Monday, 12 April 2010

Rearranging Deck Chairs on the Sinking Titanic

At a time when the country is fighting for survival, the Pay and Pensions Committee conducts “business as usual”. The crying need of the hour is governance reform. The country is gasping for breath because of poor governance.

· There is a huge law and order problem. Not only is terrorism on the rise, kidnapping and violence has increased.

· Qabza groups prey on property rights in collusion with the regulators and lawmakers

· Resources continue to be misallocated in development projects because of corruption and mismanagement.

· Public service delivery is wasteful and inefficient.

· Energy is in short supply because of problems in power sector governance

· Water is running out because the water sector continues to be poorly managed

· Government policies are capricious and poorly thought out, lacking coherence and continuity.

At the heart of all these issues (and I am sure readers and can add more) lies public sector management. All Pakistanis will denounce public sector management and wish for it to change. For years we have blamed the politicians for these problems. But even with Martial law there has never been any improvement in governance. At the heart of the governance issue is the issue of incentives of the managers of the Civil Service.

Currently our civil service system has 3 major flaws

· It is a closed non-meritocratic system ie., recruitment is only open to young 0people at junior grades and promotions are according to age and not performance

· The National payscales attempt to put the entire government on one uniform scale with the federal government and the District Management Group on top vitiating an form of decentralization and autonomy of institutions.

· Civil servant salaries especially at upper levels are largely in terms of non-transparent perks which are easy to abuse. This form of payment corrodes ethical standards and nurtures corruption.

The current pay system is also complicated by all manner of allowances. It is not inflation adjusted on a regular basis. Instead a series of allowances are used to adjust for inflation. Every few years a Pay Commission is put in place to deal with the allowances. The Pay Commission does the usual of consolidating a few allowances and giving a few increases leaving the system intact.

The News yesterday reported that the Pay Commission in 2010 with the country in ruins, devastated by bombs, loadshedding of 12 hours a day, inflation still in double digits, and governance at an all-time low has once again proposed an across the board pay increase leaving the system intact.

ISLAMABAD: As part of a major overhaul of the government machinery, a 50 per cent across-the-board raise in the pay and pension of civil and military personnel from July 1 this year has been proposed. The proposal will have an impact of about Rs507 billion on the national exchequer over three years.

The report does note that the system is now not attracting the best. In fact there is adverse selection when it comes to civil servant recruitment—those with a penchant for abuse of power and corruption may be offering themselves for service. Certainly not the best and the brightest.

The report makes startling revelations about the deterioration of the quality of 2.84 million public servants in the absence of civil service reforms for years, saying the government is “no longer the employer of choice among young people and is unable to attract and retain people of the right calibre”.

In 2006, the Federal Public Service Commission found that 25 vacancies for the Central Superior Service went unfilled. In 2007, the number was 47, and in 2008 the figure rose to 88. At one point, Punjab wanted to recruit 10 district prosecutors in BS-19. Fifty-four candidates appeared for the selection process, but only one of them reached the final stage. But even he could not clear his viva. The report has recommended excluding the bureaucracy from the jurisdiction of the National Accountability Bureau and similar provincial agencies, suggesting instead “a strong, open, transparent and objective performance management system” on the pattern of Malaysia and Singapore for public officials.

When the system as whole is non-merit based with promotions seniority determined and when payment is in perks, what will performance management, no matter where it is copied from, do?

The commission does make one good recommendation:

The commission has proposed immediate exclusion of groups like teachers, lecturers, professors, professionals of health departments, police, internal security forces and subordinate judiciary from the purview of the national pay scale.

“They will have their own pay scales that will vary from each other. These professionals will be excluded from the purview of the Civil Servants Act and will be public servants with their own rules and regulations.”

Even if these people have their own independent pay scales, they are fully under the control of the DMG through the system of transfers, hierarchical placement and ministerial attachment. That system should go.


Next we have the usual tinkering at the margins that pay commissions do.

Under the plan, the existing 22 pay scales of civilian employees will be reduced to 14. The entry level for officers has been proposed as BS-10 instead of BS-17.

All ad hoc relief allowances granted to civil servants since July 1999 will be merged into the pay scales of 2008 and then discontinued.

The minimum and maximum pay after the merger will be increased by 50 per cent in three years.

The salaries will be increased by 15 per cent on July 1 this year, followed by another 15 per cent on July 1, 2011, and 20 per cent in 2012 when the new scales will become fully operational.

The pay scales of armed forces will be increased similarly.

The existing employees will have the choice to continue with the BPS-2008 or opt for the new scales which will apply to all new entrants.


On perks the pay commission is silent. It only asks for the allowances to be made a part of the pay package. Not that the civil servants will not get payment in the form of housing cars etc.

An amount equivalent to the housing, transport and outdoor medical facilities of government servants will be made part of the pay package. However, the value of the benefits will not be treated as pensionable emoluments.

Like Singapore, civil servants will get financial assistance for owning houses. They will be encouraged to utilise their defined contribution account for down payment and pay monthly instalments financed from monetised amount in salaries, because simple payment of the benefits in salaries will encourage higher consumption.

Members of subordinate judiciary will continue to avail housing and transport facilities at the places of their postings.

For the broken pension system where the civil servant gets a non indexed pension that is a small fraction of her total monetized earnings is left intact!


PENSION: The pension of two categories of existing pensioners will be increased by 50 per cent and 65 per cent in three years. Those who retired before Dec 1, 2001, will get 20 per cent increase on July 1 this year, another 20 per cent next year and 25 per cent in 2012. The increases for those who retired after December 2001 will be 15 per cent, 15 per cent and 20 per cent over the three years.

All new entrants into government service will be governed under the Defined Contributory Scheme (DCS) to become effective on July 1.

The rate of commutation will be reduced from the current 35 per cent to 25 per cent and accrual rate will be adjusted provided their pension is somewhat higher than the one which would have been admissible if the person had retired under the existing structure.

Family pension of those who die after retirement will be increased from 50 per cent to 75 per cent.

The minimum pension will be increased from Rs2,000 per month to Rs3,000 and minimum family pension from Rs1,000 to 1,500. Ad hoc raise given to retiring employees in 2005, 2006 and 2008 will be discontinued.

The federal establishment division and provincial services and general administration divisions will be converted into human resource divisions.

Of course then we have the usual tinkering which means little

GOVERNMENT SIZE: The size of government will be gradually reduced by not filling vacancies in grades 1-16 (except for education, health, police and judiciary) and introducing information technology tools.

The size will be further reduced through privatisation of corporations and companies and abolition of federal ministries and divisions whose functions have been transferred to provinces and local governments.

The impact of the measures has been estimated at Rs507 billion, including Rs203 billion in 2010, Rs190 billion in 2011-12 and Rs114 billion in 2012-13.

The amount is estimated to be 10 per cent, 8.2 per cent and 4.2 per cent of the current expenditure in the first, second and third year. The salary and pension budget will increase by 25 per cent next year, 20 per cent in 2011-12 and 10 per cent in 2012-13.

The increase in basic pay and allowances will cost Rs267 billion, monetised value of perks Rs174 billion and pensions Rs66 billion.

SPECIAL ALLOWANCES: Special allowances will be given to teachers of science, mathematics, computer science and English and teachers and health professionals serving in rural, tough and remote areas.The commission mentioned two resolutions adopted by the National Assembly and the NWFP Assembly recommending implementation of the proposals.

Would you agree that this is rearranging the deckchairs on the Titanic?