah is under process. Two projects "Weaving City at M-3 Industrial Estate, Faisalabad and "Procurement, installation and O&M of Water meters in Lahore", amounting PKR 15 Billion are currently at bidding stage. The COVID-19 panademic has come at a time when the SDGs were getting good traction: Agenda 2030 also hit a bump while entering the Decade of Action on SDGs in 2020. Developing nations world over are struggling to implement their Development plans while sparing resources for crisis response contingencies. Punjab, Pakistan is no exception. While developing massive pressure on the healthcare systems, the crisis threatens to push large portion of population in poverty and hunger, which would require a strong sustainable recovery approach this year. However, spirit of Development while leaving no one behind is still the core of Government of the Punjab's strategy for recovery, i.e. "Responsive Investment for Social Protection and Economic Stimulus". This is a comprehensive Framework for the entire economy that provides strategic direction for public investments and aligning policies and formulating next year's Annual Development Plan. Government of the Punjab believes that the response to the pandemic cannot be de-linked from actions on the SDGs. Rather, it seeks to continue working on accelerating Sustainable Development Goals as a tool to 'recover better' and build a healthier and a safer Punjab through the interventions envisaged in Rise Punjab framework. Though the next ADP will generally cover all the areas of SDGs goals covered in Agenda 2030, certain important goals / targets are being focused in the Annual Development Program 20-21, in context of COVID-19 crisis are as under: 01 Promotion of sustained, inclusive, and sustainable economic growth with productive employment (SDG- 8) serves as guide to Punjab's economic recovery approach: strong focus on MSMEs and rural enterprises; interventions to protect the Agriculture sector; recovery of the Services sector through incentives and enhanced digital marketplace. 02 Government of Punjab's Development approach is in line with SDG-1 & SDG-2: Designing robust and inclusive Social Protection interventions, aiming at Resilience in Governance Economic Growth Sustainable Development Goals (SDGs) Health & Well Being Social Protection Page 33#55Chapter IV - Annual Development Programme recovery of most vulnerable groups working at low wages/daily wages in the informal sectors who suddenly fell below poverty line. Sustainable Social Protection plans are in the offing. 03 BJ 04 SDG-3: "Ensuring healthy lives and promote well-being for all at all ages" is at the heart of next year's Development Program since COVID-19 has inflicted strong blow to this sector. The Government intend to invest on improving facilities and bringing resilience in health systems also to ensure wellbeing of Health staff. Since SDG-3 provides a sustainable solution to the Health sector deficiencies, the initiatives will cover all the SDG-3 targets. Interventions for developing resilience in our Governance capabilities is another area of focus (SDG-16). Improving ability of the Government to engage meaningfully with a variety of stakeholders through robust "online feedback mechanism' and technology-driven solution to help the Government conduct meaningful policy dialogues with the private sector. Review of Annual Development Program 2019-20 In FY 2019-20, the Government was focused on promoting 'Sustainable Development' which emphasized increased efficiency in planning and implementation of its multiple interventions. The Government emphasized the development of the Province's Education, Health and Water Supply sectors to improve social outcomes. Other priority areas included the Agriculture and Irrigation sectors, and the development of Punjab's industrial competitiveness for which the Government devised an Industrial Policy to identify the future course of action. The budget for the Annual Development Programme 2019-20 was set at PKR 350 billion. Considering the Government's focus on developing Human Capital, it allocated PKR 89.8 billion for the Education Sector inclusive of School, Higher, and Special Education etc. Similarly, the Government increased allocation to the Irrigation, Water Supply and Sanitation sectors to PKR 23.4 and PKR 22.4 billion respectively. To address environmental changes, the Government allocated PKR 1.0 billion to promote Conservation and Environmental Governance. For the Health Sector, the Government allocated PKR 22 Billion and 23.5 billion for Specialized Healthcare and Medical Education and Primary and Secondary Healthcare respectively. The Figure 1 depicts the Annual Development Programme budgets over the last six years along with its revision and utilization over the past 6 years. Previous years have seen a steady increase in the Development portfolio. However, the 2018- 19 ADP budget saw a sharp decline in allocation owing to the present Government's decision to address the high Fiscal Deficit as previous Expenditure levels were proven to be unsustainable. ADP Financial Utilization 2014-20 (Billion Rupees) 345 283 250 400 361 316 550 635 462 410 40 2014-15 2015-16 2016-17 489 411 238 215 25 174 14 350 272 178 198 2017-18 2018-19 2019-20 (as of 30th April) ■Budgeted Revised ■Utilization Source: Planning and Development Board, Government of Punjab Page 34#56☐ ☐ ■ ☐ ☐ Π Π Chapter IV - Annual Development Programme Major Achievements during the FY 2019-20 Missing facilities were provided in 352 schools in Punjab, IT Labs in 302 Elementary / Secondary / Higher Secondary Schools / 443 additional classrooms and Rehabilitation / Reconstruction of 180 dilapidated buildings of schools / building for 95- Shelter- less Schools and Establishment of 733 ECE rooms. Established 22 new Colleges / missing facilities in 19 Colleges / IT labs in 20 Colleges / security facilities in 40 Colleges / scholarship to 35,000 students and 10 BS Blocks in Colleges were provided in Punjab Established 09 Special Education Centres, 02 Special Education Degree Colleges / Transport Facility (51 buses) for Special Children across the Province. Provided basic education to 463,276 out of school children through 13,519 Non-Formal Basic Education Schools, and Non- Formal Education Feeder School in 36 Districts / basic literacy skills to 34000 illiterate adults across Punjab. Solarization of all Public Schools (11,000) in South Punjab through Punjab Ujaala Programme / Installation of 4900 AMI centres in Public Buildings to ensure savings of around PKR 4,000 million. Test Run of Lahore Orange Line Metro Train / Substantial Completion of Lahore Orange Line Metro Train Project. Training of approximately 5,50,000 individuals through Skill Development Programme / projects of PSDF, TEVETA and PVTC. Launching of Punjab Rozgar Scheme to facilitate SMEs. Training Facility of TEVTA institutions increased from 90,000 to 150,000. Completion of Judicial Academy at Lahore / Completion of Judicial Complexes at 3 Districts Completion of thirty-four (34) Minority Development Schemes, distribution of PKR 25 million for Educational Scholarship among deserving minority students. Elimination of Bonded Labour in 4 Districts of Punjab at the cost of PKR 196.9 million. Substantial Completion of 25 Water Supply and 184 schemes of sanitation. Approval of Mega Project i.e Clean Drinking Water by Punjab Aab-e-Pak Authority. Launching and Substantial Completion of Rural Accessibility Programme / Naya Pakistan Manzilyen Asan (Phase-I). Completion and Dualization of Muzaffargarh-DGK road. Dualization of Dina-Mangla road. Substantial completion of Dualization of Sargodha- Mianwali road. Under IFAD assisted Southern Punjab Poverty Alleviation Project (SPPAP), 838 no-cost houses constructed and distributed among poorest women, small ruminant (2 Goats packages) 15,370 poor women, vocational and enterprise trainings to 5,416 and 2,148 were given to women, respectively. Under Tribal Area Development Project (TADP), 80 kms of metaled roads, 7 kms of roads rehabilitation, 50 Nos. of Community Development Sub Projects, 10 Nos. of Community Solar Tube well Sub Projects and 15 Nos. of community Drinking Water Supply Sub Project were completed. Construction of flood embankments and protection works along left and right bank of river Indus for bridge near Miranpur Linkage N-5 at Anbi Tibba with RYK Iqbalabad / Construction of Spur Bund Biat Gujji & Summer Nahshaib NA-182 District Layyah Annual Development Programme 2020-21 COVID-19 has emerged as a global challenge that has deeply affected the world economy and the daily lives of millions of the people around the world. The outbreak began to emerge in Pakistan and Punjab at the end of February of 2020 and in just under four months, the health pandemic has caused economic slowdown and significant impact on economic growth of Punjab. The initial estimates are showing the economic loss to Punjab in the tune of USD 3-5 billion and short-term employment loss of 4-6 million. In post Covid-19 Economic Recovery & Stability Phase, the Government of the Punjab has developed a comprehensive response plan "Responsive Investment for Social Protection and Economic Stimulus (RISE)" that will enable the economic activity to pick up pace through targeted Development initiatives and recoup some of losses through these diversified interventions. Page 35#57Chapter IV - Annual Development Programme ADP Prioritisation Framework under RISE: All projects must support the key priorities set up under RISE Framework. The projects should make meaningfully contribute towards: 01 02 03 04 05 Mass employment generation of semi to low skilled workers and investments in sectors with highest employment multipliers: Construction activity (avoiding projects that have tedious land acquisition outstanding); Irrigation works, roads, farm to market connectivity; Interventions under billion tree tsunami; Other public works schemes that can guarantee employment. Immediate investments to fill in health emergency infrastructure gaps and to fight disease breakout. This will include ensuring immunization and also setting up certified laboratories for diagnostics and tests. These may be designed in partnerships with foreign partners to leverage grants in aid and other financing available. Social Protection schemes that will directly support the increased vulnerability due to COVID-19, setting of Social Protection Fund with seed allocation and use it to leverage donor support. Education Sector Reforms that need to be supported in light of COVID related limitations and teachers and public schools moving to alternative mediums of teaching. Investment that will support in Food Security; investments may be required to ensure inputs for Agriculture and livestock and also addressing the locust threat 06 07 Medium-term investments in improving yields, seed quality, variety and changing crop pattering based on revised Agri-Climatic Zones. Schemes that will directly support MSMEs sector to sustain and re-orient itself under new normal conditions of social distancing. The Government of Punjab has proposed an amount of PKR 337 billion for the 2020-21 Development budget, with an emphasis on Human Capital Development and Social Sectors. The sector wise distribution is illustrated in Figure 2. For School Education an amount of PKR 27.6 billion has been allocated. Higher Education has been allocated PKR 3.9 billion. In Health sector, PKR 22.15 billion for Specialized Health care & Medical Education and Rs 11.462 billion for Primary & Secondary Healthcare has been allocated. Another notable feature is the PKR 11.86 billion allocation for Water Supply & Sanitation and the PKR 17.47 billion allocation for the Irrigation. Annual Development Programme FY 2020-21 Special Initiatives, 13% Others, 15% Services, 14% Production Sector, 5% Source: Planning and Development Board, Government of Punjab Page 36 Social Sectors, 29% Infrastructure Development, 24%#58Chapter IV - Annual Development Programme Major Projects/ Programmes of ADP 2020-21 Following are the major projects/programmes of ADP 2020-21: ☐ S S ☐ ☐ ☐ • Punjab Economic Stimulus Programme -- Micro, Small, Medium Enterprises (MSMEs). Punjab Economic Stimulus Programme -- Rural Accessibility Programme (Phase-II). Rural Enterprises for Agriculture Development (READ). Crop Maximization through Creative Farming. Punjab Arterial Roads Improvement Programme. Provision of Clean Drinking Water by Punjab Aab-e-Pak Authority to un-served & underserved rural areas (PKR6000 million). Uplift Water Supply & Sanitation Infrastructure in Underdeveloped areas of Punjab (PKR 3297.75 million). Construction of Chahan Dam Project (PKR 1,567.430 million). Construction of Jalalpur Irrigation Project (PKR 32721 million). Rehabilitation and Up gradation of Trimmu & Punjnad Barrage (PKR 16800 million). Provision of Missing Facilities in 360 schools on need basis, Reconstruction of 108-Dilapidated School buildings in Punjab, Provision of buildings for 72-Shelter-less Schools. Establishment of Taleem Ghar for on-line education, Science, Technology, Engineering and Maths (STEM) initiatives in Punjab. Establishment of School Education Department (HRMIS System). Establishment of 35 degree colleges in the Punjab (Cost PKR 600 million), Provision of Missing facilities to 30 colleges in the Punjab. Strengthening and improvement of the existing buildings of the Special Education Institutions in Punjab. Establishment of PDMA Complex in Lahore and Storage Facilities (Small Warehouses) and Staff Offices in 36 Districts of Punjab for Effective Response. Human Capital Investment (HCI) Project in Punjab will be launched. Capacity Building of OSH Regimes to promote safer working condition at workplaces (PKR 200 million). Establishment of Workers Repository Cell. (PKR 200 million). Establishment of Job Centers in Punjab Province. (PKR 250 million). Punjab Ujaala programme (Central Punjab) to solarize 44,010 schools so as to complete the target of solarizing 15,000 Schools (DLI Based) under Access to Clean Energy Investment Programme. Solarization of 2,400 Basic Health Units. Under SPPAP, 900 small housing units will be constructed and given to 900 women, to goat package will be given to 10,000 women, vocation and enterprise training will be given to 5,500 and 1,200 women respectively. Under TADP, 53kms of metal roads will be constructed along with rehabilitation of 34 kms of existing metalled roads. Under Skill Development Programme, 82,000 youth will be imparted with skill trainings. Under CDA, schemes relating to construction of 56.64 kms of metal roads and rehabilitation of 91.49 kms of metal road along with construction of 16 bridges 2 pounds and 16 kms of water supply pipelines will be completed. Women's Income Generation and Self-Reliance (WINGS) Project would be launched by PSPA to provide livelihood to the extremely vulnerable women in 9 Districts of Punjab. Foreign Funded Projects The technical and financial assistance extended by international Development partners plays a pivotal role in the Planning and Development machinery of the Province. For the year 2020-21, Rs 132 billion are estimated to be contributed by different international donors which is 86% higher than the previous year. Out of this amount, Rs 88 billion will be funded in Project mode and Rs 44 billion in Program mode as soft loans. In addition to these soft loans, Rs 4 billion will also be contributed by different donors in the form of grants. It is pertinent to mention here that, in the context of COVID-19, the Planning and Development Board Punjab carried out a series of negotiations with its Development Partners and successfully concluded a restructuring plan of its ongoing portfolio amounting to the much needed Rs 24 billion. Following are the major initiatives by Government of the Punjab in collaboration with the international agencies for the FY 2020-21: Page 37#59WORLD BANK ASSISTED PROJECTS ASIAN DEVELOPMENT BANK ASSISTED PROJECTS ☐ ■ ADB ■ Chapter IV - Annual Development Programme Human Capital Investment (HCI) Project in Punjab Punjab Resource and Revenue Management Program Punjab Urban Land system Enhancement (PULSE) Project Punjab Rural Sustainable Water and Sanitation Project Support to Naya Pakistan Housing Program in Punjab Rehabilitation of Islam Barrage Project Project Readiness Financing (PRF) for Punjab Water Resources Management Project Readiness Financing (PRF) for Urban Development Projects Punjab Agriculture Markets Development Projects Greater Thal Canal (GTC) Project Improving Work Force Readiness in Punjab Punjab Provincial Roads Multi-Tranche Financing Facility (MFF) Tranche-l DFID FUNDED PROJECTS Department for International Development AIIB FUNDED PROJECTS AIIB ASIAN INFRASTRUCTURE INVESTMENT BANK ☐ Women's Income Growth and Self Resilience Programme ☐ Lahore Water and Waste Management Project Sewerage Scheme for Larech Colony to Gulshan-e-Ravi Construction of Surface Water Treatment Plant at BRBD Lahore Construction of Waste Water Treatment Plant at Mehmood Booti & Shahdra FRENCH DEVELOPMENT AGENCY (AFD) FUNDED PROJECT ○ AFD AGENCE FRANCAISE DE DÉVELOPPEMENT Heritage & Urban Regeneration: Tourism Development in Lahore Fort and its Buffer Zone DANISH (DANIDA) FUNDED PROJECT MINISTRY OF FOREIGN AFFAIRS OF DENMARK Danida Construction of Eastern Waste Water Treatment Plant at Faisalabad City Page 38#60Chapter IV - Annual Development Programme Annual Development Programme 2020-21 Sr. No. Social Sectors Sector (PKR Million) Allocation 97,664 1 Education 36,645 School Education Higher Education Special Education Literacy & NFBE Sports & Youth Affairs 27,600 3,900 555 2,500 2,090 2 Health & Family Planning 34,932 i. Primary and Secondary Health Care 11,462 ii. Specialized Health and Medical Education 22,150 iii. Population Welfare 1,320 3. Water Supply & Sanitation 11,860 4 Social Welfare 630 5 Women Development 400 6 LG&CD 13,197 Infrastructure Development 77,860 7 Roads 29,820 8 Irrigation 17,470 9 Energy 4,500 10 Public Buildings 9,734 11 Urban Development 16,339 Production Sectors 17,350 12 Agriculture 7,750 13 Forestry 1,750 14 Wildlife 500 15 Fisheries 500 16 Food 200 17 Livestock & Dairy Development 1,700 18 Industries, Commerce & Investment (inc. skills development) 3,000 Page 39#61Chapter IV - Annual Development Programme 19 Mines & Minerals 20 20 Tourism 1,550 400 Services 21 22 22 Labour & HR Development 23 Transport & Mass Transit 24 24 45,383 Governance & IT 2,400 150 42,333 Emergency Services (1122) 500 Others 51,240 25 Environment 26 Information & Culture 27 Archaeology 28 Auqaf & Religious Affairs 29 5,917 200 300 170 29 30 35 31 Human Rights & Minority Affairs Planning & Development Community Development Programme Special Initiatives 500 29,153 25,000 47,500 32 32 Special Programme / Initiatives 47,500 Total 337,000 Page 40#62Chapter IV - Annual Development Programme Section - II RISE Punjab (Responsive Investment for Social Protection and Economic Stimulus) Government of the Punjab's initial reaction to the outbreak of COVID-19 was focused on fortifying public sector Health infrastructure and services and devising and implementing measures to slow down the spread of the deadly virus. The lockdowns imposed to control the spread impacted all sectors of the economy but some sectors, including Micro and Small and Medium Enterprises (MSME), informal and daily wage workers, etc., were the worst effected. The Punjab Government launched an emergency response plan to respond to COVID-19 worth Government of Punjab emergency Response Rs. 140 Billion >>> PKR140.0 Billion. The Plan aimed at providing immediate relief to businesses and citizens which suffered due to this outbreak. Realising that the economic impact of the pandemic was extraordinary and unprecedented, Chief Minister constituted a Steering Committee, headed by Finance Minister Punjab, to devise a short to medium term response plan. Paucity of time and imperatives of social distancing and lockdown made the task of the Committee extremely challenging but all notified and associated members contributed greatly to the formulation of the strategy. P&D Board steered the formulation of a comprehensive strategy for rejuvenating the economy, improving Health services to respond to the challenges of COVID-19, provide Social Protection to most vulnerable sections of the society and to improve preparedness for other calamities. The plan titled 'Responsive Investment for Social Protection and Economic Stimulus Framework - RISE Punjab' was launched by Chief Minister Punjab on 27.04.2020. RISE Punjab Framework integrates seven critical pillars to help Punjab respond to the Health, Economic Regeneration and Social Protection challenges: Economic Recovery and Stability Punjab Growth Strategy 2023 was developed under the assumption of severe macroeconomic challenges requiring a period of stabilisation and economic growth; however, the current exogenous shock requires re-estimation of the projected growth target set under the Strategy. RISE Punjab realises that the micro-level interventions along all the key supply/value chains of the economy will be required. The Government will therefore take a sector-by-sector view of interventions to help firms sustain, re-orient, diversify, and grow. A core focus of the Government will be on Micro, Small and Medium-sized Enterprises (MSMEs) and rural enterprises. الث RISE Punjab's micro-level interventions in all key supply/value chains of the economy. Focus of Government on micro, small and medium- sized enterprises (MSMEs) and rural enterprises. The Agriculture sector has largely escaped the severity of pandemic however disruptions in supply chains, impacted availability of agriculture inputs as well as sale of production The services economy has probably been the hardest hit, with more than 70% of enterprises being impacted. Government's initiatives such as ensuring access to credit & capital, initiatives for Ease of Doing Business The Agriculture sector has largely escaped the severity of pandemic however disruptions in supply chains due to the lockdown have impacted availability of Agriculture inputs as well as sale of produce. Unfortunately, this sector is facing the brunt of one of the worst ever locust Page 41#63Chapter IV - Annual Development Programme attack. The vulnerability of the sector to external threats is large and needs to be managed through focused interventions to improve agriculture extension services, promote better and more resilient varieties of seeds and crops, etc. Further, several interventions are proposed for cushioning financial situation of small and medium level farmers through crop insurance, credit availability, etc. The services economy has probably been the hardest hit, with more than 70% of enterprises being impacted. The Government will have to invest and give substantial incentives for these businesses to re-orient the way they conduct business. The scope of the digital marketplace has suddenly seen a surge; however, it needs to be properly managed. For economic recovery and stability, the broad direction of Government's policy measures shall include initiatives such as ensuring access to credit and capital, initiatives for Ease of Doing Business, unlocking potential of land assets, establishment of SEZs and provision of trained labour force for industrial sector. In addition, the Government shall create private sector opportunities in the agri-sector and support female entrepreneurs. The Government shall enhance opportunities for MSMEs to grow and improve the quality of output Social Protection The pandemic caused severe hardships to the vulnerable segments of the population. RISE Punjab proposes provision of relief and social protection to the most vulnerable populations through EHSAAS Programme so that the registered beneficiaries are provided assistance in shortest possible time. The pandemic has shaken the public service delivery system and exposed some of the weak areas. One such area is identification of vulnerable segments of population. For example, one such segment is unregistered labour mostly working in informal sector or on a daily wage or piece rate and lost livelihood as a direct consequence of the economic tragedy. Other segments of vulnerable populations who were above the poverty line but the shock eroded their liquidity and pushed them under the poverty line are also not fully captured by existing datasets. The only reliable existing database, viz. NSER, is also almost a decade old and likely to be outdated. The pandemic has highlighted the necessity of developing 'Punjab Spatial Vulnerability Index' as an element of Shock-Responsive Social Protection Strategy to address issues raised due to COVID-19 and similar future shocks. Credible social protection initiatives require sustainable availability of funds. RISE Punjab has proposed establishment of a fund that can be built over the years to provide immediate one-off relief and regular support to vulnerable populations. Other initiatives proposed include contributory insurance schemes for workers in the informal sector. Punjab currently has over 37 million employed people; however, the number of registered workers is a paltry two million. The Strategy proposes to close this gap through regulatory measures and introducing worker self- registration programmes. Further, the strategy proposes initiating development projects that create jobs and small scale works to create economic opportunities for businesses as well as provide employment and livelihood opportunities for most affected workers and businesses. Minimum Core Health Capabilities Building minimum core capacities in the Health system to respond to crises and pandemic like COVID-19 has been identified as a critical pillar for Punjab's future strategy. Such crises require that all stakeholders and service providers to work together as neither public nor private sector alone can cater to the challenges especially when large size of population is exposed and vulnerable. Upgrading of laboratory infrastructure is another area identified for additional investment. Further, increasing coverage of immunisation to cover total population and improving Province's compliance status in real-time disease surveillance and reporting is another area of focus. The Strategy proposes establishing a 'One Health Council' for an integrated approach for deep-rooted health issues and outbreak of diseases. The proposed Council should have concerned stakeholders including agriculture, livestock, food safety, police, etc. Moreover, the Framework addresses the issues and complications caused by zoonotic diseases and highlights the work that needs to be undertaken for to prevent them. Food safety, biosafety, and biosecurity are other areas that the Government will now be inevitably focussing on. The Government will have invest to upgrade health facilities across Punjab, thereby serving the cause of Regional Equalization too. Governance Capabilities Implementing new targeted interventions and responding to bigger challenges will require substantial improvements in governance capabilities. A first critical step is the ability of the Government to engage meaningfully with a variety of representative stakeholders. For this, the Government plans to establish an 'online feedback mechanism', which will be a technology-driven solution to help the Government conduct meaningful policy dialogues with all stakeholders. Punjab has been leading the e-governance drive; however, there are still certain gaps. In Page 42#64Chapter IV - Annual Development Programme order to deliver services under new norms of social distancing, the Government will have to invest more in improving its E-Systems, simultaneously reducing the contact between citizens and the departments and still delivering more effectively. For effective governance and stabilization of economy, the Government is leading towards IT enabled governance system. The system includes initiatives like 'one-stop service delivery' through Citizen Facilitation Centres (CFC), an integrated management information system (i-MIS), integration of data bases and enforcement of Punjab Transparency and Right to Information Act 2013. Similarly, reforms in procurement systems to be introduced for handling procurements under crises without compromising principles of transparency, fairness, economy and accountability. The Government will also review and update its Disaster Risk Management and Governance Policies and Guidelines to ensure better disaster preparedness. Disaster Management Authorities will be better integrated with mainstream provincial and local Governments, as well as with other stakeholders, including international development partners. The Government will also prepare an Adaptive and Integrative Risk Management and Governance Framework in consultation with the relevant stakeholders. Education and Human Capital Development Citizen Facilitation Centres (CFC) Online feedback Mechanism Transparency, Fairness & Accountability Technology Driven solutions AA Creditworthy Disaster Risk management xxx ممبر E-Governance Bulletin $ Public Right to Information | IT enabled Governance Improved Risk Management System | Exposure to Important Risks Investment in Education and Human Capital Development shows the highest return multiplier and has a profound impact on multi- dimensional poverty. The Province will continue to focus on improving not just access to but the quality of the education. The education and human capital framework focus on improving the quality and access of education as well as the governance and monitoring regime of the sector. For improving quality, the intended reforms include strengthening of teaching practices and assessments, professional development ESP $ for programme teachers, reforms in assessment policy and expansion of Early Childhood Education (ECE) programme. For improving access, the Government aims to refine and improve the public-private partnerships in the Highest Return Multiplier Impact on multi- dimensional poverty Professional development, reforms in assessments for teachers Education & Human Capital framework Early Childhood Education (ECE) programme. Insaaf Afternoon School Program Page 43#65Chapter IV - Annual Development Programme education sector, infrastructure improvement and provision of new educational facilities and development of online education models. It will also take measures to ensure efficient distribution of conditional cash transfers managed by SED. In addition, expansion of Insaaf Afternoon School Program will be done that aims to provide opportunities to students at the middle and secondary school level who drop out. Once the schools re-open, a mass re-enrolment campaign shall be carried out. For improving management and monitoring regime in the sector, the Government shall be focussing on capacity building of the school councils for efficient utilisation of the non-salary budget and carry out integration of data management system to enable the digitisation of the functions of School Education Department. The department has initiated the pilot School Improvement Framework in six districts. This School Improvement Framework is a system of monitoring and data collection that ensures that each school is able to collect and receive data to assess its own performance. Risk Communication The fight against pandemics or disease outbreaks such as COVID-19 cannot be won without effective risk communication. The Government's response strategy to COVID-19 places risk communication at the heart of its major intervention. The focus and effort required to bring about behavioural change in over 110 million people in the Province, of whom a large portion has low levels of literacy, is indeed a deep challenge and one that requires a dedicated intervention. As a first step, the strategy will look towards assessing the existing information value chains and building on them an integrated and unified public channel to disseminate risk communication. This will further involve policy changes and coordination between a host of departments and stakeholders, and between the media and cyber control agencies to ensure strict standards are developed and enforced. The Government will also leverage more with international agencies and channel good practices and common information on risk mitigation through mediums that would work more effectively in local contexts. It is important to highlight that inclusion is an important aspect and is often under-represented in communications, especially in the context of Pakistan and Punjab, where the social and digital divide is stark. Finally, communication interventions will involve a large number of diversified and relevant stakeholders and experts to ensure a greater impact. Public Financial Management Systems The strategic interventions presented above can only be implemented effectively if the public financial management systems are flexible enough to respond to large-scale shocks and there exist clear approaches and processes for disaster risk financing. The Government is cognizant of the fact that it will not have much space to introduce new taxes as the economy is already in recession; however, at the same time, it will have to work towards reducing the deficits that will accrue from stimulus and bailout packages. Therefore, the strategy is to enhance revenue potential through increased expenditure efficiency and by increasing the effectiveness of existing taxes. In the initial response, the Government relaxed provincial taxes worth PKR 18 billion till June 2020; however, some of these relaxations may need to be reviewed. Additionally, the Government will review spending authorisations and release of funds policies to ensure that cash is available at service delivery units responding to the COVID-19 emergency. All cash plans will be reviewed to prioritise essential expenditure and consolidate Government cash by pooling all assets at the treasury. The framework also requires improving reporting and expenditure tracking capabilities and developing disaster risk financing strategy for the Province to ensure that funds are allocated and used judiciously and effectively. Implementing the RISE Framework Though the agenda presented above is extensive, the Government is committed to implement it and has already initiated adequate measures to implement it. P&D Board has developed an ADP Development Framework to filter existing as well as new projects to ensure alignment with RISE Punjab. It will also ensure that the identified projects are implemented during the next fiscal year. The interventions requiring softer policy reforms have also been identified and the Government is working actively to implement them. Similarly, interventions that can leverage PPP and donor funding have also been identified and a dialogue with potential partners has already initiated. Page 44#665 Public Account of the Province#67T Chapter V - Public Account of the Province he Provincial Consolidated Fund (PCF) has been established under Article 118 (1) of the Constitution of Islamic Republic of Pakistan, 1973. The Constitution requires that all revenues of the Government, all loans raised by it and all moneys received by it in repayment of loans shall form part of the Provincial Consolidated Fund. Article 118 (2) further provides that all other moneys received by or on behalf of the Government or received by or deposited with the High Court or any other court established under the authority of the Province shall be credited to the Public Account of the Province. Provincial Consolidated Fund Public Account Government Tax / Non-Tax Receipts Loans Received & Recovered Trust Moneys Received Deposits under Court Orders The moneys received in Provincial Consolidated Fund and Public Account are deposited to the Government Treasury, cash of which is placed in a bank account maintained by the State Bank of Pakistan, under an agreement between the Governor of the Punjab and State Bank of Pakistan, titled "Punjab Account Number - I (Non-Food)". This account reflects a common cash balance of both PCF and the Public Account. However, separate sets of books of accounts for receipts and expenditure of Provincial Consolidated Fund and Public Account of the Province are maintained by the AG's / District Accounts Offices. It may also be worthwhile to add that the Government is authorized to open more than one bank account to run the system of the Government in a smooth manner. All such accounts would, however, form part of the Provincial Consolidated Fund or the Public Account of the Province depending upon the type of money. For example, Government of the Punjab has opened Provincial Account Number - II (Food) with the State Bank of Pakistan for its commodity operations. Similarly, Provincial Account Number-V (DEAs) and Provincial Account Number - VI (DHAS) have also been opened with the State Bank of Pakistan. The cash balances of these accounts are treated part of the composite cash balance of the Province for the purpose of overdraft facility of the Punjab Government. However, the cash available in these accounts are used only for the purpose of commodity operation, expenditure on School Education and as the case may be, for Primary and Secondary Health, respectively, in the Province. The Government, as a custodian of all moneys placed in the Public Account, has a fiduciary responsibility to receive and disburse these moneys but is not at liberty to appropriate the money pertaining to Public Account for the general service of the Government. The form and manner for disbursement of moneys from the Public Account is regulated under the Punjab Treasury & Subsidiary Treasury Rules and the Punjab Financial Rules, framed under the Article 119 of the Constitution. As the disbursement of moneys credited to the Public Account is not subject to the vote of the Provincial Assembly, the deposits unclaimed for one whole account year, balances of deposits partly repaid during the year then closing, and all balances unclaimed for more than three complete account years will lapse at the close of June in each year, be credited to Government, therefore, the balances thereof, if any, are carried forward on year to year basis, maximum for three complete financial years. Therefore, such money can be refunded within a span of three financial years after the year of deposit. On completion of life of three financial years the unpaid lapsed credits are shifted to the Provincial Consolidated Fund as Miscellaneous receipts under Object code C03801- Unclaimed Deposits. Any claim arising thereafter is refunded from provincial receipt of "unclaimed deposits". The moneys credited to the Public Account and its disbursement are generally governed by the agreement(s) / law & rules/ court orders etc. So far as to distinguish the different kinds of credits / debits and the maintenance of accounts of Public Account is concerned, various codes with nomenclature have been allotted at Major, Minor and Detailed levels in the Chart of Accounts (COA). The credits and debits of Public Account are categorized in following three categories. Cash and Bank balances, Receivable loans & advances, Physical Assets and Investments) II Liabilities, Loans, Deferred Liabilities, Trust Accounts, Special deposit Accounts etc. III Equities and Investment by Government Page 45#68Chapter V - Public Account of the Province Annual Budget Statement (ABS): Summary of Major Elements of Public Account ROW LABELS ASSETS & LIABILITIES - PUBLIC ACCOUNT RECEIPT FO2-RECEIVABLES FO5-OTHER ASSETS BE 2019-20 RE 2019-20 (1,578) (1,230) (2) (2) (PKR in billion) BE 2020-21 (1,640) (2) GO1-CURRENT LIABILITIES GO2-LOANS GOS-CONTROL ACCOUNTS G06-TRUST ACCOUNT-FUND (787) (650) (887) (508) (384) (450) (35) (30) (37) G10-TRUST ACCOUNTS-OTHER (108) (53) (120) G11-SPECIAL DEPOSIT INVESTMENT (134) (107) (139) G12-SPECIAL DEPOSIT FUND (4) (4) (5) ASSETS & LIABILITIES - PUBLIC ACCOUNT PAYMENT 1,578 1,230 1,640 FO2-RECEIVABLES 1 F05-OTHER ASSETS GO1-CURRENT LIABILITIES 784 4477 647 832 GO4-OTHER LIABILITIES GOS-CONTROL ACCOUNTS GO6-TRUST ACCOUNT-FUND GIO-TRUST ACCOUNTS-OTHER G11-SPECIAL DEPOSIT INVESTMENT G12-SPECIAL DEPOSIT FUND NET OF PUBLIC ACCOUNT (+) (-) 509 385 515 37 65 46 115 74 123 50 128 8 7 Positive net reflects the position of more credits and less debits and vice versa. The net of Public account (+) or (-) may be treated as source / financing available during a financial year for PCF. However, prudent financial management principles require that the moneys of Public Account are not utilized for the purpose relating to Provincial Consolidated Fund. Page 46#696 Debt, Pension and GPF '" Liabilities#70D Chapter VI - Debt, Pension and GPF Liabilities ebt, pension and GP Fund involve major financial liabilities of the Government. As per the international good practice, the Government specifically includes details of these liabilities in the white paper on budget to allow policy makers and legislators have a close eye on them. If not managed properly, these liabilities can erode fiscal space and adversely affect the credibility of budget. Debt Stock Punjab's debt levels are currently quite low when measured as percentage of its GSDP (Gross Sub-national Domestic Product) or as a percentage of its annual revenue. In current scenario, when revenue receipts have been affected drastically due to COVID-19 pandemic, the major challenge of the Province is to manage its debt operations to finance its large and growing development needs without impairing its capacity to repay the debt. Punjab's debt consists mainly of long-term foreign loans obtained on concessional terms from international institutions by the federal Government and on-lent to Government of the Punjab. Government of the Punjab obtained multilateral loans from international financial institutions and a few bilateral loans to support the development needs of the Province. The focus of external financing remains in the areas of Education, Agriculture, Transport, Urban Development etc. Bifurcation of Punjab's total debt is as under: Punjab's Debt Stock as of 30.06.2020 (Rs Billion) Type of Loan as at Jun '19 as at Jun 20 % growth from Jun 19 Rupee Value growth from Net New Debt Jun 19 Exchange Rate Loss (Gain) iDomestic Loans 8.7 6.7 -22.1% (1.9) 0 0 External Loans 945.3 938.8 -0.7% (6.5) (0.8) (7.7) Total 954.0 iv945.5 -0.9% (8.5) (0.8) (7.7) Debt stock as of Jun 20 (Table 6.1) shows a decline of -0.9% (i.e. Rs.8.5 billion) with respect to debt stock of Jun`19. This negative growth is attributed mainly due to Pak Rupee appreciation against foreign currencies i.e. PKR7.7 billion and remaining PKR0.8 billion is the net addition of new loans in the portfolio of Government of the Punjab (GoPb) against new as well as already contracted loans. 4.2% Punjab's total Debt as % of GSDP 2.3% Punjab's total Debt as % of National GDP The size of Punjab's debt is quite low when measured as a percentage of its Gross Sub-national Domestic Product (GSDP) i.e. 4.2% and the ratio goes down when debt stock is compared with national GDP. Page 47#71Chapter VI - Debt, Pension and GPF Liabilities Sector Wise Composition of Total Outstanding Debt as of 30-06-2020 Agriculture & Livestock Transport & Communication Education Urban & Community Development Healthcare Governance Industries and Infrastructure Energy Environment Tourism DO (% of total outstanding debt) 116 Do a Do 29% 24% 22% 12% 5% 4% 2% 2% 0.2% a • 0.1% Domestic Debt Domestic liability of the Government consists of Cash Development Loans (CDLs) obtained from the Federal Government for agriculture purposes under SCARP program for barani areas of the Punjab mainly, at fixed interest rates with maturity of 25 years. Many of these loans have already been repaid and the outstanding amount of CDLs as of Jun 20 is estimated as PKR6.73 billion. Domestic debt stock includes only direct borrowing by GoPb. The borrowing on account of commodity financing is not included in the domestic debt of GoPb because such borrowing is securitized through wheat stock as well as the Guarantee of Federal Government. Foreign Debt PKR 15.19 bm outstanding amount of CDLs as of Jun 20 Punjab's foreign debt portfolio is highly concessional with an average maturity of 9 years as of June '20. The World Bank (including IBRD and IDA) is the leading creditor with 44% share of the total outstanding debt followed by ADB with 27% share in foreign debt stock. Foreign Debt stock also includes bilateral loans from China, Japan and France. Creditor wise composition is provided in Table 6.3 below. Punjab's foreign/external debt is heavily denominated in USD which is 78% of the total foreign loans followed by Japanese Yen (JPY) with a share of 8%. Table 6.4 below explains the composition of the foreign debt stock by currency. Page 48#72Chapter VI - Debt, Pension and GPF Liabilities International Development Association (IDA) Outstanding Amount PKR 303.0 bm 32% ADB Asian Development Bank (ADB) PKR 255.4bn 27% Govt. of China (China) International Bank for Reconstruction and Development (IBRD) PKR 219.5 bn 23% PKR 116.2 bn 12% Japan International Cooperation JICA Agency (JICA) PKR 29.7 bn 3% International Fund for Agricultural IFADDevelopment (IFAD) PKR 10.9 bn 1% Govt. of France/ Agence Française de AFD Développement (AFD) PKR 3.9 bn 0% Islamic Development Bank (IDB) PKR 0.1bn 0% Foreign Debt Stock by Currency as of 30.06.2020 PKR 938.8 Bn Foreign Creditors of Punjab Government Debt As of 30.06.2020 (Rs Billion) Currency Outstanding % of Total US Dollar (USD) 728.4 78% Japanese Yen (JPY) 73.7 8% Chinese Yuan Renminbi (RMB) European-American Unity and Rights Organization (Euro) Islamic Dinar (ID) Special Drawing Rights (SDR) 27.3 3% 3.9 0% 0.1 0% 105.3 11% Total 938.8 100% Redemption Profile The redemption profile refers to the projections of annual principal repayments in future according to repayment schedules of underlying loans. It helps in identifying periods in which large principal repayments will be due and taking appropriate measures to deal with such challenges. Redemption profile of Punjab's debt is quite smooth and is spread over a period of 38 years in the future. Projection of principal repayments for next 10 years is shown below: Page 49#73PKR Billion Chapter VI - Debt, Pension and GPF Liabilities Redemption Profile External Loans Principal Repayment Domestic Loans Principal Repayment 70.00 62.0 59.2 59.1 58.6 60.4 59.0 60.3 60.00 48.0 48.7 48.7 50.00 40.00 30.00 20.00 10.00 1.5 1.6 1.1 1.0 0.4 ... FY 2020-21 FY 2021-22 FY 2022-23 FY 2023-24 FY 2024-25 FY 2025-26 FY 2026-27 FY 2027-28 FY 2028-29 FY 2029-30 0.3 0.2 0.2 0.2 0.2 Financial Year Debt Servicing Debt Servicing refers to the amount of annual payments on account of principal and interest. Debt servicing as compared to revenue receipts of the Province is a good measure to scale the debt distress of a Province/entity. Lower the amount of debt servicing as compared to revenue means the lower or no debt distress. Punjab's estimated Debt Servicing for FY2020-21 is marginal when compared to the size of average annual Revenues of the last three years i.e. 4.4%. This indicates that the Province is self-sufficient to honor its obligations on account of debt servicing. Debt servicing estimates of FY20201-21 are summarized below: 1.0% 4.4% Interest Payment: PKR 15.19 bn 4.4% Average Annual Revenues of last 3 years FY2020-21 Interest payment as % of Average Revenues for the last three years Principal Payment: PKR 49.59 bn FY2020-21 Debt Servicing as % of Average Revenues for the last three years Debt Service Debt Service as % of Revenue 70.0 4.5% 3.7% 3.8% 3.6% 4.0% 60.0 3.5% 3.1% 50.0 2.9% 2.6% 3.0% 40.0 2.5% 2.0% 30.0 1.5% 20.0 1.0% 10.0 0.5% 33 36 42 0.0 0.0% FY 2015-16 FY 2016-17 FY 2017-18 FY 2018-19 FY 2019-20 FY 2020-21 CFY estimates of debt servicing follow certain viassumptions which are given in footnotes. Page 50#74Chapter VI - Debt, Pension and GPF Liabilities Risk Analysis of Punjab's Debt Profile A number of indicators are used to monitor and control risks associated with Government's debt. Risk indicators act as a guideline to devise future borrowing strategies. A few risk indicators are explained in below given paragraphs. Refinancing/Rollover Risk Refinancing/Rollover risk refers to the risk of refinancing retired portion of the debt at a higher interest rate. Debt maturing in a year and Average Time to Maturity (ATM) are the two indicators used to measure this Refinancing/Rollover risk. ATM shows the average time-to-retirement of the entire debt stock. High proportion of debt maturing in a year and shorter ATM implies higher risk exposure, as a large proportion of the existing loans will need to be refinanced in a shorter period of time. Estimated Refinancing/Rollover risk indicator as of 30.06.2020 are given below: Refinancing Risks are 'Low for Punjab' ଓ Rs RSD 5.0% Debt maturing in 01 yr (% of total) 9.1 2.8 9.0 Avg. Time to Maturity (ATM) Foreign Portfolio (years) Avg. Time to Maturity (ATM) Domestic Portfolio (years) ATM Total Portfolio (years) ATM of the Punjab's total debt portfolio is 9 years which is quite reasonable and indicates low exposure to refinancing risk. Similarly, the portion of outstanding debt retiring in a year ahead is also not material. " Interest Rate Risk Interest Rate Risk refers to the exposure of debt portfolio to changes in interest rate. Proportion of Fixed Rate Debt, Average Time to Re-fixing (ATR) and share of debt stock exposed to interest rate re-fixing in one year are the key indicators. Fixed rate debt is considered less risky as it is not exposed to interest rate fluctuations during its life. ATR indicates the average time after which the interest rate on the entire debt portfolio is reset. Low ATR and high proportion of debt re-fixing in one year indicates high interest rate risk and implies that debt stock is significantly exposed to rate reset over a relatively shorter period of time in a rising rate environment. Estimated indicators of Interest Rate risk as of 30.06.2020 are given below: Page 51#75% Chapter VI - Debt, Pension and GPF Liabilities Rs 77% 26.1% 7.3 Fixed rate debt (% of total) Debt Re-fixing in lyr (% of total) Avg. Time to Re-fixing Portfolio (years) Interest Rate Risk Punjab's debt has low exposure to interest rates ATR of the Punjab's total debt portfolio is 7.3 years showing that total loan portfolio will be exposed to interest rate reset after a period of 07 years approx. Foreign Exchange (FX) Risk Foreign exchange risk refers to the exposure of the debt portfolio to changes in exchange rate. Govt. of Punjab's debt is highly exposed to FX Risk as 99% of the total outstanding debt stock is denominated in foreign currency. However, this seemingly high risk is partially mitigated by two factors; 99% Share of Foreign Debt (as % of total) i) low interest rates on foreign loans offset the adverse consequences of exchange rate depreciation ii) overall size of Punjab's debt portfolio is quite small as a percentage of the provincial GSDP which implies that repayment burden attributable to exchange rate depreciation is not too high as proportion of provincial GSDP Fiscal Risks The Government budget is subject to number of fiscal risks included the risks from contingent liabilities arising from guarantees to borrowing by its public sector companies, public private partnerships (PPPs), natural calamities/disasters and pending court cases. It is therefore important to track and manage these fiscal risks. Disclosure of fiscal risks is an important international best practice. All such guarantees are categorized as explicit guarantees for which Government is legally bound to pay to the investor directly in case the PSE fails to honor its obligations. Major beneficiary of the Domestic borrowing limit assigned by the National Economic Council (NEC) has so far been used by the Government to offer Guarantees to various Public Sector Entities (PSES) to ensure/increase the bankability of their projects. Government support in the form of Guarantees, in Punjab, is the energy sector (viiQATPL, PTPL) followed by roads & transportation sector. Page 52#76Chapter VI - Debt, Pension and GPF Liabilities 66 As of 30.06.2020 the total amount of outstanding Guarantees is estimated at PKR 77 billion out of which PKR 4.7 billion is attributable to Public Private Partnerships (PPP) of the Government. " In future Government would like to further increase its fiscal risk management and disclosure by estimating disaster risk financing requirements and disclosing that as part of it drive to make PFM more and more transparent. Pension Service Delivery Government has a Defined-Benefit (DB) Pension Scheme for its permanent employees. The pension scheme is being managed on 'pay-as-you-go' basis, i.e. pension payment during a year is made out of that year's revenues regardless of the time of accrual of the liability. Considering the rising burden of pension expenditure, Government has, over the last few years, been following a more systematic approach towards valuation, reporting and funding of pension liability. Pension Expenditure Pension is the third largest expenditure of Government of Punjab's Current Revenue Expenditure after salary. The growth rate of expenditure on pension is a matter of concern. The trend of Punjab's pension expenditure since FY10- 11 is as under: Salary 2 1 Pension 3 Year Pension Expenditure Current Expenditure Pension as % of. Current Expenditure General Revenue Receipts (PKR In Billion) Pension % of Revenue Receipts FY10-11 36.40 370.00 9.84 539.00 6.75 FY11-12 50.10 444.00 11.28 606.00 8.27 FY12-13 67.40 534.00 12.62 703.00 9.59 FY13-14 76.40 569.00 13.43 815.00 9.37 FY14-15 88.80 670.00 13.25 902.00 9.84 FY15-16 113.70 730.00 15.58 1,108.00 10.26 FY16-17 141.00 900.00 15.67 1,405.00 10.04 FY17-18 172.90 961.00 17.99 1,387.00 12.47 FY18-19 205.10 1,225.00 16.74 1,466.00 13.99 CAGR 24.12% 16.14% 13.32% Page 53#7724.12% Chapter VI - Debt, Pension and GPF Liabilities 16.14% 13.32% CAGR Pension Expenditure has grown over a period of eight years since FY 2010-11 CAGR Current Expenditure over a period of eight years since FY 2010-11 CAGR General Revenue Receipts over a period of eight years since FY 2010-11 Pension expenditure was 9.84% of Current Revenue Expenditure in FY10-11. This number increased to 16.74% in FY18-19. Similarly, pension expenditure to General Revenue Receipts ratio has increased from 6.75% in FY10-11 to 13.99% in FY18-19. If pension expenditure continues to grow in a similar fashion, it will constrain the Government's fiscal space for other current and/or development expenditures in future. Government of the Punjab follows the Federal Government in allowing annual increase in salary and pension. Comparison of inflation and increase in salary and pension given by the Government of Punjab since FY10-11 is as under: Year Inflation (YoY CPI) (%age) Salary Increase (%age) Pension Increase (%age) FY 2010-11 13.13 50.00 15.00 FY 2011-12 11.26 15.00 15.00 FY 2012-13 5.85 20.00 20.00 FY 2013-14 8.22 10.00 10.00 FY 2014-15 3.16 10.00 10.00 FY 2015-16 3.19 7.50 7.50 FY 2016-17 3.93 10.00 10.00 FY 2017-18 5.21 10.00 10.00 FY 2018-19* 13.13 50.00 15.00 CAGR 6.21% 13.20% 11.48% *CPI is based on new base year 2015-16; Salary Increase in 2019 was made as follows: Grade 1-16 10%; Grade 17-20 5%; Grade 21-22 Nil 6.21% Inflation (YoY CPI) 13.20% Salary Increase 11.48% Pension Increase Annual increase in salary and pension without regard to inflation may lead to unmanageable pension expenditure and liabilities. It is imperative that annual increase in salary and pension is linked to inflation as practiced in developed economies. The Government is also reviewing the existing pension scheme with a view to keep the liability arising out of pension at a sustainable level. Capitalization of Punjab Pension Fund through a clear Funding Strategy Punjab Pension Fund has been created to invest funds set aside by the Government for meeting, at least partially, its future pension liability. Page 54#78Chapter VI - Debt, Pension and GPF Liabilities 66 Punjab Pension Fund's funded status (assets/liabilities) is estimated to be 1.23%, as of June 30, 2020, which is quite low. The Government, despite severe fiscal constraints, has been giving due consideration to capitalization of the fund. In the FY19-20, until April 2020, the Government had provided a capital of PKR 5.0 billion. Higher contributions coupled with rationalization of pension benefits can improve funded status of the Fund. History of capitalization of the fund by the Government is summarized as under: 9.0 Capitalization of Punjab Pension Fund (PKR Billion) 4.8 5.0 3.0 5.0 5.3 5.0 dn.m 1.0 FY 2008-09 FY 2009-10 FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2018-19 FY 2019-20 Punjab Pension Fund's Assets Assets of the Punjab Pension Fund are estimated to increase to PKR 74.9 billion as of June 30, 2020 against the capitalization of PKR38.1 billion into the Fund until April 30, 2020. The remaining amount of PKR 36.8 billion has been earned by the Fund through its investments. Long-term Investments Investment Classification NATIONAL SAVINGS Medium-term Investments Short-term Investments BANK III Pakistan Investment Bonds (PIBs) Term Finance Certificates National Saving Scheme (NSS) Treasury Bills and Bank Deposits Page 55#79Chapter VI – Debt, Pension and GPF Liabilities Punjab Pension Fund's Performance - Time Weighted Return (TWR) earned by the Fund is summarized as under: Annualized Return for the period Period Gross Return Net Return* FY 2008-09 15.21% 15.00% FY 2009-10 13.79% 13.61% FY 2010-11 13.48% 13.32% FY 2011-12 13.96% 13.79% FY 2012-13 12.85% 12.69% FY 2013-14 12.05% 11.90% FY 2014-15 15.90% 15.73% FY 2015-16 10.79% 10.63% FY 2016-17 10.28% 10.14% FY2017-18 9.07% 8.95% FY 2018-19 FY 2019-2020 (Projected) 8.05% 7.95% 17.69% 17.62% Jul 2008-June 2020 (CAGR) 13.86% 13.75% *Net Return means the return after deducting expenses incurred on management of PPF The investment strategy followed over the years has worked well. Pension Fund continues to earn an attractive real rate of return because of its high yielding portfolio of PIBS, TFCs and NSS. General Provident Fund In addition to the Pension Scheme, Government requires its permanent employees to subscribe to the General Provident (GP) Fund, which is a Defined Contribution Scheme. General Provident Fund contributions are deducted from salaries of Government employees and credited to GP Fund Account, which is part of the Public Account of the Province. Government has a fiduciary responsibility for these contributions. To avert the possibility of using Public Account Provident Fund Deduction from Salary balances as a source of cash for meeting Government expenditures, there was a need to create a separate GP Investment Fund. There was also a need to replenish the amounts earlier utilized from GP Fund Account as the Government had historically maintained a common cash balance for both Provincial Consolidated Fund and Public Account. Based on these considerations, Government of the Punjab passed Punjab General Provident Investment Fund Act 2009 to establish an investment fund for management of GP Fund liabilities of the Government. General Provident Fund Liability The amount of GP Fund payment of a Government employee is the accumulated contribution deducted from his/her salary during service increased by mark-up /interest rate announced by the Government on such contributions on annual basis. Page 56#80138.9 Chapter VI - Debt, Pension and GPF Liabilities PKR 248.700 billion Based on the actuarial valuation, accrued GP Fund liability is estimated at June 30 2020 The growth in GP Fund liability, assuming interest credited to GP Fund balances at the rate of 12% per annum, for 30 years' period, is illustrated in graphical representation as follows: 197.7 279.6 350.2 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 3,154.8 2,591.2 2,112.9 1,714.3 1,377.8 895.8 668.5 469.6 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 2032-33 2033-34 2034-35 2035-36 2036-37 2037-38 2038-39 2039-40 2040-41 2041-42 Capitalization of Punjab General Provident Investment Fund The Government is working on modalities of transferring General Provident Fund contribution deducted from salaries of employees every month to the PGPIF to enable the Fund to achieve a fully funded status in the shortest possible time. In a meanwhile, Government is capitalizing fund from its annual budget. The Government capitalized Punjab General Provident Investment Fund (PGPIF) in FY19-20 with PKR1.720 billion. The Capitalization history is summarized as under: PKR 3,347.592 Mn PKR 1,000.000 Mn PKR 1,000.000 Mn PKR 1,720.000 Mn FY 2013-14 FY 2013-14 FY 2013-14 FY 2013-14 PKR 7,067.592 Mn Total Capitalization by Government Punjab General Provident Investment Fund's Assets Assets of the Punjab General Provident Investment Fund are projected to reach to the tune of PKR 10.4 billion at June 30, 2020. The Government has contributed PKR8.6 billion into the Fund until April 30, 2020 while remaining PKR 1.802 billion has been earned by the Fund through its investments. Page 57 2042-43 2043-44 2044-45#81Chapter VI - Debt, Pension and GPF Liabilities Punjab General Provident Investment Fund's Performance Time Weighted Return (TWR) earned by the Fund is summarized as under: Annualized Return for the period Period Gross Return Net Return* FY 2013-14 10.45% 10.45% FY 2014-15 12.45% 12.45% FY 2015-16 9.51% 9.51% FY 2016-17 9.37% 9.37% FY2017-18 7.61% 7.61% FY 2018-19 FY 2019-2020 (Projected) 8.34% 8.34% 17.28% 17.25% Jul 2008-June 2020 (CAGR) 12.53% 12.52% *Net Return means the return after deducting expenses incurred on management of PGPIF Debt stock includes actual disbursements till 30.04.2020 and the estimates of next two months i.e. May & Jun 20. iii Domestic loan amount is exclusive of Food Department's outstanding loans obtained for procurement of wheat i.e. Rs. 336 billion as on 30.04.2020. iv Rupee amount of debt stock at Jun 20 is calculated by using exchange rates of 30.04.2020. ✓ Revenue means annual General Revenue Receipts of the Province which is exclusive of capital receipts i.e. loan amount. vi Assumptions: • Exchange rates communicated by Federal Government are used for calculating debt servicing in Rupee. In floating-rate foreign loans, LIBOR rate of 30.04.2020 has been used for calculation of future interest payments. vii QTPL-Quaid-i-Azam Thermal Power Ltd. PTPL- Punjab Thermal Power Ltd Page 58#827 Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit#83T Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Effects of COVID -19 on Economic Outlook he rampant Coronavirus disease (COVID-19) has quickly evolved from a provincial health scare in China to a global pandemic. While it has brought nearly half the world to a standstill, it has affected the financial markets in unseen ways by eroding a quarter of wealth in nearly a month. A colossal challenge confronts us as a pandemic, we understand little about, sweeps across the globe. With 33 mutations of this virus, the use of data and technology to swiftly understand the changing landscape is more important than ever. The exponential spread of COVID-19 around the globe has become a real challenge for humanity. Government of Punjab initiated its response to combat the virus at quite an early stage by sensitizing public about its severity, enhancing the testing capacity and strengthening its hospital capacity vis-à-vis bed strength. Even the high- income countries with a well-developed Healthcare system were overwhelmed with this pandemic within the first few weeks and several are reeling under the havoc caused by it. In contrast, Pakistan is a low middle income country which spends less than 1% of its GDP on Health and this came up with a big challenge for the Governments and policy makers to deal the pandemic. The Health system is already not up to the mark and there are many disparities in the healthcare delivery between the rural and urban areas. The doctor-to-patient ratio in Pakistan is 78: 100,000 and number of hospital beds is mere 0.6:1000.4 Before the COVID-19 pandemic set in, there was no proper National Health plan or Government strategy in place to tackle such a healthcare crisis as the cumulative capacity of the Government Hospitals in Punjab stood at 40,660 beds against the population of around 110 million showing is a huge gap. The instant Pandemic has unearthed the systematic deficiencies in the existing Health infrastructure including the non-availability of reliable data, absence of disaster management framework in Health sector, insufficient communication framework for preventive Health Care etc. The rapid increase in local transmission of COVID-19 cases has immensely stressed out the already insufficient healthcare infrastructure in terms of patient handling capacity of the Public and Private Sector Hospitals. Due to this, Healthcare authorities faced severe shortage of specialized human resource required to deal with Corona specific activities and ultimately they had to divert their existing staff towards COVID-19 wards and on the other hand Healthcare staff belonging to those non-COVID Health specialties and establishments was compelled to deal with a Pandemic they were not trained to cope with. Owing to the shortage of space Provincial Health Departments were compelled to utilize several health specialty related wards and establishments for isolating and treating COVID-19 patients. Such improvisations on one hand deprived non-COVID patients from curative healthcare against serious ailments like Hepatitis-C, Cardiovascular diseases, Neurological disorders and other medical emergencies were not able to receive the essential curative medical care they needed and on the other hand led to serious neglect of preventive healthcare regime as one of the most visible negative effects could be seen on anti-polio vaccination campaign. On the basis of WHO Guidelines and keeping in view the ground realities of the country, the Government has taken multiple steps to mitigate the various dimensions of the crisis: Page 59#84Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Mandatory thermal screenings at all points of entries in country Surveillance and contact tracing through data collection 2 3 4 ▪Testing and diagnostic capacity has been strengthened by importing Polymerase Chain Reaction (PCR) kits for SARS-COV-2 diagnostics, 8 BSL-III (Bio Safety Labs) have been established at Divisional Headquarters of Punjab along with the upgradation of existing labs to BSL-III level which has enhanced the diagnostic capacity available in the public sector labs 2,000 to 10,000 tests per day. Additionally both Health Departments hired the services of private labs for COVID-19 Testing District Administrations were mobilized to set up quarantine facilities for suspected cases at several cities and hospitals, and surveillance units were activated to trace contacts of confirmed cases, as recommended by the WHO. In this regard, medical wards were designated for handling covid patients at Secondary and Tertiary Care hospitals across 36 Districts in Punjab. A separate 900 bedded dedicated isolation Centre has also been established at Expo Centre, Lahore. Currently available number of beds for COVID-19 Patients isolation stands at 6,216 and out of which 4,765 were occupied during the 1st week of June. Currently there are 1,369 Ventilators available at hospitals accross Punjab for handling seriously ill patients out of which 454 ventilators are marked for the COVID-19 Patients. 5 Due to the high demand for PPEs all around the world, Pakistan initially also faced shortage of PPEs but with passage Province has been able to procure sufficient quantity of PPEs from both global and local markets time the 6 7 8 Punjab Government has duly appreciated the efforts of medical staff at all ranks and for enhancing the morale of the medical community announced special additional salary package for Healthcare staff directly dealing with COVID-19 patients. A lump sum compensation package is also approved if any employee directly dealing with COVID-19 patients passes away in line of duty; the family would receive an amount of PKR 4 Million up to BS-16 and PKR 8 Million for BS-17 & above. New hiring of medical workers has been initiated on emergency basis to strengthen logistical support and ease the pressure on Health-Care personnel. Tele-medicine facilities have been established to provide assistance to patients via telephone, skype and WhatsApp instead of physical visits. 9 10 Realizing the deficiency in syllabus, the Medical Educationists are developing material to deal with such issues of Public Health. Page 60#85Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Besides its colossal human toll, the economic and political costs of the contagion are considerable. Developed countries are banking on huge stimulus packages to somewhat mitigate the effects of economic disruption. The efforts to "flatten the curve" have severely contracted economic activities around the world. The output contraction will continue in the second quarter of the calendar year 2020 as most countries expect to experience peaks in pandemic and consequent social containment measures in the next couple of months. Assuming that the pandemic will recede in the second half of the year (baseline scenario), the global economy is projected to contract by 3% for 2020 (World Economic Outlook, 2020 by IMF). Advanced economies and emerging markets are expected to experience growth rates of -6.1% and -1.0% against the pre- COVID-19 targets of 1.7% and 3.7%, respectively. The severity of this crisis can be judged from the fact that the Global Financial Crises in 2009 resulted in reduction of global economy by 0.1% - a staggering difference of 2.9 percentage points with the projected impact of COVID- 19vili Impact of COVID-19 ON Pakistan's Economy In these circumstances, the economic situation of Pakistan is somewhat similar to the global economy. Following are some of the highlights of the impact of COVID-19 on Pakistan's economy, the growth rate of which has fallen from a pre-COVID projection of 2.4% to -1.5%ix: Owing to the closure of global markets amid COVID-19 outbreak, Pakistan's exports fell by a massive 54% in April, 2020 as compared to April, 2019. According to the data released by Pakistan Bureau of Statistics (PBS), the country's exports stood at USD957 million in April 2020, as compared to exports worth USD2.089 billion in April 2019 and USD1.8 billion in March 2020. Such a major drop in exports is indicative of the negative impact of COVID-19 on the Trade Balance. PKR 957.0 (April FY 2020) Increase in Trade Deficit PKR 2.089 Billion PKR 54% (April FY 2019) Higher Budget Deficit 7.3% of GDP 9.3% of GDP Rs. 4.8 Rs. 3.9 Pakistan's budget deficit (post COVID-19) is projected to rise to 9.3% of GDP or PKR 3.9 Trillion in the current Fiscal Year compared to a pre-COVID estimate of 7.3% of GDP. The major driver of increase in Fiscal Deficit was the reduction in FBR collection which dropped from a pre-COVID estimate of PKR 4.8 trillion to PKR 3.9 trillion. The reduction in FBR collection meant a reduction of PKR 256.0 billion in Divisible Pool transfers to the Government. Consequently, the Government had to make major readjustments/reduction in its Development and Non- development expenditure. Slow-Down in Remittance A World Bank report has estimated that Remittances to Pakistan from abroad, which is a major item of Current Account, is projected to decline by 23 percent in year 2020, totaling about USD17 billion, compared with USD22.5bn remitted in 2019, in the wake of the economic crisis caused by the Covid-19 outbreakxi. And, the report cautions that this crisis could be long, deep, and pervasive when viewed through a migration lens. i. Increase in Unemployment Slower growth, reduced trade and lock-downs caused by COVID-19 mean that Pakistan could expect 12.3 million to 18.5 million layoffs xii. This increase in unemployment has a direct impact on increase in poverty rate in the country. ii. Decline in Large-Scale Manufacturing Output Latest data released by PBS suggests that Large Scale Manufacturing (LSM) output witnessed a decline of 22.0% in March 2020 compared to the corresponding month last year. This decline was contributed by almost all major LSM sector with the exception of Fertilizer industry which exhibited some growth compared to last yearxiii. Page 61#86Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Response by Federal/ Provincial Government Prime Minister Imran Khan announced huge relief package worth PKR1.2 trillion to ward off the negative impact of Coronavirus on the country. This included the contribution of the Government for cash transfers to poor. The package also included measures to reduce prices of petroleum products, monthly stipends for daily wagers, improving liquidity crunch for exporters and industrialists and deferment of utility bills for households. The Government of Pakistan, in collaboration with the Government, is trying hard to fight against the deadly disease on the one hand and recovery from its disastrous impacts on the society on other and has taken various measures out of which following measures are targeted to resurrect the economy: " The State Bank of Pakistan has deferred principal repayments of loans amounting to PKR432 billion under its refinancing scheme to protect SMEs from the impact of Covid-19. Rs. 432 Billion " A package of PKR100 billion has been provided to SMEs for payment of their utility bills and other relief measures ☐ A relief package of PKR100 billion has been provided for exporters in the form of tax refunds and other measures; Rs. 100 Billion USD 305 Million Loan (ADB) Rs. 50 Bn (Small Farmers) ◉ A USD 305 million loan finalized with the ADB of which USD 200 Million is meant for social sector and USD105 million for healthcare infrastructure support; The signing of an agreement between the Government of Pakistan and the China Power Frontier Works Organization (Pakistan) - consortium for the construction of the Diamer Bhasha Dam including % do Rs. 100 Billion the 4500 MW hydropower plant. The project is meant to provide a short-term boost to the construction sector in Pakistan. The Government has announced a PKR 50 Billion support package for small farmers comprising of subsidy on fertilizers, seeds, pesticides as well as reduction in the bank loan mark up. Economic Outlook for Pakistan COVID-19 has resulted in a major economic setback for Pakistan. Recovery from this setback requires a concerted effort by both Federal and Provincial Governments. IMF predicts a U-shaped recovery for Pakistan's economy, with economic growth reaching 2% by the end of next financial year. Following is a summary of pre & post COVID-19 economic indicators by different multilateral agenciesxiv: Economic Indicators FY20 (Pre- Covid19) IMF FY20 (Post- World Bank ADB FY20 (Post- FY21 FY21 Covid19) Covid19) FY20 (Pre- Covid19) FY21 (Pre- Covid19) Real GDP Growth (%) 2.4 -1.5 2 -1.3 0.9 2.6 3.2 Inflation (%) 11.8 11.3 8 11.8 9.5 11.5 8.3 Fiscal Deficit (% of GDP) -7.2 -9.2 -6.5 -9.5 -8.7 Exports Growth (%) 5.6 -2.1 -4.7 -19.7 -5.3 Imports Growth (%) -8.8 -16 3 -26.3 -7.7 Remittances Growth (%) 3.4 -4.8 -1.5 -6.5 -6 Current Account Deficit (% of GDP) -2.2 -1.7 -2.4 -1.9 -2 -2.8 -2.4 Debt (% of GDP) 84.6 89.8 87.8 90.6 91.8 Page 62#87Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Response by Provincial Government Punjab has a dominant role in the performance and development of the national economy. The Province contributes 55 percent to the national income, employs 61 percent of the total employed in the country and houses 53 percent of the total population. At this scale, it is apt to say that, "Pakistan grows if Punjab grows." The converse, however, holds even strongly, and a dip in Punjab's economy is likely to have a greater impact at the national level. Therefore, sustaining Punjab's economy under the existing Health and resulting economic emergency is crucial to resurrect the national economy. So far, some estimates have been developed on the size of economic and employment loss for Punjab. The existing estimates show an economic loss to Punjab to the tune of USD3-5 billion and short-term employment loss of 4 to 6 million. The immediate response to these shocks will be focusing more on Social Protection to protect the most vulnerable and to ensure that the food and essential goods supply chains continue to stay operational. It is inevitable that some of the businesses will not be able to sustain this shock and will be closed permanently or will have to be reopened with an entirely different business plan. To date, the impact of COVID-19 has been lower in rural areas and the Agriculture sector seems to be broadly stable. However, the Agriculture sector is dependent on a variety of inputs and effective logistics and market operations. It is important that support to this sector is managed, as it employs 14.5 million people and is a food line to the entire Province. The Government of Punjab in the middle of March 2020 declared a Health Emergency and enforced a complete lockdown throughout Punjab from 23rd of March 2020. On the directions of the Government, P&D Board immediately set up a Steering Committee under Minister Finance which tasked three working groups for (i) Health Emergency; (ii) Social Protection and; (iii) Economic Support to develop immediate interventions in response. Government of Punjab allocated Rs. 25 Billion for reäefivities funds amounting Rs.25illion. Rs. 6.739 Billion Primary & Secondary Health Rs. 5.173 Billion Specialized Healthcare and Medical Education Rs. 13.100 Billion Punjab Disaster Management Authority/District Administrations/Punjab Social Protection Authority The three Working Groups worked on a tight deadline and recommendations under all three areas were submitted to the Chief Minister. These recommendations were approved by Government and the concerned departments took emergency steps to achieve the defined objectives of prevent and disaster relief along with financial support to Effected classes. For efficient execution of emergency relief activities funds amounting PKR25 billion have been allocated. The efforts, however, are still ongoing and require further support in fight against the disease and its destructive impacts on the economy/society. Tax Relief Apart from above direct spending on relief and recovery, the Government took other initiatives to help support the economy and the fiscal base of the Province and provided relief in various Provincial Taxes of PKR18.0 billion. 費 % </> Stamp Duty reduced to 1% in Urban Areas UIPT waived for last quarter Electricity Duty suspended PSTS suspended for 20 plus sectors PIDC suspended Professional Tax waived Rs. 1.0 Billion Rs.10 Billion Rs. 3.1 Billion Rs. 2.3 Billion Rs. 1.4 Billion Rs. 0.2 Billion Page 63#88Chapter VII - Impacts of COVID-19: Fiscal Pressures and Healthcare Deficit Priorities for Budget 2020-21 With a very unstable economic situation for the country and the Province, budget priorities had to be reviewed and aligned with the current ground realities. Additional fiscal space is required for the Health, Disaster Management & Social Protection during the next financial year. Higher Revenue generation would be focused primarily through improvements to administrative efficiency. There would be greater emphasis on Austerity measures to create space for necessary Development and Non-Development expenditures. Therefore, following are some of the major areas of focus for Budget 2020-21: 1. Improvements in conditions for revival of various sectors of economy to minimise impacts of un-employment and layoffs with special focus on Micro, Small & Medium enterprises (MSMEs). 2. Efforts to increase the Provincial Tax revenues by broadening the tax base as per current structures through efficient enforcements by revenue collection departments. 3. Implementation of strict Austerity measures. 4. Efforts for recovery of pending receivables of Punjab as discussed in Chapter 2. 5. Privatization of provincial owned companies/assets. viii https://www.imf.org/en/Publications/WEO/Issues/2020/04/14/weo-april-2020 https://www.pide.org.pk/pdf/PIDE-COVID19-EBook.pdf https://www.thenews.com.pk/print/633754-forecast-of-covid-19-pakistan-may-face-12-3m-to-18-53m-lay-offs ix IMF Country Report No. 20/114 (IMF document on Rapid Financing Instrument) x ibid xi https://openknowledge.worldbank.org/bitstream/handle/10986/33634/COVID-19-Crisis-Through-a-Migration- Lens.pdf?sequence=5&isAllowed=y xii https://www.pide.org.pk/pdf/PIDE-COVID19-EBook.pdf https://www.thenews.com.pk/print/633754-forecast-of-covid-19-pakistan-may-face-12-3m-to-18-53m-lay-offs xiii http://www.pbs.gov.pk/sites/default/files//industry_mining_and_energy/qim/2020/qim_web_note_mar-2020.pdf xiv https://mettisglobal.news/unemployment-in-pakistan-to-rise-in-fy21-even-after-combating-covid-19-successfully Page 64#898 MSMEs Revitalizing Punjab's Economy#90Chapter VIII - MSMEs - Revitalizing Punjab's Economy akistan and the Province of Punjab are no exception to the macroeconomic challenges arising due to COVID-19 outbreak. Enterprises around the country are already facing the consequences of the closure of economy. Many economists contend that the economic crisis that COVID-19 emergency has ensued will be longer-lasting and will have more far-reaching implications than the immediate healthcare crisis. 30-40% reduction WTO's early estimates show reduction in global trade as the economies fightback against the pandemic USDO9 trillion slashed ERNATION slashed from global output with global ONETARY worse than during the 2008-09 financial growth estimated at -3.0 % in 2020 - crises Na Lack of aggregate demand Lack of aggregate demand across the globe has resulted in job losses, closure of small- and medium-sized businesses and has drastically altered the way countries do business with each other 90% of enterprises, Micro, Small and Medium Enterprises (MSMEs) stand to lose the most as they account for more than 90% of economic activities and more than 50% of the jobs in the developing countries. SMEs have played a key role in the development of economies like those of South East Asia. In Pakistan, SMEs constitute nearly 90% of enterprises, employ 80% of the non-agricultural labour force, contribute more than 40% to GDP and over 40% to exports. SMEs significantly contribute to the economy in multiple ways through employment creation, human resource development, value addition, innovation and services and small-scale manufacturing support to Large-Scale Manufacturing and industrial establishments. Economic Impact Assessment employ 80% of the non-agricultural labor SMES 40% share in GDP, over 40%+ share in exports Initial estimates have shown that the Pakistan's economy will witness sluggish growth in services, manufacturing and agriculture sectors, increase in unemployment, decrease in Government revenue, decline in exports and disruption in supply chains. Closure of businesses across the country is expected to make the situation dire for the estimated 5.2 million enterprises in the country. Micro, Small and Medium Enterprises (MSMEs) have been particularly hit through supply chain disruptions owing to irregular supply of raw materials and intermediate goods, revenue loss and shortage of liquidity to continue business operations. However, the magnitude of economic losses is uncertain and depends on intensity and duration of COVID-19 as it is still an ongoing challenge. Real GDP growth projections vary from negative to positive. IMF estimates Pakistan's economy may contract by 1.5%. World Bank's Outlook for Asia report has suggested that that Pakistan's economy would move to negative growth (-1.2% to -2.3%) which translates into economy shrinking by about 10 percent for this to happen. Pakistan Institute of Development Economics (PIDE) has conducted some estimations of economic loss and their results show that GDP will suffer a loss of anywhere between 0.3 percent to 4.64 percent. In case of Punjab, some estimates have been developed on the size of economic and employment losses. The existing estimates predict an economic loss to Punjab in the tune of USD3-5 billion and short-term employment loss of 4-6 million. Pakistan Institute of Development Economic (PIDE) estimates translate into Punjab losing USD500 million to USD8.1 billion. Punjab's Planning & Development Board has estimated an export revenue loss to the tune of USD1.3-3 Billion to the Province (See Chapter on Macroeconomic Outlook for a more detailed analysis). These economic losses will eventually translate into job losses and retrenchment of employment options for the labour force in MSMEs. Page 65#91Chapter VIII - MSMEs - Revitalizing Punjab's Economy opatent INTE ATION MONETARY FUND 1.5% Contraction IMF estimates Pakistan's economy may contract by 1.5% 0.3% to 4.64% Loss Pakistan Institute of Development Economics (PIDE) estimates loss to national GDP USD 500 mn to 8.1 bn loss PIDE's estimates translate into Punjab's loss > > (> > (> 1.2% -2.3% -ve growth World Bank's Outlook for Asia report; Pakistan's economy would move to negative growth, translating to economy shrinkage by 10% USD 3 - 5 billion Loss 4-6 million job losses Estimates for Punjab predict economic losses to the Province in terms of amount and employment USD 1.3 bn to 3.0 bn loss Punjab's Planning & Development Board has estimated an export revenue loss to this tune Unemployment Impact Assessment According to Pakistan Labour Force Survey 2017-18, Punjab has more than 37 million employed persons. It is estimated that 68% of Pakistan's MSMEs are in Punjab which employ bulk of this labour force. Approximately 16 million are in the non-agriculture labour force and informally employed or engaged in small-scale self-employment. These constitute the most vulnerable segment of the labour force as majority of them are associated with MSMEs in one capacity or another. Invariably all of them went out of work as the lockdown was announced in the Province on 23rd March, 2020. PIDE estimates that unemployment can be anywhere between 1.8 million to 11.2 Million, while Punjab's own estimates suggest unemployment between 4-7 Million. However, some part of this unemployment may be temporary and may have started to recover as soon as the economy has begun to slowly open. But, due to uncertainty about the pandemic cycle, unemployment is expected to remain high in this segment. 37 million Persons Employed in Punjab MSMES 68% 16 million in Punjab Non-Agri Labor 555 1.8 to 11.2 million Unemployment due to COVID Lockdown (PIDE Estimates) 4 to 7 million Unemployment due to COVID Lockdown (GoPb Estimates) With a view to providing relief to this vulnerable labour force, Punjab has focused its immediate response on social protection, in addition to healthcare interventions, to protect the out of work labour force and to ensure that the food and essential goods supply chains continue to stay operational. However, with gradual easing of lockdown and as the impact on MSMEs becomes clearer, the Government of Punjab has realized the need to enable the businesses to restart economic activity, help them recoup some of the losses and sustain themselves in the post- COVID-19 scenario. Page 66#92Chapter VIII - MSMEs - Revitalizing Punjab's Economy Situational Analysis viz the MSMEs Sector MSMEs in Pakistan account for 98% of all economic establishments. According to estimates, there are 3.8 million MSMEs in Pakistan. These MSMEs are concentrated in trade, services and manufacturing sectors. MSMEs sector of Pakistan is heterogeneous, dispersed, and mostly unorganized which results in market failure on part of intermediaries to provide support to this sector. Owing to this fact, banks' credit to SMEs as a share in overall private financing does not show an encouraging picture. 600 500 400 300 200 100 0 Now, the COVID-19 situation is still evolving, the economic situation is largely uncertain due to which the exact economic fallout for the MSMEs is yet unknown. Recent survey carried out by SMEDA to ascertain the impact of COVID-19 on Small & Medium Business post-lockdown in Pakistan has some relevant findings below: 92% enterprises reported disruption in the supply chain པ།, 23% reported 100 percent loss of export orders 95% reported reduction in operations 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2014 2015 2016 2017 2018 2019 SMEs Financing (Billions) -SMES Financing as % of Total Private Financing ....... 2 per. Mov. Avg. (SMES Financing (Billions)) 48% ** had already laid down workers (almost 10,000) 26% **** intend to rehire the same workers as economic activity resumes 89% $ reported financial and credit constraints and losses Punjab Board of Investment and Trade (PBIT) has carried out sector specific analysis to gauge the impact of economic slowdown on industries in Sialkot and industrial segments such as Poultry industry in Punjab. Sialkot, as Pakistan's third largest export center after Karachi and Lahore, has a substantial share of Pakistan's total export revenue. " Sialkot based industry has gained global prominence for a highly diverse range of products ranging from sports goods, surgical instruments, leather goods and gloves, readymade garments to musical instruments. Around 400,000 plus people are engaged directly or indirectly with export activities through medium to micro-scale industries. Other than the surgical instruments and allied units, other units have had considerable setbacks due to cancellation or deferment of export orders suggesting a substantial economic loss and disruption across the sectors. Similarly, PBIT report finds that Poultry industry has been hit by supply side crises, resulting in a demand pushed price hike. Economic Impacts on some MSMEs Approximately 350,000 becoming economically ineffective due to closure of banquet halls and associate downstream value-chain activities in Lahore Around 300,000 daily wagers work in auto-parts market at Badami Bagh Lahore Closure of eateries, retail, transport and other activities impacting the 7 million informal employed in the wholesale, retail and transport sectors. Finance and Planning & Development Departments have had detailed consultative sessions with various industrial sector bodies, Chambers of Commerce and representative associations with a view to assessing the magnitude of economic and business impact of lockdown. While the observations and responses largely resonate with findings of SMEDA survey, the following indicative statistics show the economic impact on some MSMEs sectors: Page 67#93Chapter VIII - MSMEs - Revitalizing Punjab's Economy Finance Department, as part of the budget making exercise for FY2020-21, also solicited proposals from the citizens at large as to identify the priority areas of intervention. A significant majority of the citizens have termed employment generation and economic revival as the key priority area, besides healthcare interventions in the wake of COVID-19 (See Chapter on Inclusive Budgeting for details). Based on the preceding, the Government of Punjab has realized the following key challenges being faced by businesses, particularly the MSMES: Lack of liquidity and cash across the entire spectrum of value chain - direct impact on jobs particularly in non-formal and non-bankable MSMEs Accessibility to credit is a challenge due to major proportion of the MSMEs being out of formal financial and taxation net Broken supply chains due to partial lockdown restrictions still in place COST Operating businesses under the restrictions due to COVID-19 situation - Traditional wholesale businesses located in older and denser parts of the cities are particularly challenged Additional operational expenditure due to protective measures Lack of availability of inputs to manufacturing Aggregate demand shock resulting due to loss of income, unemployment, closure of businesses during lockdown (consumption has typically been considered a major contributor to Punjab's GDP with contribution up to 78%) Government's Strategic Response for MSMEs Sustainability While being fully cognizant of the challenges faced by the economy, Punjab Government's strategic response to support MSMEs is constrained by fiscal space. Revenue collection in the wake of COVID-19 economic lockdown has remained below its target for FY2019-20 which has directly impacted the federal fiscal transfers to the Province considerably. Similarly, tax relief announced by Punjab Government has dented the own source revenue collection. The shortfall in FY2019-20 has been exacerbated by the fact that sizeable revenue resources have already been shifted to healthcare sector, social protection and relief measures. So, a proportion of liabilities already accrued has been pushed forward to FY2020-21. In FY 2020-21 too, considerable fiscal resources are still needed to ward off the disruption caused by COVID-19 through healthcare, relief and social protection apportionments. This has consequences for other desirable interventions such as bailout for the MSMEs. So, the strategy adopted by Government of Punjab for FY2020-21 is based on three key complementary pillars - first, leveraging the interventions spearheaded by Federal Government and State Bank of Pakistan to revive the economy; second, direct support to MSMEs through Development portfolio of the Punjab Government in FY2020-21 under Punjab Rozgar and other schemes; and third, short-, medium- and long-term policy interventions to create an enabling environment which is supportive of MSMEs sustainability and growth. Broad contours of the three pillars of the strategy are briefly discussed here: 01 Leveraging Existing Initiatives of Federal and Punjab Government in FY2020-21: Initiatives already undertaken in FY2019-20 and continuing in FY 2020-21 include both fiscal and monetary measures. On the fiscal side, Federal & Provincial Governments in Pakistan have announced PKR1.2 trillion relief and Stimulus package in order to reduce the impact of Corona virus outbreak. It aims to provide relief to vulnerable MSMEs, construction industry, deferment of utility bills of lower income groups, deferment of principal and interest for business and reduction in fuel prices etc. Government has launched "Ehsaas Emergency Cash Program" with total allocation of PKR 144 Bn to provide immediate cash relief of PKR 12,000/- to 12 Mn families of daily wage earners and low-income households, whose livelihood has been severely affected by the pandemic. Punjab Government has contributed PKR 10 Bn to these resources. Finance Department has implemented an initial relief package of PKR 18 billion through relaxing provincial taxation, fees and licenses to help businesses with their cashflow challenges. Page 68#94" Chapter VIII - MSMEs - Revitalizing Punjab's Economy State Bank of Pakistan has cut the policy rate to 7 percent. SBP has also provided various incentives to manufacturing sector and exporters. State Bank of Pakistan has introduced a refinance scheme to avoid layoffs of employees by businesses particularly the SMEs. The scheme essentially is Refinance Scheme for Payment of Wages and Salaries to the Workers and Employees of Business Concerns. " In addition to the recently introduced SBP's refinance scheme, SBP has many other targeted schemes which have the potential to support the vulnerable segments of MSMEs but are deficient in terms of their outreach hence off take. Punjab Small Industries Corporation (PSIC), which is the lead agency of Government of the Punjab to support growth and sustainability of small industries in the Province, is exploring the possibility of joining hands with SBP to market these schemes through its network of branches and field offices spread throughout the Province. " Although SBP's refinance scheme has the potential to address the cashflow problems of smaller businesses which are already in banking and taxation network; one area that needs to be addressed is the collateral/guarantee requirements to access the credit, especially for the large proportion of MSMEs which are out of the tax net. For such businesses, there has been felt a need that these loans should be subsidized and backed by Government's credit loss guarantee and Punjab Government has accordingly responded by introducing a scheme, to be executed by PSIC, for this segment within MSMEs, which is discussed under subsequent pillar of the strategic response. 02 Punjab Rozgar-A Flagship Intervention for MSMEs Support and Other Measures: Flagship intervention by Punjab Government to support MSMEs entitled "Punjab Rozgar" has been designed and approved in principle. Punjab's Post Covid-19 public investment strategy stipulated in RISE Punjab ADP prioritisation framework mandates that projects should meaningfully contribute towards supporting MSMEs to sustain and re-orient under the new normal. Punjab Rozgar shall be implemented by Punjab Small Industries Corporation (PSIC) in FY 2020-21 in partnership with the Bank of Punjab (BOP) to provide financing support to MSMEs through three channels - entrepreneurship development, Credit Guarantee Support and Loan Markup Support. Punjab Rozgar has been designed to make it more conducive, effective and useful for MSMEs in the current economic slowdown. Salient contours of the facility are: Preference Loan Limit Secure Lending PSIC's Network For All Low Cost Funds Preference to existing MSMEs businesses but startups will have the facility to avail the facility as well Loan limit up to Rs. 5 Million Options for both clean and secured lending whereby the magnitude of lending would vary Network of PSIC's regional offices to be used for maximum outreach, marketing and businesses facilitation in the entire loan lifecycle Preferential debt-to- equity ratio for women, disabled and transgenders Low cost of funds to be charged from the borrowers PSIC has also launched a scheme for financial support to cottage industry and cluster development in select districts of Punjab. This facility is also being provided through mobile app named "Dastak" and is geared towards the MSME sectors which are affected by the COVID-19 slowdown. MSMEs can avail the facility for requirements for Working Capital, Raw Material, Purchase of Machineries, Tools, Equipment's and Establishment of New Projects up to PKR 0.3 Million for a period of 03 years. Chief Minister's Self-Employment Scheme (CMSES) has been active since 2011 through Akhuwat Islamic Microfinance as service provider. More than 2.9 Million borrowers have so far benefitted from it with total interest-free loans disbursed to the tune of PKR 72 Billion. Some more interventions provide targeted credit facilities for artisans and handicrafts development and support to skilled, semi-skilled and home-based workers. These schemes primarily aim at addressing challenges of liquidly needs & employment generation of micro businesses at 0% mark- up. In conjunction with MSMEs support, skill development for industrial workers and employees has remained a key area of focus under Punjab Growth Strategy and now under RISE Punjab as well. Technical and vocational training opportunities not only provide skilled manpower to micro- to large-scale industries but shall help the labour force develop its capacity to establish their own small businesses to seek better employment opportunities. TEVTA has been the lead agency of the Government of Punjab in this regard. One of its flagship programs named "HUNARMAND NAUJWAN" is aimed at producing 94,700 trained graduates within a time span of 12-months. It is anticipated that the human Page 69#95Chapter VIII - MSMEs - Revitalizing Punjab's Economy capital development through this program will add value to the tune of 13 Billion to the economy of Punjab. TEVTA shall adopt mode of training to online through e-Rozgar initiative. The Government of Punjab, therefore evidently, is leveraging new and ongoing interventions by realigning their focus in the aftermath of COVID-19 spread which cover the entire spectrum of issues being faced by the economy. In addition to the preceding direct intervention, other policy levers are being attuned as well to yield medium to long-term dividends in wake of the challenging economic and business environment. 03 Enabling Environment to help MSMEs Sustain and Grow: In this regards, Punjab Government's strategy entails the following dimensions with a view to providing enabling environment to sustain and grow businesses in immediate to medium-term: ☐ ☐ Enabling Environment to help MSMEs Sustain and Grow Realigning Punjab Growth Strategy: With a view to bringing in resilience to the economic growth and development trajectory of the Province, Punjab Growth Strategy is being realigned. RISE Punjab Framework was developed by Planning and Development Department for the purpose of formulating a prioritization framework for guiding Development spending. Support to businesses and prioritizing those sectors for public investment which crowd-in private investment or involve multiple industries are the key pillars of this realignment. For example, one initial intervention is to increase focus on Public Works Schemes, Construction Sector and Irrigation projects that will create employment in large numbers and will support allied smaller businesses and help revive the economy. Accelerating Reforms for Ease of Doing Business: Pakistan and Punjab have made significant strides in terms of facilitating the businesses in terms of start-ups and operations. Government is contemplating accelerating the pace by reviewing the existing regulatory and licensing regimes and will carry out consultations with the private sector to further reform the regulatory regime. The Government is considering easing out the PESSI registrations and also looking at the Local Government licenses that can be relaxed to provide Ease of doing Business to the small businesses. Bringing MSMEs under Formal Net: Punjab Government is contemplating measures to reduce cost of compliance with a view to broadening the provincial tax base. Various measures are under consideration in this regard. One of the challenges in providing support to MSMEs through any sort of intervention is high degree of informality and micro enterprises being outside any formal banking and taxation net. This has consequences for provincial tax revenue as well. Crowding-in Private Investment: Innovative Financing by crowding-in private investment in times of constrained public fiscal space is a key element Government's strategy and offers a lot of potential for both Government and the private sector. Government is cognizant of the fact that a business-friendly economy is key to attracting and protecting investment. PPPs investments have a lot of potential to trickle down the economic opportunities to MSMEs, hence a sector of priority for the Punjab for FY 2020-21. Provide Productive and Skilled Labour Force: Government plans to use the existing TVET infrastructure to increase the relevance and quality of training provided. With Punjab Skills Development Authority (PSDA) in place as a regulator, private sector will be encouraged to impart skills-based trainings, thus reducing the burdent on Government providers such as Punjab TEVTA. In the context of COVID-19 induced unemployment, Government intends to strengthen this sector through PSDA regulation and involvement of private sector to produce better trained individuals. This calibrated approach looks more result-oriented. For the industrial development, the importance of the Micro and SME sector cannot be overemphasized. This segment of the market holds great promise for Pakistan. SMEs contribute more than 40% in the annual GDP, bulk of which is provided through the SMEs located in Punjab. However, unlike large enterprises in the formal sector, a small and medium enterprise is resource constrained, especially in the currently prevailing overwhelming circumstances. In addition to indigenous initiatives by the Government to support this sector, these is a need to tap international partners for support in this area. International Finance Corporation (IFC) in 2010 revealed that an estimated 50-60% of MSMEs on a global level are either under-served or completely un-served. Financial institutions, globally, are considering MSMEs sector as an opportunity to capitalize and earn significant return on investment (ROI). This is high time for Punjab and Pakistan to tap such support opportunities for its MSMEs sector to make it resilient to any future economic shocks. Page 70#969 Public Financial Management (PFM) Reform#97Chapter IX - Public Financial Management (PFM) Reform The Public Financial Management (PFM) system - the institutions, policies, laws and processes that govern the use of public funds - plays a key role in ensuring optimal utilization of resources to achieve service delivery objectives in line with National and Provincial priorities. A strong PFM system can ensure higher and more predictable budget allocations, reduced fragmentation in revenue streams and funding flows, timely budget execution, better financial accountability and transparency. Timely Budget Execution Reduced Fragmentation in Revenue Streams M Better Financial Accountability Predictable Budget Allocations PFM Transparency Background Government of the Punjab has been striving to enhance its PFM capacity to provide better services to citizens of Punjab. Finance Department, being the central agency for financial management in the Provincial Government, has been leading these reforms. Examples of such initiatives include but are not limited to; Piloting of Medium-Term Budgetary Framework (MTBF) PRA ㅁㅁ $ % PAY Establishment of Punjab Pension Fund Punjab Revenue Authority GATEWAY Creation of tax bases for Urban Immovable Property Tax Digitization of Introduction of e-stamping) Budget transparency reforms (Medium Term Fiscal and Motor Vehicle Taxes Framework, Budget Establishment of formula based fiscal transfer systems for Local Governments Initiation of online collection of Strategy Paper and Citizens Budget) Provincial taxes/levies through ePay Punjab under the Ease of Doing Business umbrella Need Assessment The magnitude of the ever-evolving and multifarious Development challenges facing the Government of Punjab and the limited financial resources available to foster accelerated growth, development and the provision of quality public Page 71#98Chapter IX - Public Financial Management (PFM) Reform services for the population of the Province have together created the need for a new PFM reform paradigm. Furthermore, a Public Expenditure and Financial Accountability (PEFA) Assessment, 2019 of the Government of the Punjab, was recently undertaken by the World Bank and DFID, UK to help identify gaps in the PFM system in the Punjab. Some of the critical areas identified by PEFA 2019 include weaknesses in policy-based budgeting, unreliability of Provincial budgets due to inaccurate revenue forecasting, low predictability in budget execution, ineffective accountability mechanisms and fiscal risks due to operations outside financial reports. Summary of Punjab's PEFA Assessment Score A B C D Total Result 2 (7%) 5 (16%) 11 (35%) 13 (42%) 31 (100%) A Indicates perfect result in terms of compliance with the criteria which is based on the notified standards or best practices B Indicates good result largely in compliance with the criteria C Reflects basic performance D When the performance is less than the basic level or is absent or due to insufficient information The findings of PEFA were supplemented with a gap analysis carried out by the Sub-National Governance (SNG) Programme in consultation with the Finance Department. Thus, the PFM Reform Strategy (PFM-RS), 2020 provides a set of actions to plug the gaps in PFM in Punjab identified through PEFA 2019 and the gap analysis carried out by the SNG programme. PFM Reform Strategy 2020 Structure of PFM Reform Strategy Pillars Result Areas 9 Pillars 36 Result Areas Addressing major areas of PFM systems On reform dimensions within a pillar Actions 217 Actions To achieve Result Areas Experience in Pakistan and other countries points clearly to the fact that PFM reform is a complex and time- consuming process. While some incremental improvements can be made fairly quickly, the comprehensive overhaul of the PFM system will usually extend to a decade or more. A key role of the PFM-RS in this situation is to set out the longer-term vision for a strengthened PFM system and to clearly define the priorities and sequencing of the reform process. Established international good practice is that PFM reform should start with putting the basic systems in order - "First Things First". More complex reforms, such as Performance budgeting, can only be successfully implemented once the core PFM systems are in good order. The PFM-RS establishes a long-term framework for PFM reform in Punjab, distinguishing between the short & medium term (2020-2023) and the long term (2024-30) interventions. This permits clear identification of the most urgent areas in which reforms should be commenced immediately from those reforms which should be undertaken in the medium and longer term. To cope with the wide span of PFM, the PFM-RS 2020 is based on a total of nine "Pillars", each of which addresses a major area within the PFM system. The Pillars are presented in a 'Results-Framework' that specifies the vision, result areas, issues, and recommended actions to counter these challenges. Page 72#99PFM Reforms - Results Framework 01 02 03 Revenue mobilization is strengthened to PFM and Disaster Risk Quality of finance services Financing budgeting is improved Improved fairness of taxation policy Forecasting the macro-fiscal impact Strengthening of Top-down budgeting of pandemic Higher non-tax revenue through greater cost recovery, rationalization of rates of licensing/ royalties and transparent sale of assets Taxation policy & administration response Consultative and performance-based budgeting with greater legislative scrutiny Taxpayer facilitation for ease of doing business Managing expenditure for disaster relief Improvement in intergovernmental coordination Reduce fiduciary risks of disaster management funds Disaster risk financing strategy Enhanced transparency of budget Effective monitoring of results 04 H4 BJ 05 06 07 08 09 projects/scheme need based, transparent and equitable fiscal transfer system Budget is executed as planned and fiscal risks are managed better Disciplined and orderly budget execution Reformed development budget systems Planning process is comprehensive i.e. includes sector strategies aligned with overall strategic priorities as the basis of identification of Improved management of funds in local governments Implementation of a Improved legal and regulatory framework Overarching PFM system is defined by a PFM law Capacity enhancement for better PFM Improved systems of PFM trainings IT for effective PFM and revenue mobilization Automation of Key PFM processes Strengthened internal controls Strengthened compliance with planning procedures Strengthened PLGFC Secretariat Comprehensive and consistent set of regulations underpin Improved capacity of stakeholder institutions to Technology enables timely reporting and sound public supports better financial management manage PFM systems management of public finances Effective and proactive fiscal risk management Effective project monitoring systems for management decisions Mobilization of local revenues and focus on incentivized growth Updated budget manual provides a sound basis for management of Strengthening/capa city building of tax departments Automation of payments budget cycle Efficient and transparent procurement management Identification of opportunities and subsequent management of Public Private Partnerships Improved PFM systems at local level Automation of tax systems#100Chapter IX - Public Financial Management (PFM) Reform Program for Results (PforR) - Punjab Public Resource Management Program While recognizing the need for PFM Reforms, Finance Department, with the partnership of the World Bank, has developed a USD 330 million Program for targeted reforms in different Provincial agencies: Finance Department, Planning and Development Board (P&D Board), Board of Revenue (BOR). Excise, Taxation and Narcotics Control Department (ET&NC Department). Local Government and Community Development Department (LG&CD Department), Punjab Information Technology Board (PITB), Punjab Revenue Authority (PRA), Punjab Procurement Regulatory Authority (PPRA). The Program Development Objective (PDO) is "to improve collection of Own Source Revenue, management of public resources and disaster risk and use of technology in the delivery of Government services in Punjab”. The Program design is informed by revenue potential and tax administration analyses conducted under Trust Fund for Accelerating Growth and Reforms (TAGR), PEFA and other technical assessments. This is a hybrid Program for Results (PforR) operation with three key result areas under the Results Component (USD 300 million): Strengthened Budget Formulation and Fiscal Risk Mitigation Gov-tech for continuity, efficiency and transparency of Increased Revenue Mobilization by strengthening Administration services The Program will also include a Technical Assistance Component (USD 30 million) to support the implementing entities with interventions that require input-based specialized expertise and capacity building. It will finance automation of business processes and provide technical Assistance for both Finance Department and P&D Board for activities/diagnostics including use of big data in tax administration and tax audit techniques; revenue generation from public properties; business process mapping and simplification to enable automation in tax administration; review of legal framework and technical requirements for public financial management, especially relating to performance-based budgeting and e-procurement etc. The Program is for a duration of 5 years and is expected to initiate in October 2020. The Punjab Government believes that this deep-seated reform will address the systematic deficiencies in the most result-oriented manner. PFMU While the Program is being developed, the Government is very keen on initiating implementation of major PFM reform requirements already identified e.g. e-Procurements, Pension Reforms, development of tax analytics capacity etc. A PFM Unit will be established within Finance Department to undertake Budget Reforms, Revenue Mobilization Reforms and e-Procurement. There would be five distinct work streams within the PFM Unit - Project Finance, PFM, Taxation, Management Information System (MIS) and the e-Procurement. The Unit will collaborate with all Development Partners to help ensure donor coordination for effective implementation of its agenda. Following will be the major functions of the proposed PFM Unit: Page 74#101Chapter IX - Public Financial Management (PFM) Reform Major Functions of Proposed PFM Unit 1. Develop, implement and monitor Public Financial Management Reforms; 2. Undertake analytical research on taxation policy and administration; 3. Redesign and implement a system for e-Procurement; 4. Effectively communicate and highlight Government of Punjab's Public Financial Management Reforms. Resultantly, the proposed Unit will support Government of the Punjab in transforming its Public Financial Management (PFM) System by facilitating simpler and productive business processes and adoption of IT systems as tools for transparent and efficient service delivery. These, it is expected, in turn will contribute towards the desired outcomes of improved management of public resources and augur well for increased Own Source Revenue collection for Punjab. Conclusion Improving the effectiveness of the PFM system is expected to generate widespread and long-lasting benefits, and may in turn help to reinforce wider societal shifts towards inclusive institutions, and thus towards an economically stronger Punjab with reduced poverty, greater equality and balanced growth. Page 75#10210 Breaking the Mould: Inclusive Budgeting, Framework for Rolling Expenditure and the Rest#103Chapter X - Breaking the Mould: Inclusive Budgeting, Framework for Rolling Expenditure and the Rest P PART I: FISCAL DISCIPLINE & AUSTERITY MEASURES rovincial Government, as a matter of policy adheres to broad-based austerity by observing prudent financial management and judicious reduction of expenditure without compromising the essential and core service delivery and development mandates. In pursuance of this, Government of the Punjab adopted measures for ensuring strict Fiscal Discipline and Austerity Measures for the Financial Year 2019-20 which shall continue into the FY 2020-21 as well. To ensure stringent monitoring, Finance Department has institutionalized the preparation of a Ready Reckoner updated on monthly basis. This brief but concise document captures the essence of fiscal operations and steps in terms of fiscal discipline exercised during this period. From next FY, Finance Department plans to ensure a wider dissemination of the same to all Provincial Government Departments and also to the Federal Government. This Hard Budget constraint led to massive savings in the FY 2019- 20 to the tune of PKR 61 Billion through Supplementary Grants and PKR 1.5 Billion under other austerity measures. Some of the core elements of ensuring fiscal discipline and austerity regimes are control of Supplementary Grant, Ban on Purchase of New Vehicles (except Ambulances for Hospitals, Buses and Coasters for Educational Institutions, Tractors / Trollies, Dumpers, Water Bowsers, Fire Fighting Vehicles, Flood Relief & Rescue Equipment(s) / Vehicles, Motorcycles), Ban on Purchase of Air Conditioners, Ban on Furnishing of Houses and Discretionary Grants to the Provincial Ministers and Ban on Up-gradation of Posts, inter alia. RECEIPT: . • READY RECKONER Correct up to 13-04-2020 For FY 2019-20, FBR target has been fixed at Rs. 5,555 bn. (Projection Rs. 4000 bn) accordingly, Punjab's share in Federal Divisible Pool (FDP) amounts to Rs. 1,601 bn (Projection Rs. 1149 bn) • Punjab has received Rs. 852.5 bn till 31 March, 2020 as its FDP share against Rs. 740.2 bn for the same period during LFY 2018-19 (15% ) Provincial Own Source Revenue (OSR) target for CIY has been fixed at Rs. 388 bn (Projection Rs. 262 bn). against actual receipt of Rs. 273.1 bn for LFY (42%) Provincial Own Receipt (OSR) are Rs. 218.1 bn (Tax Receipts Rs.152 bn Non-Tax Receipts - Rs.66.1 bn) against Rs. 183 bn. for the same period during LFY (19%) till 31 March, 2020. Status of major financial receipts is as under: • PRA Rs. 79.9 bn (18.7%) E&T Department- Rs. 22 bn (-8%) . Net Hydel Profit - Rs. 6.5 bn Tax Relief Package of Rs.18 bn (Convid-19) EXPENDITURE: DEVELOPMENT BUDGET • • BOR Rs. 55.9 bn (5.6%) Non-Tax & Others - Rs. 66.1 bn (73%) Annual Development Program 2019-20 Rs. 350 bn against Rs. 238 bn for LFY (47%) Indicative Cash Cover for ADP up till 3rd quarter Rs. 240 bn • Status of Development Funds: . Funds released - Rs. 226 bn CFY against Rs. 164 bn LIY (38%) Utilization - Rs. 159 bn CFY against Rs. 114 bn LFY (39% +) FD has released Rs. 226 bn against Rs. 257 bn released by P&D. NON-DEVELOPMENT BUDGET Non-Development Budget for CFY Rs. 1,298.8 bn (Projected Expenditure Rs. 1.241.1bn) Funds for 4th quarter have been released. Updated status is as under: Salary funds released (100%) Rs. 337.6 bn. Expenditure Rs. 228.9 bn (Projection-Rs. 315 bn) ⚫ Non-salary funds released (90%)- Rs. 251.5 bn, Expenditure Rs. 142 bn (Projection-Rs 260 bn) ⚫ Funds for Purchase of Medicines released - Rs.28.5 bn. Expenditure Rs. 14.4 bn . Rs. 15 bn for Mitigation & Control of Covid-19 for the following Departments: • SIC & MED-Rs. 6.7 bn, P&SIIC- Rs. 5.2 bn, PDMA- Rs. 2.6 bn, Zakat Deptt - Rs. 708 mn FIRST STATEMENT OF EXCESS & SURRENDER ISSUED ON 7TH JANUARY, 2020. Thirty Departments submitted First Statement of Excess & Surrender, Excess demanded- Rs.23.1 bn, Beneficiary Departments - SIIC&ME - Rs. 13 bn, P& SIIC-Rs. 5 bn & S&GAD-Rs.0.99 bn NET SUPPLEMENTARY GRANTS FOR FY 2019-20: • . * Net Supplementary Grants approved up till 31" meeting of SCCFD (19-03-2020) "Rs. 56.1 bn • Newly approved funds Rs. 33.6 bn (including Rs. 17.33 bn for PTPL by Provincial Cabinet). Unspent & Lapsed funds (Donor and Federal Govt.) Rs. 22.5 bn Total supplementary grant regretted Rs. 60.9 bn Net Supplementary Grants regretted by SCCFD Rs. 6.8 bn Net Supplementary Grants regretted by Finance Department - Rs. 54.1 bn Without Supplementary Grant of Food Account-11-Rs. 40 bn PART II: SCCFD - Role in Policy Making Standing Committee of Cabinet on Finance & Development (SCCFD) has played a pivotal role in effective and efficient Policy Making during the FY 2019-20. Unlike the past practice where agenda items were primarily restricted to decisions on Supplementary Grants, the SCCFD during FY 2019-20 has assumed the role of a more robust forum taking key decisions that have had major bearing on the fiscal and Development trajectory of the Province. Some of the key decisions are highlighted as follows: 1. Sustainable Model for WASAS 2. HUD&PHE Department directed to finalize a comprehensive and sustainable financial model for WASAs under the aegis of an institutionalized mechanism headed by the Chief Secretary and including Finance Department, Planning & Development Board and Urban Unit. Sustainable Model for PHA The Committee directed the HUD&PHE Department to present a sustainable financial model for the Parks & Horticulture Authority in the wake of the judgement of the Supreme Court of Pakistan impacting Revenues. 3. Dynamic Plan for CFMP The Committee directed that the Punjab Information Technology Board (PITB) would draft a comprehensive and holistic overview of the Citizen Feedback Monitoring Programme (CFMP) along with practical suggestions and solutions to ensure effective utilization of the programme that would result in responsive, dynamic, transparent and efficient Governance. Page 77#104Chapter X - Breaking the Mould: Inclusive Budgeting. Framework for Rolling Expenditure and the Rest 4. Lifting of Ban on Coal Mining Concessions in Punjab 5. 6. Policy framed in consultation between Mines & Mineral, Environment Protection, FW&F departments and lead by Finance Department consequent to directions of Committee. Induction of New Buses for Public Transport Transport Department directed draft a holistic proposal to address public transport issues through innovative financing models, in consultation with Finance Department, Planning & Development, Urban Unit and City Traffic Police under the convenorship of Advisor to CM on Economic Affairs and Planning & Development. Establishment of Child Protection Institution Home Department directed to frame a comprehensive and holistic plan for Child Protection in the Province. 7. Legal Representation of Government Departments in Court The Committee highlighted the sub-par quality of legal representation for the Government in important cases carrying huge financial implications before higher courts of law. This deficiency often led to heavy and avoidable monetary losses to the public exchequer. Part III: INCLUSIVE BUDGETING Inclusive Budgeting is attributed to several global best practices. In a bid to move towards greater transparency and stakeholder participation in the budget making process, the Government of the Punjab, Finance Department conducted a survey through an advertisement, published in all major English and Urdu local newspapers. The pole received an overwhelming response from citizens indicating priority areas for public expenditure. Key results are indicated below; ■ A sizeable majority has favored interventions in the sectors resulting in economic revival and employment generation (39%) Healthcare (15%) has rightly been suggested as another area for the Government to focus on and Education (22%) is preferred by the highest number of respondents. INCLUSIVE BUDGETING Forestry 4% Environmental Protection Agriculture & Livestock 3% 2% Education 22% Infrastructure Development 4% Social Protection 6% Administrative Reforms 5% Economic Revival 8% Employment Generation Healthcare 15% 12% Salary increment & Employment Promotion 19% INCLUSIVE BUDGETING PUNJAB BUDGET 2020-21 Finance Department, Government of the Punjab would like to solicit your recommendations for the upcoming Citizens Budget 2020-21 We value your suggestions! "Which sectors would you like the Government to invest in?" Curative Health Investment Opportunities Employment Generation 11,06 +4,17 +1,23 880 Environmental Sustainability Economic Revival Preventive Health Social Safety Net Page 78 Please send your valuable suggestions to us by May 28, 2020 at the following email/postal address: [email protected] OR Deputy Secretary (Budget), Finance Department, Civil Secretariat, Lahore#105Chapter X - Breaking the Mould: Inclusive Budgeting. Framework for Rolling Expenditure and the Rest PART IV: Framework for Rolling Expenditure In consonance with Public Financial Management Reforms Strategy, the Finance Department has conceived and implemented a Framework for Rolling Expenditure (FRE) to get a better handle on the releases of Expenditure assignments. The Framework shall govern the execution of Expenditure assignments budgeted for FY 2020-21. FRE has been structured with a view to enabling the Finance Department to better plan and manage the upcoming Fiscal Year and execute the Annual Budget in a more predictable and responsive manner. It is aimed at providing control over the forecast and visibility for the 12-months on rolling basis. Such fiscal controls are mandated owing to the challenges that accompany the exigencies like COVID-19 pandemic, which force a diversion of significant resources off course, and the need remains to ensure provision of other aspects of service delivery at the same time with only minimal disturbance. So, essentially, the FRE has evolved out of the lessons learnt from the fiscal management of the COVID-19 pandemic in the Province, hence having very practical foundation, and understanding of the need to prepare better for the future. FRE is meant to serve three key ends - resilience to Revenue and Expenditure shocks, ensuring only unavoidable disruption to the most important aspects of routine service delivery and demand-driven model of releases of Expenditure assignment. Following are the salient constituent features of this Framework; Figure 1 captures the essence of the same: 鳳 Rolling Framework of Expenditure to see Potential Headwinds and Adjust Spending Forecast for Defined Time Horizon - FY and Beyond for 12 Months to Assess the size of Throw-Forwards Monthly Releases on Non-Development side For First Quarter of FY, at least, Control over Cashflows to Mitigate the Impacts of Revenue Shocks Based on Input from Key Departments Demand-Driven Model vs the Traditional Supply-Driven Frontloading/ Backloading the Priority Heads/Sub- Heads based on Requirements Framework for Rolling Expenditure. Finance Department. Govt. of Punjab Legislative Measures become a Possibility with Increased Visibility Amendments to Finance Bill during the Financial Year Participatory Course Correction More than Two Statements of Excess and Surrenders Opportunity to the Departments for Intermediate Course Correction Resilience to Revenue and Expenditure Shocks Real-time visibility for a defined time horizon - Fiscal Year and beyond for 12 months rolling. Envisages monthly releases on Non- Development side. This carries the advantage of greater spending control in the beginning of the FY. ☐ Applicable on all Non-Development Expenditure heads excluding Pays and Allowances " " Demand-driven vs. Supply-Driven release plan characterizes the FRE. The FRE model kicks into action at the beginning of the Fiscal Year by taking input from the key Provincial Government Departments before the year commences. A Department-specific prioritized list of heads/sub-heads and proportion of their expenditure assignments at various periods in the year provides main input into the FRE. (This aspect has been elaborated later in this chapter) These Department-specific requirements are stockpiled to provide a cumulative overall release plan spread over defined time horizon (12 months) and divided across periods. FRE model is structured in a way that it caters to emergent Expenditure requirements above and beyond what has been allocated or budgeted for the specific period by the FRE model to meet any exigent requirement under a specific head. The remaining Budget is rolled over to the remaining periods in the FRE time horizon. Similarly, the model provides insight into requirements for future adjustments in case of releases lower than the budgeted amounts in a certain period. Page 79#106■ " Chapter X - Breaking the Mould: Inclusive Budgeting. Framework for Rolling Expenditure and the Rest On the Revenue side, it is intended to provide a better control over cashflows by mitigating the impacts of revenue shocks. A categorization of Most Essential, Moderately Essential and Lesser Essential Expenditure Heads helps minimize the impact of revenue shocks across heads to ensure minimum disruption to service delivery. FRE involves participatory course correction. More than two Statements of Excesses and Surrenders become a possibility with the kind of visibility and predictability it offers over the rolling period. An indicative view of the FRE model output based on sample data is shown in the Figure 2 below: Expense Heads Recipts/Revenue Sensitivity Service Delivery Essential Elements Preventive & Curative Healthcare Disaster Response Financing Social Protection Economic Regeneration Budget Essential Service Delivery Support Elements POL Utilities Stationary Mac Cost of Other Stores Others-1 Others-2 Others-3 Others-4 Others-5 Budget Non-Essential ROLLING WINDOW BUDGET EXECUTION AND FORECASTING Jul-20 Quarter-1 Aug-20 Sep-20 Oct-20 FY 2020-21 Quarter-2 Quarter-3 Quarter-4 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 FY 2021-22 Quarter-1 Aug-21 Sep-21 Legend 100% or More More than than 80% and Less than 100% More than 65% and Less than 80% More than 50% and Less than 65% Less than 50% Realign Fin. Bill (if Reqd.) 1st Stmt. of ES 2nd Stmt. of ES 3rd Stmt. of ES Drivers FG and OSR Receipts COVID19 Response Expenditure Social Protection Disaster Management Snapshot of Output from the FRE Model based on Sample Data. Extends to 12-Months' Time Horizon. Finance Department, Govt. of Punjab It is worth noting the fact that input from Provincial Government Departments is of utmost significance to for such a Framework to be practicable. Finance Department has sought feedback of Administrative Departments as to which object heads and sub-object heads under their Non- Development Budget (except Pay & Allowances) matter the most towards ensuring a minimum level of service delivery. A prioritized list of object heads / sub-heads under the Non-Development Budget of the Administrative Department provides input to the FRE release plan and projections. FRE identifies the heads/sub-heads that the Departments require either to be front-loaded and back-loaded based on the requirements in specific time in the Fiscal Year and by what proportion. This input is characterized by a number of factors that are critical to service delivery. Tolerance to Expenditure and Revenue shock of every head/sub-head and any fluctuations in the Rolling Budget availability is an important consideration and shall vary from Department to Department. Similarly, there can be Department-specific seasonal variations in requirements under specific heads/sub-heads which may also need to be factored in. Essentially, Framework of Rolling Expenditure introduces a novel mechanism which is more demand-driven as compared to the traditional supply-driven. The latter has a uniform application across the board and the annual budgetary allocations are split into a strait-jacketed 4- quarterly or twice-a-year releases of Expenditure assignments; hence is insensitive to the unique needs of the Departments. FRE not only has the potential to provide more visibility and predictability into the cashflows for the Finance Department, but also helps the Administrative Departments plan their Expenditure requirements over the 12 months' time horizon more prudently and with a greater degree of formality. FRE Page 80#107Chapter X - Breaking the Mould: Inclusive Budgeting. Framework for Rolling Expenditure and the Rest has great prospects to provide better control over the situations resulting out of the Expenditure and Revenue shocks, hence making the fiscal policy of the Province more resilient in future. The colour-coding employed in the FRE makes it more comprehensible and lucid. Page 81#108FOR FURTHER INFORMATION Rana Obaid Ullah Anwar Additional Finance Secretary (Budget) Finance Department Government of the Punjab +92 42 99 211 076 [email protected] Ms. Sarah Hayat Deputy Secretary (Resources-I) Finance Department Government of the Punjab +92 42 99 211 078 [email protected]#109برهو پنجـ Finance Department GOVERNMENT OF THE PUNJAB