Five trillion rupees, and the roads still have potholes

By Staff Reporter

There is a particular dishonesty embedded in the way Pakistan discusses its finances each budget season. The conversation is almost entirely about the intake side — tax-to-GDP ratios, the informal economy, FBR targets, provincial revenue shortfalls. Focusing on revenue is politically safe. It points the finger outward, at taxpayers who evade, at sectors that resist documentation, at the IMF for demanding more. What it carefully avoids is the other side of the ledger: what the state costs, who benefits from that cost, and why the people in a position to reduce it have every personal incentive not to.

The number that should anchor Pakistan’s budget debate is five trillion rupees. That is the approximate national salary bill for permanent civilian government employees — federal and provincial combined, excluding the military — this fiscal year. It grows at close to 10% annually. Pakistan’s GDP, in the years this government has presided over, has grown at nothing close to that rate. The trajectory is not sustainable. It is not even close to sustainable. And yet no serious proposal to address it appears anywhere in the government’s pre-budget framework.

The five trillion figure is routinely obscured in public debate because the federal civilian wage bill — approximately one trillion rupees — is quoted in isolation, making the problem appear manageable. It isn’t, because federal and provincial pay structures are legally linked. When the federal government raises salaries by 20%, the provinces are compelled to follow. The national liability moves as one. And sitting atop it, like a second iceberg below the surface, is a pension bill of 2.5 trillion rupees annually — every rupee of it funded by the taxpayer, because Pakistan’s senior civil servants, uniquely among comparable professional classes anywhere in the functioning world, contribute nothing toward their own retirement.

To understand what this means in practice, consider the career of a Grade 22 civil servant — the highest civilian rank, the secretaries and chairman-level officials who run the machinery of state. Such an individual can look forward to 40 years of salary, followed by a defined-benefit pension for life — perhaps 20 to 30 years more — with every rupee underwritten by the public exchequer. The pension is not means-tested. It is not contributory. It is not subject to any of the actuarial constraints that have forced every major economy — including China, which made the transition a decade ago — to shift toward contributory systems. Pakistan’s government has taken the first step for new entrants in one province. It has not extended that reform to existing employees anywhere, despite estimates suggesting the annual savings from doing so nationally would be around 500 billion rupees.

Five hundred billion rupees, redirected from pension subsidy to actual public expenditure, is what Pakistan cannot find for its education system. It is roughly what the government spends on development across all four provinces. It is the number that appears in budget speeches as an aspiration and disappears in practice because the political cost of claiming it from those who currently receive it is higher than any minister is willing to pay.

The asset question is, if anything, more embarrassing. The Pakistani state sits on an inventory of urban land in some of the most commercially valuable locations in the country — GOR colonies in Lahore, cantonment residential areas, federal government housing in Islamabad’s most expensive sectors, KDA schemes and Bath Island in Karachi — and largely gives it away to senior employees as an untaxed perk. The Lahore Gymkhana occupies prime real estate in the heart of the city, on land valued at over 200 billion rupees. It pays 5,000 rupees a year in rent. When Delhi recently reclaimed the Delhi Gymkhana, it was treated as routine governance. In Pakistan, the question of whether state land should be used to subsidise elite recreation for senior officials has not been seriously raised in parliament.

The government’s fleet of 100,000 vehicles represents another illustration of the same problem. The maintenance costs, fuel allowances, and corruption embedded in managing that fleet are substantial. The alternative — monetising the benefit, giving officers vehicle loans deducted from salary as any private employer would, and releasing the asset value tied up in the fleet — would free an estimated 100 billion rupees while actually being more transparent and equitable for the employees concerned. This has not happened. It has barely been discussed.

What has been discussed endlessly is how to squeeze more from the people already paying. Pakistan’s documented taxpayers — the salaried class, the formal-sector SMEs, the manufacturers and exporters — now face effective tax rates that rival those of Western European economies. They pay those rates while receiving, in return, collapsing public services, infrastructure that degrades faster than it is built, and a state apparatus that exists, in substantial part, to employ itself. The political transaction that this represents — extraction from the few who cannot avoid it, insulation for the many who can — is the real fiscal model of the Pakistani state, and no IMF program has come close to dismantling it.

The finance minister, Muhammad Aurangzeb, ran Pakistan’s largest bank before entering government. He is not unfamiliar with workforce restructuring, pension fund management, or asset monetisation. The reforms described above do not require legislation that doesn’t exist. Golden handshakes for voluntary early retirement, performance-linked employment contracts, contributory pension transitions for existing employees, monetisation of housing and vehicle benefits — these are standard tools in any CFO’s manual. Their non-application in the current government is not a capacity failure. It is a decision.

And here is perhaps the most clarifying observation about the coming budget: the government recently announced it was giving the prime minister authority to award unlimited end-of-year honorariums to staff. This, in a year when ordinary Pakistanis are paying almost 200 rupees per liter in fuel taxes to keep the state solvent. The juxtaposition is not incidental. It is the policy.

Pakistan will not find its way to sustainable growth by extracting more from an exhausted formal economy while protecting an overstaffed, over-pensioned, and asset-rich bureaucratic class from any contribution to the adjustment. The IMF is not going to force this. The Fund’s mandate is fiscal balance, not structural reform of the civil service compact. That has to come from political leadership willing to take on interests that are, at the moment, firmly on the inside of power. There is no evidence, four years into this government, that such leadership exists.

The budget that will be presented in the coming days will almost certainly be framed as responsible and reform-minded. It will contain measures that look like action on revenue and expenditure. It will not touch the cost structure of the state in any meaningful way. And a year from now, the same conversation about fiscal sustainability will begin again — with the same targets missed, the same exemptions intact, and the same taxpayers holding the bill.