Pakistan’s targeted GDP growth of 3.5 per cent for the next fiscal year isn’t too low to create some jobs. And meeting this target over a skinny base of 0.3pc growth during this year is also not at all difficult.
The budget FY24 presents some proposals which, if approved and implemented honestly and efficiently throughout the next fiscal year, can create jobs in some sub-sectors of industries and services.
Massive job opportunities are expected to open in IT and IT-enabled services as the budget FY24 offers a flurry of incentives, including tax cuts and awarding IT and IT-es the small and medium enterprises status. This, in turn, will also help earn the much-needed foreign exchange and ease pressure on the external account.
Announced budgetary measures for the revival of agriculture can also help contain job losses in this sector. But creating net additional jobs in agriculture will remain a challenge in view of anticipated water scarcity.
The budget may create a few jobs in some sub-sectors but the overall impact may not be enough to decrease unemployment significantly
The budget for the next fiscal year is expansionary and is expected to keep inflationary pressures intact. At 38pc in May 2023, the second last month of FY23, inflation seems to have peaked. But that doesn’t mean it will start coming down fast in FY24.
The expansionary fiscal measures announced in the budget (including massive subsidies and larger development social sector spending) amid high political tensions and uncertainty about whether the International Monetary Fund will bail Pakistan out of its current external sector crisis means that inflation will ease quite slowly.
Consumers and firms may expect inflation to moderate to somewhere between 20-25pc in the next fiscal year even if everything goes well, which, of course, is too optimistic. The government, by the way, has set the inflation target at 21pc.
What should help bring down inflation in the next fiscal year is the current year’s very high base and the extent of dampening of aggregate demand that cannot be expected to rise too fast next year.
Though the government has announced lots of incentives for exports and remittances sectors in the FY24 budget, the external financing gap is so huge — estimated at around $25bn — that exchange rate management will remain difficult in the next year.
This means that further rupee depreciation can be expected. That depreciation, too, will make it difficult to contain inflation effectively. The task may become trickier if the measures announced in the budget for the documentation of the economy do not yield the desired results.
After braving an all-time high inflation of 38pc, how difficult will it be to live and remain afloat amidst 20pc-25pc inflation in the next year?
According to the Labour Force Survey of 2020-21, Pakistan’s total labour force comprised 71.76 million people, of which 4.51m were unemployed. The rate of unemployment stood at 6.3pc. The government is yet to make a new labour force survey public.
But according to the World Bank, the unemployment rate in 2021-22 still stood at 6.4pc even though Pakistan’s economy grew 6.1pc. In the current fiscal year about to end this month, the economy is estimated to have grown just 0.3pc.
The unemployment rate must have shot up. How soon the government will share that with the public is anybody’s guess. Just keep in mind that the government has not even shared with the nation the unemployment rate of the last fiscal year. The latest Economic Survey of Pakistan relies on the Labour Force Survey of 2020-21.
Unemployment rate estimates worked out by independent economists and local and global economic think tanks are in circulation. A conservative estimate is 8.5pc. This means that 85 people out of every 1,000 employable men and women in the country are permanently jobless. If you include partly jobless people as well, the number will rise further.
Throughout this fiscal year, we have read countless stories of permanent and temporary shutdowns of industries and businesses across sectors and everywhere in Pakistan. Assuming that the labour force size in 2022-23 swelled to at least 75m (from around 72m two years ago) and 8.5pc of them are permanently jobless, the number of jobless people comes to 6.375m. Estimates of the total labour force may vary, but assuming an addition of 3m people in the labour force in two years in a 230m nation with a median age of 22.8 years is conservative.
Will the budgetary measures help create enough jobs to absorb the conservatively estimated 1.5m new job seekers that enter Pakistan’s job market every year? A targeted 3.5pc growth — if it is achieved — can do this, given the kind of focus the budget presents on some job-intensive sectors, including large-scale industries, SMEs, solar energy and IT and IT-enabled services etc. But will they also help reduce the pool of 6.375m jobless people? Frankly speaking, the answer is no.
Published in Dawn, The Business and Finance Weekly, June 12th, 2023
