Balochistan's Pension Bomb

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The continuous increase in pensions for over a hundred thousand pensioners and their beneficiaries in the province is taking a substantial bite out of Balochistan's budget

2024-07-23T21:14:00+05:00 Asim Ahmed Khan

The Balochistan government is set to spend a whopping Rs84 billion on some 100,000 pensioners during the ongoing fiscal year 2024-25. This will raise the money spent on paying pensions by 73% in just two years, signalling that expenditure on retired personnel and their family has become a very expensive headache.

The continuous increase in pensions for over a hundred thousand pensioners and their beneficiaries in the province is eating into Balochistan's development budget. In the last fiscal year 2023-24, the government had originally allocated Rs58.029 billion to pay pensions. However, before the fiscal year's end, the government had forked out an additional Rs12.9 billion, and the revised allocation for pensions had shot up to Rs71.847 billion. 

Given the increased pensions paid out last year, the government decided to greatly enhance the budgetary allocation for the ongoing fiscal year. Following the example of the federal government, the provincial government reinstated the increase in the pensions of provincial pensioners. What this meant was that pension arrears backdated from June 2022, worth Rs8-9 billion alone, were tacked on to the provincial pension bill. This accounted for a direct increase of around 10% on the annual pension budget. In view of these increases, the provincial government allocated Rs84.801 billion in the ongoing fiscal year simply to pay retired personnel. This represented around 13.9% of the total allocation for the provincial government.

The figure below shows the pension expenditure trend over the past few years, showing an exorbitant increase in the financial year 2024-25:      

Expenditures under the head of post-retirement benefits included monthly pension commutation, annual increase allowed by the government, medical allowance and payment against leave encashment.

During the Fiscal Year 2022-23, the provincial government allocated Rs48.33 billion with a 3.5% increase over pensions paid out during the fiscal year 2021-22. During FY 2023-24, a substantial increase of 19% was recorded, as the government allocated Rs58 billion for expenditures under pension head. But this year, for the reasons discussed above, a huge spike in allocation has been recorded with Rs84.8 billion dedicated to pay pensions, corresponding with a 46% increase in a single financial year.

On average, the provincial pension bill has grown 25.37% annually over the last five years.

There are concerns that the government's pension investment fund is too small to make all the expected pension payments

Owing to the rapid increase in pension-related expenditures and in an attempt to lower the growing burden on the provincial consolidated fund, the government has resorted to setting up a pension fund in which a lump-sum amount is invested annually. After green-lighting the lump-sum payments from the benevolent fund, the government has enhanced the sum assured under the group insurance scheme.

But with the pension programme becoming enticing, many government employees have embarked on the trend of getting an early retirement as soon as they complete 25 years of service, the minimum number of years a government employee needs to have served to qualify for a pension.

This, however, is not the end of Balochistan's pension saga. If the provincial government approves a controversial measure to retrospectively revise the basic pay scale structure for 2017-18, to follow in the footsteps of the federal government, it could have a substantial impact on the pension and commutation calculation of people retiring on or after the applicable date of the revised pay scale. Likewise, this might also increase the number of pensioners and thus the government's pension expenditure.

Moreover, there are concerns that the government's pension investment fund is too small to make all the expected pension payments. An actuary valuer has ascertained that based on data from 2020, the Balochistan government's total liability for pensions has ballooned to around Rs1.4 trillion.

Therefore, the government is looking to various schemes to rescue itself. It is particularly exploring the possibility of introducing a defined, contributory pension scheme for all the new civil servants and increasing regular direct investments into the pension fund.

Balochistan Finance Minister Mir Shoaib Nosherwani believes, "Exercising control over operational expenses is of utmost importance to us. We are mobilising our finest talent, devoting substantial time, and putting in diligent efforts to effectively manage the increase in salary and pension expenditures. We have identified viable opportunities to generate savings in these areas and are actively working towards their realisation."

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