The Khyber Pakhtunkhwa (KP) government is struggling to control its bill of expenditures, which is eating away fiscal space for development schemes.
Over the last 12 years, the pension bill of the provincial government has increased by a whopping 1,628 per cent – an annual average rate of 25 per cent. The province’s salary bill has also recorded an increase of 848 per cent -annual average rate of 18 per cent. The pension bill has jumped up from Rs4 billion in fiscal year 2006-07 to Rs70 in 2018-19, while salary bill has increased from Rs31 billion to Rs256 billion in the same period.
This galloping rise in current expenditures poses several dilemmas for the province’s economic managers, which looks towards Islamabad for more than 82 per cent of its revenue receipts. This trend was offsetting the increases in province’s share of the federal divisible pool and net hydel profit proceeds, leaving little for development in the province ravaged by a decade-long insurgency.
In the words of a KP government official, the situation was so grim in the pay and pension bill that if the unbridled growth was not checked, then a day would soon come when the province would not have any money to pay its current and retired employees and might even have to borrow to stay afloat financially.
In its previous tenure, the Pakistan Tehreek-e-Insaf (PTI) government added to this trend, instead of tackling the issue head on. The result was that province’s throw-forward liability jumped from Rs37 billion in 2013 to Rs469 billion in 2019.
Similarly, Pervez Khattak’s government went on a spending spree to please government employees by announcing up-gradations, allowances and large-scale regularisations, burdening the provincial exchequer with more liabilities.
The Finance Department complied with Pervez Khattak’s plans, knowing well that they were hurting the provincial economy in the long run. A former finance secretary even lost his job for refusing to dole out funds on Pervez Khattak’s whims.
Budget statics for 2019-20 show that the province’s financial managers have realised their mistakes and attempting to correct the situation with some stopgap measures. The province has now increased retirement age by three years, which is likely to save Rs20 billion per annum.
Interestingly, it was the KP chief secretary who opposed this proposal, saying that though this decision may bring some temporary respite, it was not a fix. “The problem will rise again when the government is in its final year in office and is looking for source of finance to win next elections,” Chief Secretary Muhammad Slaeem Khan wrote in his comments on the summary seeking the change in the retirement age.
He said that in absence of a clear policy on pension contribution, such decisions may not be fruitful. Provincial Civil Service Officers Association, which represents the provincial cadre of officers in Khyber Pakhtunkhwa, also opposed the increase in upper age limit for employees, saying that a proper economic and human resource analysis had not been done before making this decision. The association said that the move was likely to further compound promotion woes of junior officers.
KP Finance Minister Taimur Saleem Jhagra believes that this move will allow the provincial government some fiscal space. He said that life expectancy in Pakistan had increased considerably since 1973.
“In 1947, the retirement age was 50 and life expectancy was less than 45. By 1973, when the retirement age was changed to 60, life expectancy was 55,” Jhagra said.
At the same time, in a bid to curtail the pay bill, the Finance Department has decided that the all posts lying vacant for three years shall stand abolished while proposals are being sought to restructure government departments. In addition to this, the Finance Department is also working on set of reforms to curtail pension growth. It is claiming that it will save Rs95 billion from these reforms.
The Finance Department has also cut the province’s throw-forward liability which has increased to seven years by Rs203 billion. The government is attempting to bring it down to less than four years and at the same time prioritising those schemes with most economic impact. Throw-forward are those development expenses which cannot be made in current year and are budgeted to be met in later years based on average of allocations. Under the Pervez Khattak’s government these expenses increased from Rs37 billion in 2013 to Rs469 billion in 2019, requiring seven years to fund all such projects. Budget documents show that more than half of the required expenses for completion of development programs were parked as throw-forward.