Pension Reforms Agenda of Khyber Pakhtunkhwa

Pension Reforms Agenda of Khyber Pakhtunkhwa

Partner/Donor: Sustainable Energy and Economic Development (SEED)

Duration: January 2021 - March 2021

Project Lead: Dr Vaqar Ahmed

Introduction Before the onset of COVID-19, the budgetary position of the provincial government of Khyber Pakhtunkhwa (KP) was already less-than-ideal. The pandemic has further constricted the fiscal space. The KP government is experiencing shrinking fiscal space, mainly due to:

i) shrinking GDP, ii) reduction in federal transfers to KP, iii) increase in pension payments, and iv) increase in social protection spending.

In this regard, SEED is providing technical assistance to KP in the area of fiscal and governance reforms. In particular, SEED’s support to KP includes technical assistance to the Finance Department of Khyber Pakhtunkhwa Revenue Authority (KPRA), and Excise & Taxation (E&T) in identifying options and developing proposals for increasing revenue and reducing public expenditures on government pensions; motor vehicle tax; sales tax on services; urban immovable property tax; and exploring the possibility of introducing carbon tax for green financing. In this context, pensions’ liabilities represent a long-standing drag on the provincial balance sheet and the annual budget. Since 2009-10, yearly pension expenditure has climbed from 03 per cent of the provincial budget to nearly 10 per cent in 2019-20. The pension bill has grown nearly 10 times larger from Rs 7.17 billion in 2009-10 to Rs 69.91 billion in 2018-19, outpacing the growth of the salaries’ bill, federal transfers and even the overall budget over the same period. Pre-COVID estimates predicted that growing pension servicing costs would squeeze out development spending in the years to come. However, the pandemic has accelerated this shift by up to 3-4 years, which means development spending could be completely crowded out by pension costs as early as 2030. SDPI is collaborating with SEED to conduct an online meeting on public sector pensions in Pakistan. The objective behind is to bring together government officials and independent experts to highlight fiscal policy challenges presented by the growth in public sector pensions (which are not funded) and to evolve reform options based on evidence from national and international experiences. The federal and provincial governments are currently developing fiscal policy solutions to manage their respective pensions’ liabilities and this online meeting is intended to inform this process.

Objectives:

• To launch an advocacy and stakeholder engagement campaign for a change management of KP government • To produce a policy paper on pension reforms

Project Outcomes: SEED will be leading policy advocacy efforts to raise the profile of pensions as a major fiscal problem and shape public discourse to create a constituency for reform efforts. This will include work on political economy through change management/advocacy & driving public discourse and developing an integrated reform package and policy paper.