Pensions and salaries

After the parliament of Pakistan approved the 18th Amendment in 2010, there was some hope that with the abolition of several federal ministries the burden of pensions and salaries at the federal level would reduce. After a decade or so, we see most of the federal ministries are still in place, though with slightly different names and nomenclature. According to reports, Pakistan’s total pension and salary bills are likely to exceed its total general revenue on an annual basis over five to seven years. As these bills will spiral out of hand by the end of the decade, Pakistan will end up requesting international donors for more and more loans rather than retiring them. Such loans do not come without conditions so perhaps it is better to tackle this problem sooner rather than later. Since the Ministry of Finance is now busy with another budget-making exercise, it appears to be the right time to initiate an action plan in this matter.

Rather than the pension and salary budget going down, during the past 12 years it has increased rapidly. In 2008-09, pensions and salaries consumed 24 percent of the total general revenue and now they stand at 43 percent of the collected revenue. If you look at it in terms of compound rate it has gone up by 80 percent and in nominal terms the increase is over 140 percent. A couple of steps may be suggested. First, the loss-making public-sector enterprises (PSEs) need a comprehensive strategy to come out of their losses. The government has been talking a lot about these enterprises but no concrete measures are in sight and just procrastinating will not solve any problems. The government may privatize these enterprises without compromising the interests of the employees or it can also try to revive them with better management and resources.

It is noteworthy that the pensions and salary budget is not only a problem at the federal level, the provinces are also facing a similar problem. The provinces too have displayed remarkable alacrity in their hiring, hiking their expenditure up to 56 percent of total revenue receipts. All federating units must act judiciously in their hiring, otherwise a time may come soon when they will have no resources left for their development requirements and expenditure. Governments at both the federal and the provincial levels must initiate a thorough reform process to curtail non-development expenses. Contributory pension funds may be a viable solution that some other countries have successfully implemented. Similarly, a separate pension fund for the armed forces may also be considered.