Costly choices make KP’s future uncertain
Democracy is the worst form of government except for all those other forms that have been tried from time to time. — Sir Winston Churchill
No matter how well-intentioned the democratically elected rulers want to appear to their constituents, they risk obscurity if their public policies and decisions lack diligence and farsightedness.
Some recent decisions of the Khyber Pakhtunkhwa government have put the larger public interest at stake for decades to come.
The coming governments will be constrained to perform with squeezed fiscal space because of the costly choices made today.
The coalition partners, Awami National Party and Pakistan People’s Party, on Jan 15 this year expanded the government’s pension net through an enactment. Thousands of the provincial government employees would get monthly pension after their retirement.
They were previously covered under the provincial Contributory Provident Fund that was put in place under an act in 2005 and which has now been declared against the Constitution.
The provincial assembly’s standing committee that recommended changes in the Civil Servants Act, 1973, focused more on the legal aspects of the provident fund than the financial implications involved in expanding the pension net. No one knows how many employees would benefit.The provincial assembly’s member, who sought the change through a private member’s bill, informed the House that the beneficiaries numbered 94,000. According to senior government officials, the final number could end up well past the 100,000 figure.
There are others, from among the officials dealing with the government’s annual pension bill, who say that a total of around 55,000 employees would benefit. It is a good number to win public support a few months before the general elections.
The new measure is going to put the provincial kitty under pressure, raising the province’s annual pension bill to new heights.
No one is bothered about the financial aspects because many believe the impact would be felt once the beneficiaries would start retiring from 2025 and onward. Simply put, it’s none of the sitting government’s or its successor’s concern.
A glimpse of the likely financial impact becomes visible from the government’s existing annual pension bill. The province is spending this year Rs22 billion, which makes over 7 per cent, of its annual revenue on pension payments to a total of 150,000 retired employees.
Their number is growing by every year so is the pension bill growing at around 10 per cent annual rate. In a few years time, the government would be paying Rs40 billion pension annually.
The provident fund scheme had been introduced to put taps to the pension bill. Provident fund is a device that is in use in the private sector and a couple of public sector corporations.
The provident fund was propagated at its inception as an intelligent way-out to control the rising annual pension obligations of the governments. Many believe it has been abandoned to create public appeal for the political advantage of parties in power and in the opposition as the bill was provided passage unanimously.
Instead of expanding the pension net, the government could have tried something new. It could have encouraged insurance companies and financial institutions to come up with some attractive pension plans for the employees.
It should have tried to encourage a culture of savings in the low income public sector employees by introducing individual retirement arrangements (IRAs) through insurance companies. IRAs are highly dependable in European and North American cultures.The most effective way, as the former chairman of the Federal Reserve of the United States writes in ‘The Age of Turbulence,’ to improve future standards of living and “thereby accommodate the aspirations of both workers and retirees, is to increase the nation’s saving and productiveness of its uses.”
The pension net’s expansion does not guarantee improved standards for the beneficiaries. They might also find their interest compromised after their retirement. The government of that time might not have the fiscal capacity to take good care of a growing population’s development needs. The government’s administrative costs and non-productive expenditures are growing at a rate difficult to sustain.
Besides, the sitting government January this year also reemployed around 4,500 individuals who had been laid-off by the second Nawaz Sharif government in 1997-98 after declaring them redundant. The government’s salary bill is set to grow substantially.
Many believe that both the decisions serve public interest and the government was legally competent to make policy changes.
Did the government make intelligent choices? That is debatable.
The measures serve a limited public interest. Therefore, they both have no greater public appeal. As a result, neither the general public nor the actual beneficiaries have publicly acknowledged the two measures.
The moves have come on the heels of pressing demands and strong lobbying by the provincial employees’ associations. Now that remains to be seen whether the beneficiaries would praise the coalition partners for the favours or their associations?
Democracy is certainly a messy system, but it is the best proposition that a nation could have among all other systems. It gives voice to masses and political leaders an opportunity to lead with vision and straightforwardness.