As the Government of Pakistan prepares to unveil the federal budget for the fiscal year 2025–26 on June 10, attention is firmly fixed on the expected salary increase for government employees. Amid mounting inflation, rising living costs, and intense public sector agitation, salary reforms have become a central demand — not just for welfare, but also for political stability.
Multiple sources within the Ministry of Finance and the Establishment Division confirm that a salary increase aligned with inflation is under serious consideration. However, the final figures are still being debated.
This article examines what to expect from the budget, the historical salary trend, and the broader implications of the proposed hike — while offering a critical analysis of whether these measures are sustainable or politically expedient.
Context: The Wage Crisis in Pakistan’s Public Sector
Pakistan’s public sector employs millions — including teachers, police, clerks, healthcare workers, and federal administrators. According to data from the Pakistan Bureau of Statistics (PBS), consumer prices have increased by over 80% since 2019, while average public sector salary increases have ranged between 10% to 15% annually.
The fiscal year 2023–24 saw a 15% increase in salaries for government employees and a 17.5% increase in pensions. However, with inflation still running at over 21% as of Q2 2025, the public sector’s frustration continues to build.
Budget 2025–26: What’s on the Table?
While the government has not officially disclosed the salary increase percentage, insiders suggest that the following proposals are under active review:
- 15% to 20% across-the-board salary increase, possibly scaled by Basic Pay Scale (BPS).
- Revision of house rent and conveyance allowances, especially for employees in urban centers.
- Increase in minimum wage from Rs32,000 to potentially Rs50,000, subject to fiscal space.
Unions threatening protest outside Parliament House on June 10th for wage revision for clerks, teachers, and low-income employees threaten disruption unless concrete relief is announced.
Expert Opinion: Inflation-Linked Pay Is Necessary — But Not Sufficient
It helps to stabilize real income and maintain the spending power of civil servants, especially those in lower grades who are most vulnerable to food and fuel price volatility.
However, an across-the-board salary increase, while politically popular, may not be the most economically efficient or equitable model. Here’s why:
- Uneven Inflation Impact: Inflation affects different income groups in different ways. A Grade-1 employee spends a far higher share of income on food, transport, and rent than a Grade-19 officer. A tiered or targeted approach, focusing on lower BPS scales, would address equity more effectively.
- Fiscal Stress: Pakistan’s fiscal deficit remains precarious, and the public sector wage bill consumes over 45% of current expenditure. Unless accompanied by revenue-generating measures or spending cuts elsewhere, salary increases could widen the deficit and undermine IMF-agreed fiscal discipline.
- Pension Liabilities: Pensions remain an unsustainable cost center. Each time salaries increase, pension obligations also rise, putting additional pressure on federal and provincial budgets. A pension reform strategy — such as a contributory scheme or age-linked caps — is long overdue.
- Productivity Link Missing: Salary hikes without performance metrics lead to stagnation in efficiency.
Comparative Perspective: Regional Trends
Looking at South Asian peers, governments in India, Bangladesh, and Sri Lanka have also faced similar fiscal constraints and wage demands. However, both India and Bangladesh have tied public sector salary reforms to periodic Pay Commissions, which assess the economic landscape and recommend rationalized structures every 5–10 years.
Pakistan lacks a similar institutional mechanism. The last major overhaul was the Revised Pay Scale 2022, but it did not sufficiently address the rising cost of living or introduce sustainable benchmarks.
Political Pressure and Short-Term Thinking
The upcoming budget is not being crafted in a vacuum. With political alliances under strain, the government faces pressure to pacify labor unions, many of which are affiliated with opposition parties. A generous salary increase could defuse protests and win favor with middle-class voters, especially in major urban centers.
However, there’s a risk of fiscal populism. Short-term appeasement without long-term reform often results in structural imbalances, higher debt servicing, and austerity later. Already, rumors suggest that taxes on savings and fuel may increase to finance the expanded wage bill — a move that could backfire economically and politically.
Recommendations: A Balanced Way Forward
To reconcile economic responsibility with public welfare, experts suggest the following:
- Targeted Increases: Focus higher increases on BPS-1 to BPS-16 employees, with minimal adjustments for higher grades.
- Allowance Rationalization: Rather than increasing basic pay alone, adjust allowances (housing, transport, medical) to reflect urban inflation.
- Productivity Framework: Begin integrating performance-based bonuses, especially in service sectors like health and education.
- Pension Reform Roadmap: Announce a phased plan to move toward a contributory pension model to relieve long-term fiscal pressure.
Conclusion: Relief on the Horizon, But Structural Reform Must Follow
The salary increase in Budget 2025–26 will likely offer short-term relief to millions of government employees, especially if aligned with inflation. However, for the measure to be truly effective, it must be part of a larger, more strategic overhaul of public sector compensation.
Without a systemic change in how salaries are assessed, adjusted, and justified, Pakistan risks repeating a cycle of ad hoc relief, growing deficits, and public discontent.
The government has an opportunity in Budget 2025–26 not just to react to inflation, but to redefine the social contract between the state and its workers.