The Asian Development Bank (ADB) has warned that Pakistan’s pension scheme for government employees is creating serious financial pressure. Without a proper funding system, the program threatens to overwhelm public finances.
In a report released on Friday, ADB stated that Pakistan’s pension scheme may seem “attractive” for employees. However, it imposes a heavy burden on the national exchequer. The lender pointed out that these post-retirement benefits lack a structured funding mechanism, calling it a “material drain” on resources.
ADB urged the federal government to overhaul its pension financing model. It recommended shifting to a contributory system where funds accumulate over time, reducing reliance on yearly budget allocations.
EOBI Expansion Critical for Pension Reforms
ADB also stressed the need to expand the Employees’ Old-Age Benefits Institution (EOBI). By broadening EOBI’s coverage, the pension scheme can move toward a more sustainable structure. A contributory approach would secure long-term benefits and ease pressure on government finances.
The report identified Pakistan’s underdeveloped insurance sector as another area needing urgent reforms. A strong insurance market is essential for economic growth and financial resilience. ADB highlighted that a developed insurance sector would help manage risks from natural disasters and protect vulnerable communities.
Additionally, ADB advised promoting social insurance programs for low-income groups. Providing affordable and accessible insurance coverage can reduce the government’s financial strain during crises.
ADB’s findings come as Pakistan faces increasing pressure from international lenders. The country must broaden its tax base and reduce unsustainable expenses. Reforming the pension plan and strengthening the insurance sector are critical steps to stabilizing public finances.