The double-dip dilemma

What Pakistan needs is growth that is job oriented –
The economy expanded remarkably during 2001-07. The government in power back then, claimed several macroeconomic achievements. It doubled in size with annual GDP growth rate peaking at 7.5 per cent in 2003/04, incredibly inflation was well under control, the debt burden reduced to one-half, foreign exchange reserves were sufficient to cover up to 6 months import, Pakistani stock market ranked among the top performers in the emerging markets and total investment peaked at 36.1 per cent of the GDP in 2005/06.
Pakistan successfully launched sovereign bonds of maturity ranging from 5-30 years and these were oversubscribed in the international capital market which reflected strong confidence of foreign investors. Nonetheless, the boom period lasted for a short period of time. Series of economic and political shocks shook Pakistan’s economy from 2007-11. Indeed when the current government shouldered the burden of responsibility in 2008, found itself in dire straits and has since been struggling.
The GDP growth rate which peaked in 2005 at 9.0 per cent has fallen flat in 2010/11. Interestingly, the rate of unemployment fell from 7.7 per cent (2005) to 5.6 per cent (2010/11). It is, however, believed that the unemployment rate is running in double digit as against the figure reported in the government’s statistics. Total investment growth figure shrank from a peak of 36.1 per cent (2006) to a mere 6.2 per cent (2010/11) surprising having no significant impact on the unemployment rate.
It is interesting to note that the GDP growth and the unemployment rates peaked together at 9 per cent and 7.7 per cent, respectively in 2005. In other words the accelerated economic growth (expansion in output) instead of creating new jobs made more people redundant in 2005. Perhaps growth was only demand driven and not job lead growth. In 2009/10, when the GDP growth increased to 3.8 per cent from a low of 1.7 per cent (2008/09), unemployment rate increased from 5.2 per cent to 5.5 per cent. And adding to the funny tail of the double dip dilemma, when the GDP growth rate winced to 1.7 per cent (2009/10), from 3.7 per cent (2007/08), unemployment rate remained stagnant.
Theory says there is an inverse relationship between the GDP growth rate and unemployment rate i.e. increase in the GDP would tend to push down the unemployment rate and vice versa. However, the data presented here has failed to confirm this theory. Hence relationship between the GDP growth and unemployment rate has remained somewhat of a mystery. Even if the time lag is taken into consideration, there can be no correlation found.
This may lead us to conclude if there is something wrong the way these indices are complied by the respective departments of the government. One possible explanation for this distortion that comes to mind is that over 45 per cent of the country’s total labor force is employed in the agriculture sector and 62 per cent of population live in the rural areas and directly and indirectly linked with agriculture for their livelihoods. Put together 55.4 per cent are employed in manufacturing, construction, transport, and services sectors.
Let’s try to see if facts can help confirm the above explanation. The agriculture sector growth peaked at 6.5 per cent (2004/05) and slipped to the bottom 1.2 per cent (2010/11) of business cycle. So again looking at the growth figures of agriculture sector, the relationship between the unemployment rate and the growth rate has no resemblance.
Despite a lackluster performance of agriculture sector and the overall slowdown in the economy the unemployment rate has remained subdued during the period. To conclude the discussion, it can be said that any swings in the GDP growth seems to be having no significant impact on the unemployment rate. Also there is a dire need to revamp the statistics department of the government to provide us more accurate and reliable data on major economic indicators.
To regain macroeconomic stability, Pakistan needs to expand its economy 5-7 per cent per annum over the next 5 years period, create adequate number of jobs, improve income distribution, liberalise the economy, and set gear for transparent privatisation of sick PSEs.
What Pakistan needs now is growth which is not only demand driven but job oriented which will help increase consumers’ incomes and standards of living of average Pakistanis.

The author is director Szabist Islamabad. He can be reached at [email protected]