THE panic created by the sharp decline in the stock market was, ultimately, the final blow. With the PTI government finally accepting that Pakistan must go to the IMF, it is now time to focus on what exactly is needed to restore macroeconomic stability and implement a programme that paves the way for sustainable growth.
In the near term, the government must undertake a series of unpopular measures that will affect average citizens across Pakistan. This involves another round of rupee depreciation, further increases in electricity and gas tariffs, more cuts to development projects, and the imposition of further regressive and indirect taxes. All these measures are necessary, and Finance Minister Asad Umar must not be criticised for he has no alternative. However, what the PTI government seeks to do following these unpopular decisions must be carefully analysed, for if past plans are dusted off and re-implemented — which seems to be the case — then Pakistan will most surely seek another IMF bailout in a few years’ time.
At the heart of Pakistan’s economic problems and its incessant addiction to bailouts is the country’s stagnant labour productivity. Defined as the output per unit of labour input, labour productivity increases are primarily achieved through the increased use of machinery, skills improvement and innovation. The core requirement to increase labour productivity is to improve the skill set of a country’s labour force for, without better skills, the workforce struggles to effectively use new machinery and be more innovative.
Servicing the economy through bailouts and donations cannot succeed.
Data suggests that during this century, Pakistan’s labour productivity has increased by an appalling rate of 1.3 per cent per year, compared to 4.2pc per year in the 1980s. During this same period, India’s productivity has increased by an average of 5pc per year. Here, it must be noted that while India has outpaced Pakistan in terms of economic growth and productivity, it has still struggled to generate the tens of millions of jobs necessary to absorb its youth into the labour market.
One does not need to be a rocket scientist to figure out why productivity growth has stagnated. According to experts, nearly one-third of Pakistan’s labour force is illiterate, while another 40pc has under 10 years of schooling. According to the federal government’s reports from 2015-16, the country’s literacy rate declined from 60pc to 58pc. If one were to use the latest census figures, which place the country’s population at about 207 million, then Pakistan, a nuclear-armed nation, has almost 87m illiterate people. That’s more than the entire population of Germany.
In Mr Umar’s own words, his government’s priority is to generate jobs and build homes while pushing through structural reforms that seek to resolve issues such as the recurring circular debt problems in the energy sector. All of these are challenges that he must seek to tackle head on. However, if the PTI, or any other party for that matter, wants to help Pakistan achieve high rates of sustainable growth, then it must invest in the country’s workforce through a strong skills development programme.
An uneducated and poorly educated workforce will not, no matter who rules in Islamabad, be able to compete in an inter-connected, globalised marketplace where competition is cutthroat. For starters, the homes that the PTI desires to build will be poorly and inefficiently contructed by this workforce, and the various inputs and consumer durables that go into modern homes will be surely imported into the country. In fact, given the current situation, Pakistan’s workforce will struggle to efficiently
and competitively make anything that the consumers inside and outside Pakistan seek to buy, thereby perpetuating the trade imbalances Pakistan has witnessed in recent years. Moreover, an illiterate, unemployed workforce is a breeding ground for all sorts of social ills, which further compound the economic challenges.
In the age of the Fourth Industrial Revolution, where even advanced economies are finding it challenging to retrain their workforce for the jobs of the future, Pakistan is wholly unequipped to grow and prosper. The policy of sustaining the economy by seeking bailouts and geopolitical rents from allies, and relying on the donations and charity of overseas Pakistanis, cannot and will not succeed.
The way out of this economic quagmire is only through an effective skills development and education programme. Without this, all the tall claims of development — which are usually made towards the end of an IMF programme — and the proposed anti-corruption efforts of this government, will fail to deliver sustainable growth, leaving Pakistan stuck in a never-ending cycle, in which a spurt of growth is quickly followed by an economic crisis.
The writer is a South Asia analyst at Albright Stonebridge Group in Washington, D.C.
Published in Dawn, October 17th, 2018