The government spends an average of over Rs530,000 per month in compensation for its highest-ranking bureaucrats – an amount that does not include several perks such as plots of land and membership to elite social clubs – in an entrenched system of privilege that is blamed for blocking virtually all necessary economic reforms.
At a meeting of the National Economic Council on Saturday (today), the Planning Commission, which conducted the analysis on the bureaucracy’s power as part of its growth strategy paper, is expected to recommend drastic civil service reforms that are likely to save the government at least Rs3 billion if implemented, as well as paving the way for further necessary reforms.
The NEC, headed by Prime Minister Yousaf Raza Gilani, is expected to review and approve the Rs710 billion development budget for the upcoming fiscal year, ending June 30, 2012.
The Planning Commission submitted a paper on a proposed national growth strategy, which seeks to address structural hindrances to economic growth, ahead of the NEC meeting. It makes astonishing revelations about the extent of civil service compensation and perks, identifying the bureaucracy’s entrenched privileges as the single biggest impediment to necessary economic reforms.
“When the state provides perks, it reduces productivity – and encourages rent seeking,” says the paper prepared by the Planning Commission.
The top three ranks in the civil service (grades 20, 21 and 22) cost the government Rs6 billion just in compensation expenses, a figure that does not include the cost of administering several of the privileges they are entitled to. The commission proposes changing the current structure of compensation, from mostly non-cash privileges, to an all-cash salary, a move that is likely to save the government Rs3 billion for the top three ranks alone.
The commission has also suggested that an objective performance system for civil servants should be introduced and barriers to entry in the civil servants be reduced, including allowing outsiders and technical experts to compete for top government jobs. “Reducing barriers to entry will allow well-qualified people to join government service,” said one official familiar with the document. .
‘Creating employment through growth’
Pakistan’s labour force is growing at approximately 3% per year, which would require an average 7% economic growth rate to absorb the new entrants in the workforce, according to the Planning Commission’s analysis. To reduce unemployment would require an even higher growth rate. “This strategy recognises that the country cannot jump immediately to these high rates of growth from the present growth rate of about 3% [without structural reforms],” says the paper.
The commission recommends a two-phased approach, asking the government to first focus on reaching the short-term potential economic growth rate of 5-6% before undertaking structural reforms that would take the growth rate to beyond the 7% needed to reduce unemployment.
In the first phase, one of the commission’s key recommendations is energy sector reforms, which it says would enable the economy to begin producing at higher levels.
The second phase should address deeper flaws in the country’s economy, such as poorly developed markets – hampered by inefficient taxation structures, lack of competition, burdensome regulation and high barriers to entry – and a lack of an effective government, which is unable to provide secure property rights, enforcement of contracts and competent regulation.
Published in The Express Tribune, May 28th, 2011.