The government reckons that one million jobs would be created next year by an enlarged Rs202 billion Public Sector Development Programme (PSDP) 2005 designed to trigger an accelerated pace of economic growth. As things stand, there is likely to be a notable gap between what is promised and what can be delivered.
Given the institutional capacity, the budget provides for an operational shortfall of Rs14 billion against Rs8 billion this year. The financial PSDP target is seldom achieved.
There are leakages of funds and prudent spending is not among the best virtues of the government. Against an allocation of Rs160 billion for FY 04, the actual utilization has been Rs154 billion. There is no meaningful monitoring of physical targets.
The delivery system is intended to be improved by the second generation of reforms that is to be initiated next fiscal. The restructuring of institutions may create it's own problems and may not yield instant results as in the case of district governments. In the present divisive environment, the government may not be able to come to grips quickly with the deep rooted reforms.
As revenues have picked, the PSDP size has increased, but it will remain stuck at three per cent of GDP, indicating no qualitative change in the approach of economic managers. They are sticking to somewhat inflexible fiscal ratios by design rather than by default.
But whatever the outcome through public sector development spending, it cannot be denied that unemployment has emerged as a priority issue. Addressing a post-budget seminar organized by the Institute of Bankers, the State Bank Governor, Dr Ishrat Husain, said: after monitoring imbalances in fiscal and balance of payments deficits and making a success of it, the government must monitor the imbalances between demand and supply of labour.
The gap between the demand of industries and the supply of skills is proposed to be bridged by incentives given to the private sector to open up institutions for vocational and technical training and upgrading of skills. The "coherence between industry and decent jobs," as Dr Ishrat Husain says, would increase employment.
Employment issue has come under renewed focus of economic managers for a variety of reasons. Public pressure has been mounting in an economy perceived to be growing without jobs.
The supply and demand of labour has to be balanced so that industrial efficiency is improved by manageable wages. The budget is intended to cut the costs of doing business.
To quote Dr Ishrat Husain, the dynamics of employment is changing. Non-productive jobs have been eliminated and employment, requiring new skills, are being created. Commercial banks which made a hefty profit of Rs44 billion last year are opening new branches.
They need to have front office, back office and a call office to respond to respected customers' calls and enquiries, replacing peons, clerks and assistants. There is a big demand for skilled and semi-skilled labour for mobile phone industry, courier services, health institutes, private financial institutions and services, car mechanics, plumbers etc.
After having achieved macro-economic stability, economic managers are "shifting gears" to accelerate economic growth. They are banking on a sustained economic growth of six plus rate for a decade to reduce poverty, primarily through generation of jobs.
Aftab Ahmed Khan, a former federal finance secretary says growth rate should be institutionalized at eight per cent to reduce poverty levels. But the latest trends show that the growth rate is not a sufficient condition for reduction in poverty and unemployment.
India's eight per cent growth rate did not help. A major issue is the sources of economic growth. In Pakistan, the growth rate in large scale industry at 17 per cent is the result of better utilization of existing industrial capacity and strengthening of existing businesses through modernization and balancing of machinery and plants. It has created few but shed many jobs.
Both the private sector and officials agree that the fiscal incentives provided by the next year's budget to industry would improve the pace of investment in traditional industries like cement, automobiles, textiles, paints etc.
To quote a former president of the Karachi Stock Exchange, Firozuddin Cassim, no new comer would enter traditional industries as he would find it extremely difficult to compete with the experienced market players.
He said incentives would promote investments for modernization, balancing and expansion of existing industrial establishments. He said that some sugar mills are planning to set up distillery to produce industrial alcohol.
The quality of incentives are best indicated by eminent chief economist ABN AMRO Bank Sakib Sherani. Speaking at a seminar organized by the Pakistan Society of Investment Professionals on "Economic and Market Outlook" he said the loosening of the purse is not fiscal stimulus.
New investment are expected to come in non-traditional areas. To generate employment, the government is focusing on four sectors, agriculture, construction, SMEs and information and communication technology.
According to official documents, 42.1 per cent of the labour force is employed by agriculture, 13.8 per cent by manufacturing and 6.1 per cent by construction.
SMEs provide 99 per cent of the non-agricultural jobs. Modernizing of agriculture may help big farmers but are unlikely to create many jobs due to mechanization. The farm demand for new skills would pick up slowly and gradually.
Increasing output coming from existing capacity can only lead to marginal increase in employment. Investment in high tech and sophisticated technology create fewer jobs and more redundancies.
It is only small and medium labour-intensive industries that generate employment. By and large, the development of SMEs is also linked to large scale industries as is evident from auto vendors and garments manufacturing in textiles.
The development of SMEs is primarily linked to bank credit. In calender year 2003, 3593 units were provided aggregate financing of Rs2 billion that created 14,372 jobs, says Pakistan Economic Survey 2003-04.
To promote SMEs, the turnover tax scheme is being abolished and exemption threshold is being raised to Rs 5 million both for manufacturers and retailers. Locally supplied plants and equipments will be zero rated under the sale tax regime. The cost of lending to SMEs is being reduced from 11 to 9 per cent.
Micro-finance is supposed to help self-employment. The Kushhali Bank, the First Micro-Finance Bank and Pakistan Poverty Alleviation Fund have stepped their lending operations.
So far, Rs2 billion has been disbursed to nearly 211,000 clients by Khushhali. PPAF has disbursed nearly Rs 5 billion in 86 districts through 50 NGOs. Of this, Rs3bn were given as micro-finance to 312,000 persons.
It has provided Rs1 bn for 5,230 schemes of community physical infrastructure while Rs.547 million have been disbursed towards human and institutional development
. So far, the volume of credit is not large enough to impact significantly on the employment scene. And the interest rates on micro-finance ranging from 18-20 per cent are so exorbitant that they would hardly leave enough savings for micro-enterprises to prosper and grow.
According to the latest economic survey, the number of unemployed is up from 3.6 million in 2003 to 3.72 million in 2004. Unemployment rate has increased from 7.82 per cent in 2,000 to 8.27 per cent in 2004.
As nearly Rs87 billion of the total PSDP is earmarked for infrastructural development, it is expected to create jobs, by such schemes as lining of canals, construction of roads, highways, ports etc. But, the main economic activity does not offer much optimism for creation of new jobs.