EDITORIAL: The federal government employees have been demanding – through protracted demonstrations – the government raise their salaries. There was no increase by the federal government in their salaries in the ongoing fiscal year (FY20-21). In FY19-20, there was an increase of 10 percent in the salaries of grade 1-16 employees and 5 percent in salaries of grade 17-20 employees on ad hoc basis. Both Punjab and KP governments followed suit. In the case of Sindh, however, there was an increase of 10 percent (grade 1-16) and 5 percent (grade 17-21) in FY20-21 on a similar basis; and there was an increase of 15 percent across the board in FY19-20. That the economy has considerably slowed down ever since Pakistan Tehrik-e-Insaf (PTI) came to power is a fact. In order to curtail massive current account deficit, contractionary monetary and fiscal policies have been agreed with the International Monetary Fund (IMF), the lender of last resort; these are being implemented. Due to a steep currency depreciation and supply side shocks in the domestic food market, inflation is on the rise. The increase in Consumer Price Index (CPI) since July 2018 is 23 percent, and the food basket prices are up by 34 percent.
The government employees are somewhat justified to clamour for an increase in their salaries mainly because of the fact that real wages are declining. The private sector story is not any different. There are wage freezes and other cost-cutting measures deployed in various industries. Covid-19 pandemic has magnified the impact and as per a Pakistan Bureau of Statistics (PBS) survey, 20.76 million people have lost their livelihoods in the country due to lockdown. The situation is not satisfactory at all. It is going to be a tough call for the federal government to increase salaries across the board in the FY2021-22 budget. The IMF programme is expected to be back on track. There is a broad-based agreement on its contours; the issue of timing to put it back into effect is under deliberations. The government is obliged to adopt expansionary fiscal and monetary policies to mitigate the impact of lockdowns on the economy. The IMF programme is likely to be back once the pandemic eases and the unsavoury concomitant of fear subsides. Once that happens, there will be some rollback on expansionary policies. Interest rates may move up a bit. Fiscal deficit is not under control, and it’s difficult to impose new taxes. So at this point in time, it would be quite difficult for the government to increase the salary bill.
The Punjab and KP governments would likely follow in the footsteps of the federal government. However, the Sindh government is not concerned with the growing fiscal deficit. In the last two years, raise in salaries in this province has been higher than in other provinces. It may increase salaries this year as well. The question is what option does the federal government have and its likely impact on provincial and local governments, autonomous bodies, State-Owned Entities (SOEs) and the private sector? Strictly viewing through the fiscal lens in line with the IMF stipulations, there is no room for a salary increase but considering the inflation rate and the increase in the past two years by one province a 5 to 10 percent increase in salary structure of the federal government appears to be imminent. However, the federal government is required to be conscious or aware of the fact that its decision will surely be replicated by the provincial governments. Private sector, too, will be under immense pressure to increase salaries. It’s going to be a politically challenging decision; but the PTI government has so far been able to make some tough calls.
Copyright Business Recorder, 2021