Development Planning and Budgeting in Pakistan

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An overview

The development in various sectors plays a pivotal role in the economic growth of a country. It generates employment opportunities, rotates capital in the economy and creates development activities etc. Thus policy makers always give priority to the development sector. However, this depends on the availability of funds after the allocation of operational expenditures of a government such as payment of salaries and utilities etc. In this regard most important initiative of a government is the establishment of basic infra structures of the country that acts as a catalyst for the domestic and foreign investments.

There are two development programs in Pakistan namely Public Sector Development Program (PSDP) and Annual Development Program (ADP). Former encompasses federal development program where as provincial development program is shaped in ADP. The federal and provincial governments have established various forums to approve development schemes having ceiling for each. These include Executive Committee of the National Economic Council (ECNEC), Central Development Working Party (CDWP), Provincial Development Working Development Party (PDWP) and District Development Working Party (DDWP) for approving the development plans. The development programs help the governments to achieve its short and long term goals and socio-economic objectives.

Planning Commission performs the functions of economic planning and oversees development activity in Pakistan. Primarily aims at transformation of less developed economic and social objectives into the acceptable economic objectives which includes;

  • Rapid development of resources
  • Optimization of resource use
  • Provision of adequate standard of living
  • Provision of welfare of the society as a whole.

Planning Commission is the custodian of Public Sector Development Program (PSDP) in the country. PC is responsible for setting priorities for PSDP on an annual and medium term basis. Development projects are created after completion of a lengthy process which usually spreads over a number of months.

PSDP consists of budget allocations to Federal Ministries and Divisions for the upcoming fiscal year. Allocations made by Provincial Governments for their development budget outlays are also separately identified in the PSDP document and are included to arrive at overall size of the national development budget for a particular year.

Development Budget

Development Budget characterizes the consumption which means

  • To maintain the Non-recurring expenditure.
  • It reflects the investment.
  • It is designed to intact & enlarges the physical resources.

Annual Development Plans, Project Schemes etc are the examples of development budget.

Development Expenditures

The development expenditure has been defined in the Punjab Budget Manual as the expenditure having the following characteristics:-

  • It is designed to keep intact, enlarge and improve the physical resources of the country;
  • It improves the knowledge, skill, and productivity of the people; and
  • It encourages efficiency with which available resources are used.

The only exception to the above is the investment in human resource by the Departments of Health and Education, which despite having the above features, is categorized as non-development expenditure. This exception is, however, made because expenditure by these two departments is of permanent nature and should, therefore, be met from permanent resources rather than from loan or aid. In this way the source of funding also plays some part in determining the type of expenditure.

Following the above mentioned principles the expenditure in important sectors such as Irrigation, Power, Communication and Transport etc. on replacement or expansion of existing capacity, or for creation of new physical capacity is treated as development expenditure. In respect of civil works, investment in building and roads are categorized as development expenditure. Similarly, the non-recurring expenditure on housing and settlement projects and ancillary services such as water supply, sewerage, electrification etc. is also part of the development expenditure.

ADP

Development expenditure is provided for according to plans each of which is intended to cover a period of one year in case of short term, and about 3-6 years in case of medium term plans. Annual Development Program, for a financial year is the statement showing the details of total development expenditure proposed for various development schemes in different sectors / sub-sector for a year.

Objectives of Development Budgeting
  • To determine the long term financial plan.
  • To meet the expenditures non-recurring in nature.
  • To align the financial resources to the developmental schemes

Key Stakeholders in Development Budget Process

  • Planning Commission
  • Ministries/Organizations/ Provincial Governments
  • Ministry of Finance
  • Economic Affairs Division
Development Planning Process

Development planning process includes identification, preparation, appraisal, approval and execution of any developmental plan, programme or a project.

Relationship of Plan, Program and Project.
Plan

Plan is process of identification of specific targets & chalking out the sectoral program accordingly.

Program

Program is a set of actions for achievement of physical targets for the development plans. Normally a program consists of the number of the identical projects.

Project

A project is a specific investment entity with the specific benefit to be attained in a specific time period. It may be defined as proposal for investment with the definite aim of producing a flow of output over a specific period of time.

So it is the smallest unit of investment activity to be considered in the course of programming. It will, as a rule, be a technically coherent undertaking which has to be carried out by a private or public agency and which can be carried out, technically speaking, independently of other projects.

Project Life Cycle

The Project Life Cycle refers to a series of activities which are necessary to fulfill project goals or objectives. Projects vary in size and complexity, but, no matter how large or small, all projects can be mapped to the following life cycle structure:

  • Starting the project
  • Organizing and preparing
  • Carrying out project work
  • Closing the project

So basically it is a six stage process through which practically every major project goes through:

  1. Identification: stage where one project-idea out of several alternatives is chosen and defined. Preparation: defined idea is carefully developed to the appraisal stage.
  2. Appraisal: every aspect of the project idea is subjected to systematic and comprehensive evaluation, and a project plan is prepared.
  3. Presentation: detailed plan is submitted for approval and financing to the appropriate entities.
  4. Implementation: with necessary approvals and financing in place, the project plan is implemented and
  5. Monitoring: at every stage the progress of the project is assessed against the plan.
  6. Evaluation: upon completion the project is reassessed in terms of its efficiency and performance.
Projects are broken down into phases so that extra control can be applied to effectively manage the processes. These phases are further divided into subsets for easy management, control, and planning. The following diagram further explains the phases and their sub phases or components in each phase;
Project Identification

Factors that lead to identification of project are;

  • Project relevance to the national & annual development program.
  • May be identified as a result of special policy directives of the government.
  • On the basis of resources potential investment opportunities, socio-economic objectives, assessment of local needs.
  • It includes the preparation of feasibility report for the project
Project Feasibility
  • Prepared on the Performa of PCII.
  • Feasibility is generally undertaken for the large projects that involve the large amount of resources.
  • It has the information like;
    • General Description
    • Justification
    • Mode of Financing
    • Detail of the Scheme
Project Preparation

Developmental projects are formulated on Performa of PCI which includes the following features;

  • Project Descriptions
  • Project Objective
  • Project Scope
  • Cost Estimation
  • Financial Plan
  • Physical Schedule Activities
  • Period of Implementation
  • Economic Benefits
  • Inter Agency Coordination
Project Appraisal

The sponsors send 45 copies of the PC-I/II to the PC. The document is first appraised by the PIA Section which is the secretariat for the above forums and if cleared by them it is circulated to all Members of the DDWP/ CDWP/ ECNEC and the concerned technical section of the PC dealing with the subject.

Technical section carries out the technical appraisal while the Economic Appraisal Section conducts the financial/economic viability of the project including Internal Financial Rate of Return (IFRR), Net Present Value (NPV) and sensitivity analysis etc.

Projects are examined on the following basis;

  • Technical Analysis
  • Institutional/Organizational/ Managerial Analysis
  • Commercial Analysis
  • Financial Analysis
  • Economic Analysis
Project Approval

The authorities empowered to approve the developmental project are;

  • NEC
  • ECC
  • ECNEC
  • CDWP
  • DDWP
  • PDWP

National Economic Council

Composition Functions
Chaired by the Chief Executive of the Country (President/P.M)
Members:
Federal Ministers (in-charge of Economic Ministries)
Deputy Chairman Planning Commission
Governors/Chief Ministers of Provinces
Secretariat: Cabinet Division
  • Supreme policy making body in the economic field.
  • Approves all plans and policies relating to Development.
  • Overall control of planning machinery.

ECC (Economic Coordinate Committee of Cabinet)

Composition Functions
Chaired by  the Prime Minister
Members
All Federal Ministers of Economic Ministries.
Secretariat:
Cabinet Division
  • Attends all urgent day to day economic matters.
  • Coordinates the Economic Policies of the Government
  • Keep vigilance on monetary and credit situation.
  • Regulate credit in order to maximize production and exports and to prevent inflation.
  • Approve the projects in private sector

ECNEC (Executive Committee of National Economic Council)

Composition Functions
Chaired by the Minister for Finance.
Members
Federal Ministers of Economic Ministries.
Provincial Governors/ Chief Ministers or their nominees, and
Provincial Planning and Finance Ministers.
  • Sanction development projects in the public and private sector.
  • Approve moderate changes in the plan and plan allocations.
  • Supervise the implementation of Economic Policies laid down by the NEC/Government.

CDWP (Central Development Working Party)

Composition Functions
Chaired by Deputy Chairman Planning Commission.
Members:
Secretaries of the Federal Ministries Concerned with Development
Heads of the Planning Departments of the provincial Governments
Secretariat: Planning Division
  • Approve/scrutinize Projects exceeding a certain financial limit of the Federal Ministries, Provincial Governments, Autonomous Bodies.
  • Submit/ recommend such projects to the ECNEC for final approval.

DDWP (Departmental Development Working Party)

Composition Functions
Headed by the respective Secretary of the Division/ Head of the Deportment.
Members:
Representative of the Finance Division
Concerned Technical Section of the P&D Division
  • Approve Development Projects of Federal Ministries/ Division/Departments according to their financial limits.

PDWP (Provincial Development Working Party)

Composition Functions
Headed by the Additional Chief Secretary Development/ Chairman P&D Board.
Members:
Secretaries of the Provincial Departments concerned with Development.
Representative of Federal Ministry of Planning & Development 
  • Approve Development Projects according to its financial limits.
  • Scrutinize projects for inclusion in the provincial ADP and
  • Recommend projects to CDWP above certain financial limits.
In December of every year Public Investment Programme (PIP) Section of the PC seeks from the Federal Ministries/Organizations/ Provincial Governments the details and priorities of the projects (whether ongoing or new) to be funded from PSDP. Working paper is prepared by the PIP section in consultation with concerned technical sections for the “Priorities Committee” meeting to be held in the Finance Division, under the chairmanship of Additional Secretary (Budget) Priority committee Issues a schedule of consultative meetings (Feb. to May) with the concerned stakeholders to determine the priorities of the projects.

In consultation with the PIP section of the Planning Commission and Ministries/ Organizations/Provincial Governments a working paper for Annual Plan Coordination Committee (APCC) reflecting prioritized allocations in light of the available size of the development envelope is prepared Annual Plan Coordination Committee (APCC) headed by the Deputy Chairman Planning Commission. Projects and their allocations are finalized in consultation with the same Ministries represented at the level of Ministers/Secretaries/Chief Secretaries headed by the Prime Minister and attended by Senior Federal & Provincial Ministers and Secretaries of the concerned Ministries.

The final set of project allocations is prepared and presented for the approval of National Economic Council (NEC) and published/ printed in shape of a book for circulation to all concerned NEC meeting is held in the last week of May or first week of June.

Core Forum
Technical sections prepares a working paper for CDW,P PIA Section circulates the working paper to all the members of the CDWP who while attending the meeting comment, appraise and support the project. After detailed deliberations projects may or may not be approved keeping in view the national/public interest. A summary for ECNEC is prepared by the concerned technical section of the PC and sent to the Cabinet Division who circulates the summaries to all the members of the ECNEC.

ECNEC normally holds its meetings on quarterly basis

Anticipatory Approval:

– In case a project has to be started in urgency and the CDWP has already recommended it for approval but the meeting of ECNEC is not scheduled in near future.

The sponsors through Planning Commission move a request of anticipatory approval of Chairman ECNEC stating the justification, importance and urgency of the project. Once the project is approved from the relevant forum, after receipt of minutes and other necessary documents the PIA Section issues administrative approval of the project to the sponsors for taking up the case of financial releases with the Finance Division who make quarterly releases only if an allocation of that project is available in the PSDP. The sponsors are also required to prepare annual cash/work plan of the project for getting the releases.

Project Review & Monitoring

It includes the monitoring indicators like;

  • Financial utilization as compared with the PSDP allocation, fund releases
  • Physical progress as per approved work scope & time schedule
  • Staff & equipment usage rate
  • Managerial performance ( timely decisions, inventory level, labor  problem if any)
  • Technical (quality control)
  • Economic parameters (capacity utilization)
  • Social parameters ( income distribution, availability of basic need)

Progress Monitoring & review report usually consist of the four parts.

First part provides the information regarding

  • Background of the project
  • Its approval
  • Financial allocation
  • Utilization by main items & likely cost after  completion of physical progress and the bottleneck

Second part deals with Operational results covering financial & economic analysis.

Third part embodies findings & recommendations.

Forth part has statistical appendices.

Project Evaluation

The final phase in a project cycle is project evaluation which requires the following documents to proceed;

  • Approved PCI.
  • Pre-approved appraisal notes of CDWP
  • ECNEC summary & its decisions
  • Sources of financial and other inputs
  • Annual/ quarterly progress reports
  • Special reports
  • Project completion reports.

Evaluation indicators include;

  • Overall physical progress
  • Overall cost utilization
  • Timely or untimely completion of project
  • Financial and economic benefits
  • Social benefits
Planning Commission Performa
PC I

All developmental projects are to be formulated on this Proforma.it contains three parts;

Project Digest

Project Description & Financing

Project Requirement

Projects Design

It includes Name of project, authorities responsible for sponsoring and executing of the project, completion period, a summary of cost in detail and objectives of the project

Project Description & Financing

It covers

  • Location,
  • Market analysis,
  • General description  Justification
  • Operating or recurrent Cost estimates,
  • Technical description,     Capital cost estimates
Project Requirement

It includes:

  • Manpower,
  • Physical facility,
  • Project equipment.
PC II

This Performa is for the purpose of preparing feasibility report of the project and has the following information

  • General description
  • Justification
  • Mode of Financing
  • Details of the schemes
PC III

This is the quarterly progress report which includes the following detail

  • Latest financial status (releases and utilization of the funds)
  • Physical progress in term of percentage
  • Detail of any bottleneck hampering the progress.
PC IV

It is a completion report submitted to the authorities when the project is completed & contain the following information

  • Date of commence and completion of project
  • Detail of revision made during its completion
  • Number of the persons employed
  • Benefit/cost ratio based on actual cost and expected benefits
  • Actual physical performance compared with the planned performance
PC   V

It is report submitted at 31st July following the fiscal year the project is completed

Having the following information;

  • The cost history of the project
  • Annual recurring cost
  • Economic and financial result

Any other special remarks on the operation of the scheme.