When in a developing country with severely limited resources and competing demands on them over four million employees of the government have to be given substantial pay rise, the increase in expenditure can be very large.

In addition, the government has to think of the impact of the substantial pay rise or other emoluments on the private sector employees, who are far larger in number. Only some of them are well paid, as those employed by multinational companies, while a large number of others can be very poorly paid in a labour market with a large surplus labour.

Even if the money needed for the pay rise or increase in dearness allowance is available its impact on inflation has to be considered by the government in a country usually marked for its high inflation, despite the official chronic understatements.

In addition, the salaries cannot be increased in isolation that is without increasing the pensions of the millions of retired government employees who are hit hard by inflation.

All these factors have to weigh with the government before it takes the final decision on increasing the salaries or dearness allowance of its employees- federal, provincial and local- apart from that armed forces.

Hence when the issue of salary raise came before the federal cabinet that was approving the federal budget the initial suggestion was for a 10 per cent increase. That was followed by suggestions to increase it by 15 and 20 per cent. Finally the prime minister opted for the middle course of a 15 per cent increase in dearness allowance uniformly.

This is a temporary measure. In addition, a pay and pensions committee is to be set up with a duration of six months within which period it has to submit its report. And its recommendations as accepted by the government with possible modifications, would be final, and the 15 per cent increase in dearness allowance announced now would be absorbed into that.

The increase in dearness allowance and pension is to cost the government Rs 15 billion. And that is double the amount the government will lose through the large number of tax concessions announced - Rs 7.5 billion.

This is the third increase in the emoluments of government employees since the coming in of General Pervez Musharraf in October, 1999. The first pay rise was reported to cost Rs. 14 billion and the second Rs25 billion.

And the final pay rise in the third round by the end of the year remains to be seen. Surely the government employees have done well under General Musharraf who believes the more you pay the government employees the less corrupt they can be, which is a debatable assumption judging by the number of well paid senior officials and ministers who have become too corrupt.

Trade union leaders and opposition parties have criticised the small increase in dearness allowance given to the government employees. That does not make up for the high inflation which they claim to be even 70 per cent, if not far more. They do not accept the official estimate of inflation of four to five per cent which they say is joke played on the masses.

Then there are those who ask why the 15 per cent increase in dearness allowance if the inflation is only between 4 and 5 per cent?There are others opposition figures who protest that if the President, the Prime Minister and the ministers can give themselves more than double the salary and perquisites they cannot afford to be too stingy with the government employees.

Pension is a major unchartered issue in Pakistan, with the pensioners living far longer than before. Their total number is not known. But with four millions employed by the government the pensioners must also be in millions.

A major wrong done to those who retired before 1994 has been rectified at last by giving them a 16 per cent rise in payment compared to eight per cent for those who retired after 1994.

Prior to 1994 the basic pay was too low and hence the pensions too were very low. Compared to them, those who retired after 1994 were far better off. So the pre-1994 retirees have been agitating against the injustice done to them, but not effectively.

While millions of government employees were retiring, the government did not make financial provisions for their pensions. On the other hand salaries of the employees went on increasing which increased their pensions dues as well. Hence the government had a clumsy policy towards the pensions.

If pensions are a major issue in the US and Japan now it cannot be an easy problem for Pakistan. Hence it needs a systematic approach which is to begin now. The National Savings Organization is to be converted into a corporation and pensions are to be made a part of its concern. What kind of process the issue takes remain to be seen.

The new corporation known as Pakistan Savings will have a diversified operation and will issue various investment instruments, including mutual funds. Earlier when President Musharraf addressed the convention on corruption he had indicated he had a space of about Rs. 50 billion in the budget and hence he could give large pay increases, upto 50 per cent.

He had also said that 10 per cent of the officials were very corrupt and 10 per cent were absolutely free of corruption. And the middle 80 per cent was swinging between the two points and he wants to save as many of them as possible.

In this age of computers the government should be able to reduce the number of its employees step by step. The fact is the larger number of employees, and the larger corruption and greater the red tape, and poor governance.

In the area of taxation the objective of the CBR reformers is to reduce the contact between the tax officials and the tax-payers. The same holds good in dealings between the government officials and the people who have any work to be done through government departments.

A letter of application to the relevant government officials should be enough to get things done. If instead the citizen has to meet the officials concerned or their lower millions, beginning with the chaprasis the scope for corruption begins.

The fact is that despite the increase in revenues of Rs. 70 billion expected next year the country will have a budgetary deficit of 4 per cent of the GDP and over Rs. 156 billions have to be borrowed externally and internally. Hence financial frugality becomes essential.

But if inflation is allowed to rise, beginning with the key food price, while we cannot control international oil prices - the salaries will have to be increased and the cost of running the government will rise.

And despite the rise in revenues and additional taxation the budget deficit will persist and the domestic debt will be high even while the external debt comes down.

Hence if the salary budget has to come down and good governance prevail in place of the corrupt and inefficient system the number of government employees has to come down and the productivity of those in service increase steadily.