The minister said the Cabinet was informed that budget would be presented before the Parliament in May while in April it would be submitted before the Committees of the National Assembly and Senate for discussion with the simple objective to have the Parliamentary approval. He said that meeting was also told by the Finance Minister Shaukat Tarin that Pakistan will be dependant on International Monetary Fund (IMF) programme.
To a question as to what would be strategy in this regard, he said that real estate and stock exchange would be brought under the tax net to strengthen the financial side besides plugging the loopholes in taxation system and cut on non-development expenditure. About Agriculture, he said that this was the provincial subject and decision to bring the sector under tax net would be taken by the provinces. The Minister said that the government was trying to bring financial discipline and the Minister for Finance has been doing commendable work in this regard.
Kaira dismissed that Minister for Finance has tendered his resignation rather he said that Tarin was neither in pressure nor had he resigned. To a question about talks with India and water issue, he said that the Pakistan was ready to approach the International Court if India did not settle the issue through negotiations.
The Minister said that the government would appreciate any measures by India that could lead towards resumption of composite dialogue to solve the contentious issues including core issue of Kashmir. Giving details of new budgetary system being introduced from next fiscal, he said that overall deficit of the national economy shall be reduced from existing 5.3 percent of GDP (as per revised budged estimates for 2009-10) to 4.2 percent in 2010-11 and 2.3 percent of the GDP by 2012-13.
The Cabinet approved indicative budget ceilings for recurrent and developmental budget. Indicative budget ceiling for current financial year includes Rs 5,827 billion under total broad recurrent budget heads. Similarly, Rs 6,226 billion, Rs 6,410 billion and Rs 6,666 billion are forecast in the same heads for the years 2010-11, 2011-12, 2012-13 respectively.
The Cabinet was apprised that efforts would be made to increase FBR Revenue to GDP (at market prices) ratio from the current 9.3 percent to 12.1 percent by 2012-13). These efforts include revenue policy measures (eg introduction of VAT) and reform measures.
The meeting was informed that the National Finance Commission (NFC) Award has increased provincial share of revenue to 57.5 percent by 2012-13. This percentage excludes Straight Transfers and transfer to NWFP on account of war on terror along with reduction in collection charges to 1 percent of tax revenue collected by the Federal Board of Revenue.
The interest on domestic and external debt will continue to absorb between 4.0 percent and 3.8 percent of GDP (at market prices) over the medium-term, the meeting was told. The grants for war on terror will also be increased to tackle the militancy, he maintained.
It was brought to the notice of the Cabinet that the cost of running of the federal government will increase gradually. This excludes the effect of increase in pay / monetization of allowances which may be recommended by the Pay and Pension Committee. However, austerity measures are being taken (including merging of Ministries) to contain this expenditure.
The Public Sector Development Programme (PSDP) will increase from 1.7 percent of GDP (revised budget 2009-10) to 2.3 percent of GDP by 2012-13. For the Provinces the PSDP will increase from the existing 1.3 percent of GDP (original budget 2009-10) to 2.0 percent of GDP by 2012-13, the meeting was informed.
The meeting was apprised that Constitutional Reforms Committee will present its finding in March 2010 related to constitutional amendments incorporating a list of functions that can be transferred to provinces. This would affect the federal recurrent and development budgets.
The government will provide relief, rehabilitation and reconstruction support to Internally Displaced Persons. The Benazir Income Support Programme will be further rolled out to target the poor and needy. The Pay and Pension Committee will recommend measures to be adapted to reform pay and pensions of the Government personnel.
However, till the recommendations, the Pensions and Running of the Federal Government budget is estimated to increase at the rate above the projected inflation rate. Budget management reforms are being initiated to increase medium-term fiscal space and improve efficiency and effectiveness in Government spending.
Main points of micro-economic perspective of the economy were also presented in the meeting, which are as under: The 9-point agenda approved by the government last year while taking measures to improve macro-economic activities presents higher spending priorities for social protection, energy, agriculture, health and education.
The stock market has been generally upbeat. The external position is showing signs of improvement. The increase in remittances and decrease in import bill have resulted in narrow current account deficit. However, increase in exports is a major challenge that needs to be addressed.
The tax to GDP ratio is considerably less than required and is hampering public sector investment to spur growth. However, the government will introduce Value Added Tax (VAT) from 1 July 2010, which is estimated to result in an increase of tax revenue by around 2.4 percent of GDP over the medium-term. The electricity supply and circular debt problem further exacerbated pressures on growth and debt management, however, this issue is currently being resolved.
In order to strengthen fiscal discipline, improve allocation of scarce public resources in line with Government priorities and enhance efficiency and cost-effectiveness in the use of public resources by federal ministries, the Cabinet approved Budget Strategy Paper 1 (2010-13) prepared by the Finance Division.
He said that the Finance Minister in his briefing to the Cabinet said that fiscal deficit, which stood close to 8 percent of GDP in 2007-08 would be around 5 percent of GDP for 2009-10. The fiscal policy shall continue to be driven by the strategy of reduction of overall fiscal deficit which will allow additional fiscal space to be utilised for the developmental spending in the medium to long term.
The Secretary Food and Agriculture also made a presentation on the wheat and sugar situation. The Cabinet was informed that sufficient wheat reserves were available in the country to maintain food security.
Despite delayed rains, the wheat production targets are not likely to cause much problem as there will not be much difference between the target and the wheat production due to the fact that the increase in wheat production in the irrigated areas would overcome the less production target in the Barani areas. In addition, the wheat reserves already available would be more than enough to meet the requirements.
The Cabinet was also informed that the policy of the government to increase wheat support price at Rs 950 per 40-kg has resulted in putting more areas under wheat cultivation and served as an incentive to the farmers. The Finance Minister informed the Cabinet that in view of the international prices of sugar and the past experience, the ECC of the Cabinet has already directed the TCP to import adequate stock of sugar to meet any eventuality.
The Prime Minister took note of the satisfactory position of wheat and sugar stocks in the country and directed the Finance Minister to also devise a strategy to provide relief to the people in gas and electricity.
The Cabinet ratified the decisions of the ECC meeting held on 26th January 2010. The Cabinet granted approval, in principle, of the draft MoU between the National Defence University of Pakistan and Naseer Higher Military Academy Egypt in the field of Academic Research and Co-operative Activities. The Cabinet granted approval for initiation of negotiations for the revision of Convention between Pakistan and Libya for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.
Keeping in view the changing circumstances and adoption of various new techniques by the drug Mafia in the trafficking of narcotic drugs countrywide and transnationally/ internationally, the Cabinet set up a committee to suggest amendments in the proposed Control of Narcotics Act, 2009."
The Cabinet granted approval for initiating negotiations on the draft agreement on promotion and protection of investment between Kenya and Pakistan. Kenya is the regional hub for trade and finance in East Africa and the proposed agreement shall further strengthen economic ties between the two countries.
The Cabinet granted ex-post facto approval for signing and ratification of Bilateral Investment Treat with Germany. It may be recalled that the first bilateral investment treaty of the world was signed between Pakistan and Germany after Second World War on November 25, 1959. To celebrate 50th anniversary of the first-ever bilateral treaty in the world, the revised BIT was signed at Berlin on December 1, 2009 during the Prime Minister's visit to Germany.
In order to bring in line with present day best practices in collective welfare schemes for public sector employees such as group insurance and benevolent fund, the Cabinet approved draft Federal Employees Benevolent Fund and Group Insurance (Amendment) Act, 2010 which shall be introduced in the Parliament. The Cabinet also directed the establishment Division to propose a comprehensive pension plan after having studied the Singapore model. The amendments will change the rates of subscription and grant towards Benevolent Fund so as to overcome likely financial difficulties of the Fund.
The Cabinet also granted approval to amendments in the Articles of Agreement of International Monetary Fund (IMF). One amendment relates to reform of quotas and voice in the IMF based on variables such as GDP, openness, variability, and level of reserves. Second amendment relates to expansion of investment authority of the Fund to explore more predictable and suitable sources of income to finance the Fund's diverse activities. The Cabinet was informed that the country would be able to come out of the IMF regime by the end of next financial year.