DISTRIBUTING petty cash is not a solution. The country needs to put its people back to work so that they may sustain their families and deal with the rising cost of living. Some economists warn of the risks to social order if rising unemployment fails to get the attention it deserves.
To signal to its constituents that it is cognisant of the growing economic pressure on the public, the PTI government launched a poverty alleviation programme called ‘Ehsas’ (compassion) last week. It seeks to extend social cover for the poor by marginally increasing monthly cash grants.
It is clear that as growth falters, the rupee loses value and inflation rises, the readjustment and restructuring of the economy will entail economic pain.
Compassion, however admirable, is certainly not sufficient. Would it not be better if the government had put forth a plan addressing how it intends to ensure the market does not shrink for any reason other than inherited problems?
To reassure businesses and public on investment and jobs the government could have pledged that it would not chop the development budget since doing so would exacerbate the slowdown. It could have capped recurring spending or enlisted measures to improve resource mobilisation.
The expected 2pc loss to the targeted GDP growth rate in the first year of the PTI government is likely to increase the official unemployment rate by the same proportion
After accommodating the business community, despite fiscal pressures, the government could have asked tycoons for help in dealing with job losses and unemployment.
Clearly, the new government can’t be blamed for all that ails the economy. Chickens are coming home to roost after years of misgovernance and botched priorities. The role of former finance minister Ishaq Dar in the external sector crisis is indefensible.
It is also a fact that the stressful post-election economic situation would have tested the capacity of any leadership. However, since the PTI was voted to power, the responsibility to steer the economy out of the tight corner rests with them.
While a degree of pain for the common people may be inevitable, where is the strategy to contain it?
“It is dangerous to test the patience of people on the matter of jobs. There is no other way (to halt a downward spiral) but to try to salvage growth, as much as is possible, to ensure the working masses retain their jobs and new entrants are absorbed into the market,” commented an expert.
The alarming unemployment situation is said to be compounded by retrenchments and pay cuts as the economy falters under the ruling PTI. It is ironical as the major constituents of the party in power are urban youth; inspired by the slogan of change that included the creation of 10 million jobs in five years.
A member of the Economic Advisory Committee who wished to remain anonymous expects growth to bounce back in the next fiscal year. “To me the current economic stress appears cyclical. Every growth acceleration period is followed by a sudden depression. The growth engine uses too much fiscal space and pushes deficits to unsustainable levels, probably leading to a crisis.”
He also questioned the official employment data that does not sufficiently explain ground realities.
The State Bank of Pakistan has, in its second quarterly report for FY19, scaled down GDP growth expectations. Against the original target of GDP growth at 6.2pc, the economy may now expand around 3.5pc. The population growth rate is 2.4pc.
The expected 2pc loss to the targeted GDP growth rate in the first year of the PTI government is likely to increase the official unemployment rate by the same proportion.
An informal market survey by the writer shows that many companies, including multinational companies (MNCs), are already repositioning themselves to adjust to slower growth.
To absorb the rising cost of business (more expensive raw material imports because of rupee devaluation and a higher energy cost) and adjust to a shrinking market (higher inflation, falling incomes and low family spend) they have cut on their wage bill. New hiring has almost halted and people are actually being laid-off in both manufacturing units and service-providing companies.
The MNCs have not touched their regular staff but chopped contractual positions drastically, in some cases by as much as 80pc. Taking advantage of serious stress in the job market the unaffected employers have also resorted to enforcing pay cuts to build up their margins.
According to Dr Hafiz Pasha, an economist and a former finance minister, the growth rate fall will directly affect the joblessness rate which may in turn spike from the current 6pc to over 8pc by 2020. Dr Pasha mentioned a privately developed macroeconomic model that he uses to gauge the effects of change in the value of a key economic factor on all other components of the country’s economic matrix.
He advised the government to focus on three targets in its strategy to deal with the problem of unemployment: Creating opportunities for the youth; Special attention to highly educated young people and; Jobs for aspiring females to achieve a better gender balance.
Dr Shahid Kardar, an economist and a former central bank governor, was concerned about the cumulative impact of the rising cost of living and growing pressure on incomes. In his opinion this has reached a point where parents might be forced to curtail the monthly spend on their children’s education.
Disappointed with the quality of education, he said that a significant percentage of the graduates entering the job market are not employable. He blamed the weak quality of education in our higher education institutions.
Dr Kardar also mentioned rising income inequality which he believes can add to the level of frustration amongst the unemployed. “You can’t expect a person to rationalise their economic suffering amidst the vulgar display of wealth by the elite. It adds the pain of insult to the simple sense of deprivation prevalent in an already unfair and rigged social system,” he told Dawn over phone from Lahore.
A source in Islamabad who moves in the inner circles of the PTI hierarchy lamented the low priority given to the economy by the prime minister.
“Prime Minister Imran Khan does not understand the economy well. More disturbing, however, is the fact that he does not even try to learn what he doesn’t know.” commented a disgruntled PTI supporter.
Finance Minister Asad Umar, who last year boasted about how his party had streamlined the unemployment issue, making it a centrepiece of economic dialogue, was contacted for comment but his response was not received till the filing of the report. Several attempts to contact Hammad Azhar, the minister of state for revenue, also proved futile.
Published in Dawn, The Business and Finance Weekly, April 1st, 2019