THREAD: We often talk about circular debt, military spending, and debt servicing as major budgetary items that contribute to Pakistan's fiscal crisis.

But in recent years, a new monster has emerged, threatening fiscal stability at the federal and provincial level.

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Growing pensions have become a major issue across the board. According to the World Bank, "costs grew since 2012 from about 4.5% of provincial fiscal revenues in Sindh and 6.7% in Punjab to about 12% of provincial revenues in 2019."

According to @hasaankhawar, "pensions in Punjab have been growing at 24% per annum, outpacing 13% growth in revenue receipts by a wide margin. In K-P, the pension payments have grown by a whopping 7.8 times in nominal terms over the last 10 years."

@AliKhizar has dived deeper, showing that "Pension liabilities have grown by 6 times, while the consolidated tax revenues are up by a mere 2.7 times. As percentage of taxes, pension expense grew from 9 percent to 21 percent in the last decade."

Houston, we have a problem.

The structure of pensions has created perverse incentives. Here's @AliKhizar: "In 2006-10, the early retirement to total retirees in Punjab was 22 percent. This increased to 26 percent by 2011-15; and in 2019, the toll stood at a whopping 63 percent."

Why should you care?

This creates a vicious cycle:

- Scare resources are diverted away from human and economic development towards pensions
- Govts borrow more to meet pension obligations, crowding out the private sector
- Large deficits --> inflation --> reduced purchasing power for citizens

Solving this crisis can convert a vicious cycle into a virtuous one:

- It deepens financial markets
- Professionally run pension funds can generate solid returns for government employees and their families
- The funds can be used to finance long-term investments - housing etc.

To learn more about this crisis and the path ahead, check out the latest Pakistonomy newsletter. And if you like the content, do subscribe and share in your network! https://pakistonomy.substack.com/p/the-pension-crisis