ISLAMABAD: The Ministry of Finance is formulating a unified Public Finance Management (PFM) law to capture the whole budget cycle in one piece of legislation at the federal level, Dawn learnt on Saturday.

The cycle will include budget preparation, expenditure control, budgeting for contingencies, financial accountability, moving towards a single treasury account and fiscal transparency.

The legal framework for PFM is not yet harmonised into one comprehensive budget law as provided by the Constitution in Article 79. The finance division is currently working on the final bill to be called public finance management law (Public Finance Administration Act) which is expected to be submitted to parliament in 2015.

The federal government was also developing a comprehensive and sequenced public finance management reform strategy and action plan in consultation with all relevant institutions and in coordination with the provinces; establishing a PFM reform unit to oversee development and monitoring of the PFM reform strategy; strengthening and consolidating the MTBF; upgrading the capacity of finance ministry and Planning Commission for the improved macroeconomic modelling, fiscal and tax policy formulation.

In an effort to better link budget allocations with development priorities and performance, the finance ministry and the Planning Commission were driving the process towards results-based management in public sector. The MTBF process was being fully automated to move towards implementation and monitoring of output-based budgets, with the first pilots to be initiated in fiscal year 2015-16.

Though part of the reform process which is currently underway, is strengthening the link between revenues approved in the budget and actual receipts, the Asian Development Bank feels that a number of steps are needed for improvement in this area. ADB says strengthening FBR’s technical skills in terms of revenue forecasting is one key element.

For FY15, the budget was linked to commitments under IMF programme and to near-term reforms. Power sector reforms and planned audits of all components of the energy sector will contribute to a more manageable and more predictable fiscal outlay in the near term, and reduce fiscal burden from current expenditure over the medium term.

Other measures, including governance reforms in, and commercialisation and privatisation of several public sector enterprises over the three-year IMF programme period will also be a substantial improvement. The IMF, ADB and the World Bank are currently working with the government towards this end.

The reform programme also intends to strengthen the alignment between the approved budget and its outturn. The government has started to compile performance monitoring reports for all agencies to identify reasons for the deviations between the budget projections and the actual outturn and compare achievements with performance targets.

Revenue measures include strengthening the capacity of officials in FBR, and the tax base and improve tax administration. Expenditure measures include continued rollout of the computerised project management system for cash planning and forecasts; power sector reforms and planned audits of all components of the energy sector; and governance reforms in, and commercialisation or privatisation of several public sector enterprises over the medium-term.

Separately provinces were also implementing reform programmes to improve their PFM systems. These are concerted in two key areas: the introduction of output-based budgeting, and linking policies and strategies to the allocation of resources and reforms in revenue collection. Punjab and Sindh have already established a provincial revenue authority to improve tax administration and to collect the sales tax and agriculture income tax among others devolved to the provincial level. Balochistan and Khyber Pakhtunkhwa were also in the process of establishing a revenue authority.

Published in Dawn, August 30th, 2015

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