Experts during SDPI meeting suggest early pension reforms to reduce fiscal burden on economy

ISLAMABAD, Dec 23 (SABAH): Khyber Pakhtunkhwa is the first province, which has digitized the pension payment system, Safeer Ahmed, Special Secretary, Ministry of Finance, Government of Khyber Pakhtunkhwa, in a meeting on ‘Reform of Pensions: Lessons from Successful Examples in Pakistan and Beyond,’ said, the provincial government, with the help of digitalization, has been able to remove tiers of the pension claimants, which were not genuine.

The meeting was organized by Sustainable Development Policy Institute (SDPI), in collaboration with Sustainable Energy and Economic Development (SEED) and UKAid’s FCDO. Dr. Omer Mukhtar, Team Leader, SEED, informed the participants on the occasion that Khyber Pakhtunkhwa province has 170,000 pensioners, which is equivalent to 25% of their active workforce. The provincial government has allocated more than 90 billion for pension expenditures for the current fiscal year. The most worrisome aspect of it is that these expenditures are growing at alarming rate of 14% annually, while provincial receipts are growing at the rate of 8%, annually. Keeping this growth trajectory in view, the government will have very little resources to meet other expenses in the coming years.

Member Federal Pay and Pension Commission, Ms Rukhsana Asghar, at the occasion said, the real challenge for the government was to figure out the long-term solutions and enable a strong legal framework to address the pension liabilities’ issue. Therefore, a dialogue is required with all the stakeholders to get them on board for implementing the pension reforms.

Dr. Vaqar Ahmed, Joint Executive Director, SDPI, highlighted that the rapidly increasing pension liabilities are becoming a fiscal burden on the country. This trend is bound to squeeze the space available for development spending. “The SEED and SDPI’s effort are aimed at supporting Khyber Pakhtunkhwa Government in this reform process by helping in reviewing successful examples of contributory pension schemes and transition from a defined benefits scheme to more fiscally sustainable models, Dr. Ahmed added.

Usama Bakhtiar, Technical Advisor, SEED explained that with the current growth rates, pension and salaries payments will surpass total provincial receipts, as early as in 2027. He suggested five key policy lessons to be adopted, which includes evidence-based mapping of stakeholders, matching or exceeding employee shares, diversification across asset classes, risk-based supervision to examine and forecast different types of risks, and enabling Independent, empowered, and well-resourced regulation.

Managing Director, The Bank of Khyber, Mr Mohammed Ali Gulfaraz said, the current pension system is unsustainable, so an out of box solution is required at the federal and the provincial levels.  Chairman, Bank of Punjab, Zafar Masud, suggested that development of capital market is required to provide better solution to pension liabilities.

Brig (retd) Muhammad Ashraf, Pension Strategist, was of the view the pension funds are globally the pivot of national economies,  but in Pakistan they are less than 1%.