The Pension Management Office is facing a shortfall of around Rs20 billion to distribute pensions in the current fiscal year with the government allocating far less budget than required.

As the government failed to increase the budgetary allocation in line with the salary increment announced through the budget, the Pension Management Office has a shortfall of resources.

The government increased the basic salary of public officials by 15 percent through the budget for the current fiscal year 2022-23. Pensions are also added by two-thirds of the raised salary, which increased the pension liability substantially in the current fiscal year.

“We need around Rs75 billion to distribute pensions in the current fiscal year against the budgetary allocation of around Rs55 billion,” said Bishnu Prasad Kharel, chief of the Pension Management Office. “That’s why we have sent a request to the Finance Ministry through Financial Comptroller General Office that around Rs17 billion more be provided to us.” He said the request was made over a week ago.

According to the Pension Office, there are around 283,000 pensioners representing civil service, security forces, teachers, intelligence services, and judiciary, among others. The figure does not include those who will be pensioners under the contribution-based scheme which was implemented in 2018, according to the office.

In line with the hike in salary, the government also increased the allocation of the budget for salary and allowance by Rs44 billion, according to the budget document.

When it comes to the pension, the government allocated far less than what was spent in the last fiscal year under the heading. According to Kharel, his office spent around Rs64 billion on pensions in the fiscal year 2021-22.

“Maybe, less allocation was made as we submitted the estimated budget before the decision on hiking the salary of public officials,” he said. “We had not factored in a rise in salary and pension in the current fiscal year.”

It was, however, obvious that liability for pension would grow in line with the rise in the number of pensioners. The number of pensioners has been rising by an average of 15,000 a year, according to Kharel.

The previous Sher-Bahadur Deuba-led government had faced criticism for increasing the government's liability substantially without ensuring the availability of resources.

The government, which presented the budget for the current fiscal year, not only increased the salary of government staff but also lowered the eligibility age to receive an elderly allowance from 70 years to 68 despite the increasing life expectancy of Nepalis.

In order to meet the increased liability for social security, the government has allocated Rs105.7 billion, which is an increase of Rs17 billion from last year’s estimate, according to the planned expenditure details, known as ‘Red Book’, published by the Finance Ministry.

The previous government increased the compulsory liability even though it was clear that it would be hard to raise the government’s revenue under the import restrictions already in place.

During the first half of the current fiscal year, revenue collection decreased year-on-year though the targets had not been met in the past three years.

According to the Financial Comptroller General Office, the government collected Rs459 billion during the first half of the current fiscal year compared to Rs542 billion in the same period of 2021-22. The government had targeted over Rs661 billion during the first half of the year.

“In fact, the revenue target was kept artificially high because of the fresh liabilities created by the government although it was clear from the start that meeting the target would not be easy,” former finance secretary Rameshore Khanal told the Post earlier this month. “Now, despite the low revenue collection, the government cannot default on compulsory liabilities.”

Now, various government offices are seeking extra funds from the Finance Ministry to clear their liabilities and the ministry is struggling to manage the resources.

While development-focused agencies are seeking extra resources for paying the contractors for completed works, the Pension Management Office sought extra funds to meet recurrent expenditures.

“We currently have enough resources for distributing pensions till mid-February,” said Kharel. “We need more budget from the government to distribute pensions for the remaining months of the current fiscal year.”

As pension is a compulsory liability like salary, the government cannot shy away from managing resources for the purpose. In fact, pension spending has seen a steady rise with the liability more than doubling in the past seven years.

The pension liability increased from Rs37 billion in fiscal 2016-17 to around Rs75 billion in the current fiscal year.

“I am not sure about the insufficient pension allocation but many government offices are seeking extra budget,” said Finance Secretary Toyam Raya. “We have to see whether we are able to provide the extra budget they seek.”

The government and central bank removed the import restrictions last month. The ban on imports of automobiles, alcohol, and expensive mobile sets were lifted in mid-December last year. On January 19, the central bank removed the provision that required a cash margin up to 100 percent to open letters of credit to import several products.

“We are hopeful that lifting of the import restrictive measures could help us manage needed resources in the second half of the fiscal year,” said Raya.