Pakistan's pension system will collapse in ten years

Pakistan is not in a good place

The episode opens with Muzamil asking the question every Pakistani drawing room is already debating: are we going bankrupt? Taimur Khan Jhagra does not flinch. “Pakistan is not in a good place,” he says, before adding that whether a formal default happens is almost beside the point. The real question is whether the country treats this moment as another band-aid fix or as a burning platform for fundamental change.

Jhagra invokes India 1991 — the moment when Manmohan Singh, with barely a billion dollars in reserves and gold pledged to the IMF, began an economic reform process that transformed the country over the following decade. “This could be Pakistan’s India 1991 moment,” he argues. The crossroads is real. But the path requires fixing two things simultaneously: the fiscal balance between government revenue and expenditure, and the balance of payments between dollars coming in and dollars going out.

On the numbers, the picture is stark. Pakistan’s FBR tax target for the year is around seven thousand four hundred billion rupees. Debt servicing and defence alone consume roughly seven thousand billion. The provinces take another seven thousand billion. The country is borrowing between a third and a half of everything it spends. Foreign direct investment sits at one billion dollars annually — “nothing,” Jhagra says flatly. Remittances, which had peaked at three billion dollars a month, have fallen back to two billion. Exports, on track for thirty-six billion dollars, are trending toward twenty-four billion. The structural gaps are not new. They have simply become impossible to paper over.

Why tax-to-GDP has not moved in twenty years

Muzamil presses on the chicken-and-egg problem that paralyses the tax conversation: why would citizens pay more tax when they see the money disappear into corruption and inefficiency? Jhagra acknowledges the rationalization but refuses to accept it as a reason for inaction.

The number he returns to is 9.5 percent. Pakistan’s tax-to-GDP ratio in 2000. Pakistan’s tax-to-GDP ratio in 2010. Pakistan’s tax-to-GDP ratio today. “Not even a point-one percentage point difference,” he says. Meanwhile, the United States collects between thirty and forty percent of GDP in tax. Scandinavian countries collect fifty percent. When Jhagra lived in the UK, he paid forty percent income tax on his earnings. Pakistan collects less than ten rupees on every hundred earned — and spends twenty.

The solution, he argues, is not to choose between raising revenue and demonstrating clean governance. Both must happen in parallel. And the evidence that it can be done exists in KP’s own record.

How KP tripled its tax revenue without a new law

In three years, KP’s provincial tax revenue went from roughly twenty-five billion rupees to seventy-five billion, with the trajectory toward one hundred billion. Jhagra walks Muzamil through exactly how.

The key agency was KPRA, the provincial sales tax authority on services. It had been sitting inside the excise department, which had a poor reputation. Jhagra moved it under finance, installed the right heads, and — critically — refused to let them leave. “When they wanted to go, I told them: sorry, you have to stay.” He then built a bespoke performance bonus system: hit your targets and your salary doubles or triples. The result was that civil servants became genuinely incentivised to do what the government needed them to do. Audits improved. Proposals came from the team rather than from consultants.

On tax rates, the approach was counterintuitive. For sectors that were entirely outside the tax net, rates started at one percent rather than the standard fifteen. The hotel industry in Galiyat, for example, was brought in as a cluster at five percent — but simultaneously freed from a bed tax that had previously been a source of informal payments to inspectors. Hospitality sector revenue tripled. In real estate, cutting the land transaction tax from seven percent to two percent brought off-books transactions onto the register; land tax revenue rose from four billion to seven billion rupees in a single year.

“I did not do this sitting in an office,” Jhagra tells Muzamil. “I chaired a stock-take meeting with KPRA every single month for four years.” When political turbulence in the final six months led to repeated changes in the DG position, performance suffered immediately. The lesson: institutional reform requires sustained political attention, not just a policy announcement.

The IMF controversy and the audio leak

Muzamil raises the accusation directly — that Jhagra committed something close to treason by delaying the IMF MOU. Another podcaster had used the word. Jhagra’s response is methodical and, unusually for Pakistani political discourse, documented.

He reads from the MOU itself. The first page states that KP agrees to sign “subject to the conditions spelt out by the minister of finance in his letter accompanying the MOU.” Condition number five of the MOU explicitly provides that if any provincial government cannot achieve a target, it shall provide a written justification. “This was already agreed upon,” Jhagra says. The delay was not sabotage. It was a negotiating position on two specific issues: FATA’s budget grant, which the federal government had cut from seventy-four billion to sixty billion rupees — not even enough to cover the fifteen percent salary increase the same government was announcing — and the NHP electricity payments owed to the province.

He had reached out to Miftah Ismail before the budget. They had shaken hands. Miftah had promised to announce seventy-four billion in his budget speech. He announced sixty billion. Jhagra stopped communicating for two weeks. When the federal government finally sent a message asking him to sign the MOU, it came through the secretary of finance, bypassing the political government entirely. “I said: we will meet first, then sign.” They met on July 5. Jhagra signed with his letter of conditions attached. The IMF deal passed on August 29 — three days after his letter of August 26. “That is empirical evidence that my letter did not sabotage any deal.”

What followed, he argues, is the real story. The same federal government that called him a traitor then fired Miftah Ismail the moment he signed the deal. Ishaq Dar arrived, reimposed currency controls, and burned through ten billion dollars in four months. “If what I did for the interests of my province is treason, then what is this?”

On the audio leak itself, Jhagra is pointed. “I am very sorry that a national culture has developed where we have legitimised this — not just my audio leak, but Imran Khan’s, Shehbaz Sharif’s. We are illegally entering people’s private lives.” The problem is not just privacy. It is that selective, decontextualised leaks allow any conversation to be misconstrued. “You are listening to what I am saying. You do not know what I am thinking. You have made me a traitor.”

The Sehat Card: from four percent to universal coverage

Later in the discussion, Jhagra traces the Sehat Card from its origins as a small donor project to the moment it became a universal health insurance programme covering 170 million Pakistanis.

The programme began in 2015 under Chief Minister Pervez Khattak, covering four percent of the population in four districts. Political leadership expanded it to twenty-five percent. By 2019, fifty thousand people a year were using it in KP. The leap to universal coverage came from a calculation Jhagra made in a meeting with the Chief Minister, the Health Minister, and two bureaucrats. “If three billion rupees covers twenty-five percent of the population, then twelve billion should cover everyone. If we are spending ten billion on a survey, why not cover everyone?” The Chief Minister owned the idea immediately.

State Life initially said universal coverage was impossible. Jhagra cancelled the contract, ran a new procurement, and State Life came back with a bid of twenty-eight hundred rupees per head — for a twenty-billion-rupee annual contract — and won without a single complaint. The programme launched in November 2020. “I remember the contract signing in Prime Minister House during COVID. I looked at Imran Khan’s eyes during his speech. He realised what a game changer this was going to be.”

The numbers today: 120,000 people use the card every month in KP. 250,000 every month in Punjab. Six million people have used it across both provinces, mostly in the last year and a half. The cost is less than three dollars per person per year — less than two percent of the provincial budget. “If we cannot find two percent of our budget for a programme that gives the poor and middle class access to good hospitals, this is not a money problem. It is a priorities problem.”

On the critique that it privatises health care, Jhagra points to the data: when the programme went universal, eleven percent of spending was in public hospitals. Today it is thirty-three percent. The card is pulling public hospitals up, not replacing them. Lady Reading Hospital handled two to three hundred casualties from the police lines blast without a single complaint. “We are not enemies of the private sector. The private sector in Pakistan is Pakistani.”

The pension time bomb

Muzamil asks Jhagra to explain the pension problem in plain terms. The answer is one of the most detailed policy explanations in the conversation.

Twenty years ago, KP’s pension bill was 0.5 percent of the current budget — roughly forty crore rupees. Today it is one hundred and ten billion rupees for KP alone. Across all of Pakistan, the pension bill is approximately twelve hundred billion rupees — sixteen percent of all current budgets. The growth rate of pension liabilities is twenty-two to twenty-five percent per year. Government revenue grows at eight to nine percent. “This is not tomorrow’s problem. This is a time bomb. In ten years, it will be a nuclear bomb.”

The comparison Jhagra draws is to railways and postal services — autonomous bodies whose pension obligations the government has already walked away from. “That problem has already started. We are going to do the same thing to people who have worked for thirty-five years, and then tell them: sorry, we cannot pay you.”

KP’s response involved five reforms, all unpopular. Early retirement age for teachers was raised from forty-five to fifty-five — KP was the first province to do this, Punjab followed. The pension hierarchy, which had extended to thirteen levels of beneficiaries including grandchildren’s widows and siblings’ children, was cut back to spouses, children, and parents. A pension tax was introduced on salary increases for senior DMG officers. And from July 1, 2022, all new government employees moved to a defined contribution system: the employee contributes ten percent of salary, the government contributes twelve percent, into a fund managed by eleven private fund managers of the employee’s choice.

“It is transformative. I received more abuse for this than for anything else. IMF agent. World Bank agent. Enemy of government employees.” Jhagra is unequivocal: “If we do not do this reform, those same employees will not receive their pensions in ten years. The greatest injustice is the one we are committing by not acting.”

He notes, with some satisfaction, that Emmanuel Macron is now attempting the same reform in France and facing mass protests. “Hopefully he will stand his ground as we have stood ours.”

The security situation and KP’s political sentiment

By the end of the conversation, Muzamil asks about the deteriorating security situation in KP and what Jhagra sees on the ground politically. The answer connects economics, governance, and security in a single argument.

The security deterioration, Jhagra says, was predictable after the government change in Afghanistan. What was not inevitable was the policy discontinuity that followed. A consensus approach — which PDM’s own spokesperson defended as recently as June — was abandoned. Militants crossed the border. Incidents that had previously been confined to North and South Waziristan spread across the province, particularly targeting police.

But the deeper problem is political. KP’s youth, Jhagra argues, had been brought into the national mainstream over the previous decade. The Sehat Card, pension reform, education reform — these were not just policy achievements. They were proof that the province mattered. “Ten years ago it would have been very difficult to imagine KP politicians teaching the rest of the country how to do pension reform or health insurance.” That integration is now being reversed by disenfranchisement. When the political leader who had the most credibility in the province is removed from the equation, a leadership vacuum opens. “You are creating a void. And when people feel that injustice is being done, it becomes very easy for someone to abuse or use them.”

Jhagra is careful not to reduce the security problem to a single cause. But he is direct about the consequence of holding back elections, withholding funds, and excluding KP’s chief minister from national security council meetings. “When you do not give us two hundred and thirty billion rupees in nine months, when you do not invite our chief minister to NSC meetings, when a bomb blast happens in Peshawar and you come to take our NFC share and ask for an accounting of four hundred billion rupees — I am sorry, that does not feel right. And it weakens the federation.”

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Muzamil closes the conversation at the one-hour-forty-minute mark, noting there was more ground to cover and promising a return visit. What the episode leaves behind is a rare thing in Pakistani public discourse: a detailed, evidence-grounded account of what reform actually looks like — not as a slogan, but as a sequence of decisions, blowback, and results.