After sanctioning a bailout package with painful stabilisation in focus, the IMF is now worried that the resultant low economic growth, coupled with high inflation and higher population growth, could substantially increase the unemployment rate to about nine per cent in four years (2017-18) from the current 6.7 per cent The IMF programme has been finalised when Pakistan’s young population is continuously growing in number and the country is facing an extended low growth cycle because of unresolved serious economic challenges and structural imbalances, which have left it behind its regional and international peers. The Fund now concedes that providing employment opportunities remains challenging as the labour force is growing. The annual average population growth rate of 2.2 per cent over the last decade is among the highest in developing countries — almost twice the average rate in emerging and developing economies — and with about 40 per cent of the population below the age of 15. With the participation rate also rising, the labour force is expected to grow by 3.5 per cent in the coming years, the IMF believes. It, however, says that the high unemployment among the youth is particularly widespread, and only 25 per cent of employment is in the formal sector. And while the official unemployment rate is about 6.7 per cent in 2012-13, the rural unemployment rate — at 9.1 per cent, as of the third quarter of 2012 — is twice the urban rate of 4.8 per cent. Without significant reform, unemployment will rise in the coming years, says the IMF, while arguing that weak macroeconomic policies and structural problems, particularly in the energy sector, would lead to low growth. Under the baseline scenario, the projected GDP growth hovers around three per cent over the medium- term. The IMF believes that under its programme, GDP growth will pick up and unemployment will gradually decline. This will, however, happen after the programme comes to an end, according to many economists. The Fund contends that the programme envisages a mix of macroeconomic policy changes and structural reforms that aim to boost GDP growth over the course of the programme. Full implementation needs to be seen in view of the recent back-stepping by the government on the documentation drive after coming under pressure from businesses. “Although the GDP growth rate will initially decline due to fiscal contraction, it will steadily increase to about five per cent. The unemployment rate will increase slightly in the first two years of the programme, but will then decline to about 5.8 per cent by 2017-18,” the IMF stated. This is in line with the World Bank’s view that Pakistan needs to create around 1.5 million jobs every year until 2018 to keep the unemployment rate at a constant level. The Bank also says that unless Pakistan swiftly changes its economic course, it could face a second balance of payment crisis in five years, given the fact that its rebound from the global financial crisis has been slow and fragile. Pakistan’s recovery from the 2008-09 global crisis has been the weakest in South Asia, with a double dip pattern, argues the World Bank. Short-term macroeconomic imbalances were barely improving when two floods hit the country in 2010 and 2011. Despite some recovery and strong remittances, borderline stagflation continues. “Pakistan must now climb out of this untenable situation,” said the Bank. And the only way forward is to achieve modest economic growth in order to get onto a faster growth path, which is unlikely under the IMF programme. But the Bank believes that Pakistan’s demographic transition is an opportunity to swiftly accelerate growth. With its high fertility, the country’s already young population will double by 2025. The labour force has risen faster (3.7 per cent a year) than the regional average of 3.1 per cent — a result of the large working-age share of the population and higher labour force participation, particularly by women. The labour force is expected to expand 3.5 per cent a year, as about 1.5 million young workers start seeking jobs each year. If the female labour force participation rises, the pressure for new jobs will be even stronger, with net migration at less than one per cent of the labour force. The youth workforce has grown even faster, at 4.3 per cent a year, well above the regional average of 2.7 per cent, and it is expected to continue at that rate for at least 10 years. This massive demographic bulge could be converted into an exceptional demographic dividend from a political and social burden through rapid and inclusive job-enhancing growth that creates millions of new and better private sector jobs. Apart from creating a large number of jobs — including all wage work and self-employment, formal and informal — creating more productive jobs is the most reliable route for individuals and societies to move away from poverty, crime and civil conflict. Rapid growth and more and better jobs are attainable, but to be sustained they have to be pursued in tandem. Growth creates opportunities and incentives for people to specialise and get a better education, move from farm activities to more specialised and service-oriented non-farm activities and rely less on government transfers and jobs and more on competition, innovation and private initiatives.
Posted on: Wed, 02 Oct 2013 07:37:41 +0000
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