The Asian Development Bank (ADB) has raised a red flag over Pakistan’s government employee pension scheme, describing it as overly generous and lacking a sustainable financial foundation. In its latest country analysis, the multilateral development institution noted that the pension structure, though attractive in its benefits, is emerging as a major fiscal challenge for the government.
According to the ADB report, the pension system’s current format does not rely on a contributory or pre-funded mechanism. Instead, it operates on a pay-as-you-go model, drawing resources directly from the federal budget. This setup has increasingly become a burden on Pakistan’s limited fiscal space, with the pension liabilities growing in tandem with an aging workforce and rising life expectancy.
The report points out that without significant reform, Pakistan’s public sector pension obligations could spiral, undermining the country’s efforts at macroeconomic stability and development planning. To mitigate long-term risks, the ADB recommends expanding the coverage and capacity of the Employees’ Old-Age Benefits Institution (EOBI) and moving toward a more structured, contribution-based pension framework. This approach, it said, would not only distribute the financial responsibility more equitably but also ensure sustainability over the long term.
In addition to pension-related concerns, the ADB’s report also offered a critique of Pakistan’s underperforming insurance sector. Despite its critical role in mitigating financial risks from natural calamities, accidents, and business disruptions, the insurance industry remains underdeveloped and underutilized, particularly among low-income populations and rural communities.
The report calls for the government to actively promote social insurance schemes that cater to vulnerable groups. It emphasizes that a stronger, better-regulated insurance sector could serve as a pillar of resilience in the face of economic shocks, while also encouraging private investment and fostering inclusive growth. Regulatory reform, better governance, and targeted incentives were suggested as necessary steps to build public trust and attract capital to the insurance market.
Furthermore, the ADB stressed the importance of integrating pension and insurance reforms within a broader social protection strategy. This, it argued, is crucial not only for safeguarding public finances but also for ensuring equitable access to financial security across all demographics.
The recommendations come at a time when Pakistan is navigating a complex economic landscape, with mounting debt, structural inefficiencies, and social challenges putting pressure on public resources. The ADB’s emphasis on long-term sustainability and institutional strengthening reflects an urgent need for proactive policy decisions that move beyond temporary fixes.
The government has yet to officially respond to the ADB’s findings, but the report is expected to inform ongoing discussions around fiscal reform and public sector restructuring. With pension liabilities already representing a sizable portion of annual expenditures, experts believe that inaction could further complicate Pakistan’s fiscal outlook.