Pakistan’s economy must grow at 7% to absorb growing labour force
September 23, 2011
Pakistan must average 7 percent annual growth to absorb 3 percentincrease in its labor force each year. Country’s population is young,with more than 65 percent under the age of 30, says Asian Development
Bank.The Asian lender said that with average economic growth of less than 3percent in last couple of years has been too little to take advantageof favorable demographics. The ADB noted that the National EconomicCouncil recently endorsed a Framework for Economic Growth to guideefforts to improve future growth and employment prospects.
“The National Economic Council endorsed a framework for economicgrowth in May 2011 to exploit the economy’s expanding labor force. Theframework takes a holistic approach promoting competitive markets,higher productivity, better governance and public service delivery,innovation, and entrepreneurship. It aims to restore Pakistan’s annualGDP expansion to 7 percent estimated rate needed to absorb new laborforce entrants, by streamlining the public sector and fosteringprivate sector–led growth”, ADB noted.
Pakistan’s Agriculture sector is labour intensive, about 44 percent oftotal workforce is engaged in the sector, and needs structural reformsto bring about higher productivity, transformation, anddiversification. “But such reforms would reduce labor requirements,and so other sectors would have to create jobs to absorb agriculture’sreleased workers”, says Asian lender.
Slow growth in agriculture in recent years reflects the general declineof the sector since the rapid growth of the 1980s, when it expanded bymore than 5 percent a year on average. Water shortages and lowinvestment in irrigation infrastructure over the years have led to ageneral decline in agriculture productivity in Pakistan.
According to the ADB, Pakistan’s economy was under pressure in fiscalyear 2011 from the aftermath of extensive flood damage, energyshortages, security issues, and a burgeoning fiscal deficit as well aspersistently high inflation, despite monetary policy tightening. Thecurrent account moved to a small surplus on strong exports andremittances. Growth is expected to pick up modestly in fiscal year2012, largely on agriculture. However, to get the economy back on ahigh growth track Pakistan must overcome its long-standingmacroeconomic and structural imbalances.
Inflation is expected to stay high, warns ADB, because of the plannedupward adjustments in domestic electricity prices, restoration ofautomatic pass-through of fuel price increases to consumers, andstrong inflation expectations built into the economy.The recent flood in the parts of Sindh which have destroyed cultivatedcrops such as cotton, vegetables and sugarcane are expected to pushinflation further high in coming days. The recent floods in Sindhprovince are expected to cause the country monetary losses of aroundRs 400 billion this fiscal year.
Realizing the budget for FY2012, with a lower deficit of 4 percent ofGDP, largely depends on containing subsidies and boosting revenues,says ADB adding that the budget is expected to gain from steps to cut
power and other subsidies by 57 percent relative to fiscal year 2011.While efficiency gains in the power sector have somewhat reduced theneed for tariff differential subsidies, ending subsidies depends on he
pace of power sector reforms.In the current fiscal year the government’s revenue receipts areprojected to increase by 23 percent from the previous year, relyingprimarily on efforts to curtail tax evasion.
The budget for FY2012 projects the public sector development programto expand to Rs 730 billion, an increase of 58 percent over the fiscalyear 2011 provisional figure. Achieving this ambitious target, in viewof limited external resource availability, will depend on fullymobilizing budget resources and pushing through measures to containcurrent expenditure, ADB observes.
The current account is seen weakening in current fiscal year becauseof slower export growth of 8 percent and import growth of 14 percent.Workers’ remittances are set to stay strong, providing a buffer forthe larger trade deficit and limiting pressures on foreign exchangereserves as external debt service payments climb sharply, ADB noted.