The federal and the provincial budgets envisage a dramatic rise in salaries of government employees - to the tune of 7.5 percent in the federal budget though the Senate Standing Committee on Finance was informed by the Ministry of Finance officials that the net impact would be 10 percent given that the following allowances were raised: (i) 7.5 percent ad hoc relief on basic pay against the recommendation of 5 percent, (ii) medical allowance to be enhanced by 25 percent and (iii) the special pay to Senior Private Secretaries, Private Secretaries and Assistant Private Secretaries was increased by 100 percent. The rate of inflation, Federal Finance Minister Ishaq Dar stated in his budget speech, had averaged around 12 percent during 2008-13 but came down to 4.6 percent during July-March 2014-15. Provincial governments followed suit which formed a major component of their expenditure for the next fiscal year.
The question is why did the Finance Minister, given the numerous revenue challenges facing him, opt to give the civil servants a raise that is well above the rate of inflation. In this context, it is significant to note that PML-N government's first budget during its current tenure envisaged freezing of wages as a policy measure to reduce the budget deficit (given that salaries/pensions of both civilian and armed personnel form a major portion of current expenditure); however, he was pressured by his own party, opposition political parties as well as the civil servants to reverse his decision and he later announced a 10 percent raise in salaries. It maybe recalled that the PPP-led coalition government headed by Gilani announced a 50 percent raise in one year - a raise that increased current expenditure at the cost of development expenditure, thereby lowering the growth rate and fuelling inflation. It is also relevant to note that the Pakistan Tehreek-e-Insaf has also supported a rise in salaries/pensions above the rate of inflation and regards it as an effective policy to insulate the rise in inflation on individual take home pay.
Additionally, the country's civil service - both at the federal and provincial levels - is highly politicised with performance criterion ignored in favour of their partisan approach, and sadly over-staffing is the norm. Pakistan needs to learn from the Singapore example where the civil service is highly competent, receives extremely competitive salaries but is streamlined rather than pervasive.
The country is also on an International Monetary Fund (IMF) programme whereby the agreed budget deficit targets are the root cause of lower national output due to lower agriculture and industrial productivity, lower foreign direct investment and intervention in the foreign exchange market has negatively impacted on our exports though it has reduced external indebtedness in rupee terms.
It is high time that all political parties take note of the fact that economic compulsions given the state of our economy must be given precedence over political compulsions. The emphasis should not only be on limiting the pay rise to no more than the rate of inflation till such a time as the country's growth rate merits a higher pay rise but also on ensuring that as a component of the total budget salaries/pensions is reduced. Failure to do so would simply exacerbate our economic situation.
Inflation has come down mainly because of a decline in the international price of oil yet this windfall is unlikely to remain a factor in months to come. Federal and provincial governments need to consider a policy on incomes or keeping incomes constant either through negotiations or through an executive policy. Incomes policy has been successfully employed in several Western countries including the UK, the US and France in combating inflation fuelled by a rising budget deficit especially during war time. Pakistan at present is facing a war, albeit not a traditional war; and one would hope that our civil servants are willing to put in their two cents worth like the rest of the country.