It is no surprise for anyone that the most sought after jobs in Pakistan are in the public sector. Whereas in the developed world people aspire for the corporate sector or for setting up their own businesses in Pakistan it is the opposite. This is primarily because of the perks and benefits with even low level positions. Government employees though earning less on average than their private sector counterparts end up enjoying several benefits such as cars, housing, utility, education, travel and health allowances. They also receive lifetime pension post retirement. Along with these perks there is always a chance to make a fortune via corruption in departments such as customs, police, Border security paramilitaries and public works. All these combined make the public sector a lot more appealing than corporate sector. But such a model comes with a great cost, one which is paid by the rest of the population in more ways than one.
Pakistan’s annual expenditure on pay and pensions in the public sector is around eight trillion rupees as per a recent study conducted by Pakistan Institute of Development Economics. Around seven million people are employed by federal, provincial, state owned enterprises and military in Pakistan. This figure includes project employees and those employed by semi-autonomous bodies as well. Around 2.5 million are provincial employees whereas roughly 600,000 are at the federal level with the military employing roughly 1.1 million and 3 million serving as project and autonomous entities employees. Overall the public sector employees roughly 10% of the total labor workforce which is around 70 to 80 million people in Pakistan. As per Dawn 3 trillion was spent on wages, 1.5 trillion on pension for provincial and federal employees whereas 1 trillion was spent on the military under both heads. Another 3 trillion was the bill for project and autonomous body’s employees. Our total tax collection target for fiscal year 2023-24 is around 9.4 trillion which means that almost 90% of the tax collected from citizens will go towards just pays, perks and pensions of the state itself. This means that everything else from defence to development projects have to be financed via borrowings either from abroad or from domestic commercial banks and State bank of Pakistan.
Financing the rest with borrowings leads to a cycle of growing foreign debt whose repayments cause devaluation of our currency leading to rampant inflation as well as reducing foreign and domestic investment in the country since devaluation makes such ventures less lucrative. Borrowing from domestic sources leads to limited capital being available for lending to private sector as well as higher interest rates since banks prefer to lend only to government in such scenario. This further halts expansion and opening of businesses in the country as well as reducing employment opportunities and stagnating wages since without private sector growth both aren’t possible. All of this leads to a situation where GDP growth becomes stagnant and thus the economic prosperity of the country is threatened. Furthermore with less money to spend the state’s ability to provide social services such as public transport, roads, hospitals, education and subsidies for the poor is vastly diminished. In the three months of the current fiscal year for example only 57 billion has been spent so far on development projects against budgeted amount of 150 billion since the government is trying to accommodate interest payments, wages and pensions.
To control this trend firstly a vast reduction in number of employees via privatization is needed with 203 loss making enterprises done away with or shut down. Hiring freeze needs to be initiated at all levels from grade 1 to 14 since most of these posts are not essential personnel in most departments. The universal pay scale system which fixes pay from grade 1 to 22 for all departments needs to be done away with provinces being decoupled from the center along with departments so they are free to decide compensation as per their budgets and market value rather than all competing for equal pay leading to increased burden on our finances. Most positions also don’t require permanent employee’s hence contractual employment should be encouraged. India even hires soldiers who serve such a critical function on contractual basis for four years whereas even security guard posts are permanent in Pakistan. Doctors, teachers and engineers all can then be hired at market competitive rates. A contributory pension scheme for new hires needs to be started with both the government and employee contributing to a pension fund with a defined percentage which then invests that money to earn returns and finance pensions rather it being funded from budget. This is standard procedure across the globe with Turkish police pension fund recently buying British steel and Saudi fund investing in shopping malls. Also payment of pensions to relatives of deceased needs to be limited to only children and elderly parents rather then to 13 different relatives as per current system. The retirement age needs to be raised to 65 as per international standards at both federal and provincial level to create breathing space as well as transitioning existing employees to these new schemes via golden handshakes as well as digitization to reduce existing numbers at all levels. Lastly all non-monetary benefits such as free electricity or petrol needs to be converted to cash compensation since that encourages savings and thus reduces the total subsidy bill. If you are allotted 100 liter of free petrol you are bound to utilize it fully but if you receive cash of equal value you will try to save some of it thus reducing consumption.
Addressing this issue is of utmost importance since the growing wage and pension bill is eating up all of our fiscal space leaving little for social development and economic growth. Without addressing this challenge it will be next to impossible for the country to transform itself from a low income to a middle income country in the coming years.