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The expectations gap

The lynchpin of the manifesto of the ruling party, Pakistan Tehreek-e-Insaf (PTI), is the commitment to create 10 million jobs in its tenure of five years. Next in order of value perhaps to the people is the target of construction of 5 million houses also in these five years. The focus here is on the magnitude of job creation promised.

The expectation of an average of 2 million new jobs annually has come at a time when the unemployment rate is high at over 6% as reported in the Labour Force Surveys of the PBS. These statistics have been manipulated by showing a lower rate of increase in the labour force. The underlying unemployment rate is probably significantly higher and exceeding 7%. Therefore, the commitment by PTI is seen very positively by the over 4 million unemployed workers currently and the nearly 2 million entrants annually into the labour force.

Estimates are that 4.5 million jobs were created during the last five years from 2012-13 to 2017-18. During the first two years, the economy grew relatively slowly at 4% and only 840,000 jobs were created. The acceleration in the GDP growth rate to a peak of 5.8% in 2017-18 has led to a faster creation of jobs at the rate of over 1.2 million per annum in the last three years.

The target of 10 million jobs in five years after 2017-18 can, therefore, be seen as ambitious. It will require a more than doubling in the rate of expansion of employment annually as compared to the previous five years.

The need for doubling of the rate of job creation raises a number of questions: What is the feasibility of realization of this commitment made by the ruling party? No doubt, this enabled Tehreek-e-Insaf to garner many more votes. But what is the likely nature of reaction if the target is not met?

Economists who helped in the drafting of the party manifesto ought to have realized that the country is on the brink of a major financial crisis. This is hardly the time when the labour market is likely to be buoyant.

The fundamental problem is that contractionary fiscal, monetary and trade policies will have to be adopted to bring down sharply the ‘two’ deficits, one in the current account of the external balance of payments and the other the fiscal deficit in public finances. Consequently, there is bound to be a plummeting in the rate of creation of jobs. For example, apparently a cut of over Rs 200 billion is being contemplated in the Federal PSDP of 2018-19. This alone will mean over 180,000 less jobs, either directly or indirectly.

The process of structural adjustment will require a minimum period of two years, as highlighted recently by the new Prime Minister. As such, the GDP growth rate is likely at best to remain in the range of 4% to 5%. Consequently, the cumulative number of new jobs likely to be created during 2018-19 and 2019-20 is no more than 3 million.

There is a need to realize that under this scenario the rate of unemployment will actually rise and not fall up to 2019-20. The annual increase in the labour force is now almost 2 million. Therefore, there is the unfortunate prospect of an increase in the number of unemployed workers by 1 million in two years. This will take up the unemployment rate to almost 8.5% by the end of 2019-20.

The cutting edge of the unemployment problem is the absorption of the ‘youth bulge’ entering the labour market. As far back as 2014-15, the unemployment rate of youth, aged 15 to 24 years, was 9.5% in the case of male youth and close to 13.5% for female youth. There is a real risk that these unemployment rates could increase further to 11% and 15% respectively by 2019-20.

An even worse predicament is faced by graduate youth. Their unemployment rate was as high as 17.5% in 2014-15. With conditions worsening it could rise to almost 20% by the end of 2019-20. On top of this, there are over 5 million male youth who are effectively ‘idle.’ They are neither in the education system nor in the labour force. Many of them have probably exited from the labour force due to failure in finding a job after an extended search.

There is need to understand the potential disappointment of youth and other unemployed workers if 2 million jobs are not created annually in 2018-19 and 2019-20. They were probably in the vanguard of the support mobilized by the PTI, especially through its charismatic leader. There is the danger that this could lead to a measure of protest and agitation. The tone of the leadership of the party may need to change now to one of more realism and moderation if expectations of the millions of voters of 2018 are to be managed.

What does the PTI need to improve job prospects, especially for youth, in a constrained economic environment? First, even if the GDP growth remains relatively low it may be diverted to labour-intensive sectors like construction, agriculture and small-scale manufacturing along with a greater emphasis on increasing exports. Second, the secondary and higher education system, along with expansion of vocational and technical training, will require immediate changes in curricula to focus much more on skills and jobs which are more in demand. Third, some direct interventions may be required like sponsored internships, a youth job guarantee program and a food for work program, especially to absorb rural youth.

The final question is that what is likely to be the state of the labour market after the difficult initial two years of the PTI government? There will then be the prospect of moving on to a trajectory of higher growth if by 2019-20 the current account deficit has been brought down to about 2.5% of the GDP and the fiscal deficit limited to below 5% of the GDP.

Starting in 2020-21 there will be backlog of 7 million in the five year target of 10 million jobs. In effect, over 2.3 million employment opportunities will have to be created annually from 2020-21 to 2022-23. This is achievable if the GDP growth rate rises to at least 6.5% per annum. Following the removal of the constraints to growth, efforts will need to be made to raise the overall rate of investment close to 20%, the tax-to-GDP ratio to above 15% and for exports to grow by at least 15% per annum. An improved economic environment with less graft and corruption and improved functioning of institutions leading to greater ease of doing business will facilitate the process of growth.

Managing expectations will need to remain a key motive behind the narrative of the party spokespersons and elected representatives. If the economy is successfully transformed by 2019-20 then the aspirations of the people will begin to be fulfilled. We hope and pray for the success of the new Government in achieving this transformation and fulfilling its promises.

Hafiz A Pasha, "The expectations gap," Business Recorder. 2018-09-18.
Keywords: Political science , Ruling party , Underlying unemployment , Fundamental problem , Education system , Economic environment , PTI , GDP , PBS