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MOST South Asian states including Pakistan have employment rates which are below those of other countries at similar rates of development, says a recent World Bank report.

It cautions that “rapid growth alone will not be sufficient” to bring these countries to employment levels witnessed elsewhere in the developing world. “Keeping the employment rate constant will require massive job creation” says the report on ‘South Asia: Economic Focus Spring 2018: Jobless Growth?’

The study calls for focus on economic policies that can significantly boost job creation. In addition to higher growth, more and better jobs need to be created for every percentage point of growth. To achieve this, the WB analysts recommend “specialisation in labour-intensive activities.”

SBP intends to provide subsidised refinancing to the banks and development financial institutions for low-cost housing lending

The State Bank of Pakistan (SBP) has already taken initiatives to finance such underserved segments. In December 2017, the SBP had announced a policy for the promotion of SME finance with nine key pillars embracing every facet of labour-intensive SME activity and the required impetus the sector needs to grow faster.

About two weeks back, the central bank put the draft policy, anchored on eight pillars, for promotion of low-cost housing loans on its website. Architect Arif Hasan says that 62 per cent of the housing demand is from low income-groups. And low-cost housing poses an enormous challenge for want of affordable land and finances, which the central bank is trying to tackle.

Deviating from past practice, the new draft policy will also promote low-cost housing through government and public sector institutions while continuing to focus on individual borrowers, builders and developers.

In Pakistan, according to the central bank, the mortgage depth ratio is very low. The combined outstanding housing loans are at a mere 0.5pc of GDP owing to unavailability of formal housing financial services and volatility of interest rates. And there has been a steady rise in property prices which has created issues among the low and middle class segments of the population.

Pakistan, like the other countries in South Asia, does not have authentic data on its labour market. According to World Bank analysts, economists in South Asia agree that the quality of available employment data makes it difficult to credibly assess the labour market situation in these countries. The large grey areas—work, unemployment and inactivity—account for the difference in employment estimates across the sources.

Pakistan needs to create 1.3 million jobs every year to maintain its current employment level. Every percentage point increase in growth results in the creation of 0.2m jobs. Thus, the central bank stipulates that Pakistan needs to attain economic growth of 6.6pc per annum to accommodate all the new jobs.

The growth target seems unachievable owing to mounting external sector pressures, but more employment can be created by shifting some focus to labour-intensive businesses. Based on 60 labour surveys and censuses carried out from 2001 till April 2018, the World Bank experts maintain that countries in South Asia have created a large number of jobs over the years but the nature of jobs created, the report notes “is not fully encouraging.”

This is also evident from employment trends in Pakistan. Unchanged at 5.9pc for fiscal year 2016 from the previous year, the unemployment rate in Pakistan, according to independent economists, is much higher than official figures show.

Dr Hafeez Pasha puts the joblessness rate at 9pc. He estimates that youth unemployment went up from 6pc in 2007 to 9.1pc in 2015. Regular and casual employees in Pakistan are heavily outnumbered by self-employed workers and unpaid family workers.

The SBP target is to increase the housing finance portfolio from Rs83bn to Rs250bn, and the number of borrowers to 200,000 from 68,000 by 2021. The majority of the population suffers from low income and savings while the existing financial products have largely become unaffordable.

The central bank intends to provide subsidised refinancing to the banks and development financial institutions for low-cost housing lending. It will extend refinance up to one million rupees or 50pc of the loan amount at the rate of one per cent to banks and development financial institutions. Banks and the DFIs’ rate for borrowers would be 5pc.

The remaining 50pc of the loan/ finance amount shall be provided by the banks/DFIs from their own sources at fixed rate up to 12pc or variable rate of one- year Kibor plus risk premium of 4pc. The facility will be available to both individual house borrowers and builders.

The low cost housing will be redefined as loan of up to two million rupees with the property valuing up to Rs2.5m. The monthly maximum income of a low cost housing finance borrower would be up to Rs60,000. To simplify loan application procedures, a standardised loan application form is to be issued through Pakistan Banking Association.

The central bank efforts are being directed to shore up economic growth and create jobs by incentivising labour-intensive activities.

Published in Dawn, The Business and Finance Weekly, July 30th, 2018