Producing generation of skilled workers
Pakistan has quite a few competencies in abundance. Among those, population tops the charts. However, not-so-abundant are the (quality) job opportunities.
If you’re reading this, chances are high that you too – as the author – grew up being told to become a doctor, engineer, CSS-aspirant or an MBA. A majority of us didn’t have it the other way.
Outside Pakistan, earning “Rozgar” is driven by your passion, wage rate, government policies and frankly, the want to convert ideas into reality. Supported by economic policies or national security considerations, the policymakers “nudge” or “guide” the youth brains to a win-win destination.
The now energy-independent United States had planned since the 1973’s oil embargo to remove addiction to oil and find an alternative that is cheaper and cleaner source of energy. Today, Elon Musk-led electric vehicles and Moore’s law-driven competitive photovoltaic (PVs) cells have converted that into reality.
It’s only a matter of time when a battery of cellphone size would be enough to power the house for days, if not weeks.
Our economic blueprint is apparently straightforward and old-school. Given the boom-and-bust economic history, priority is to a) control trade deficit b) let the currency find true value c) regain credibility of global lenders and finally, d) focus on export-led growth.
Fair enough, that’s actually the right approach. However, there is a lot that needs to be done as the common man wants to see sustainable, tangible and irreversible improvement in living standards. People need to save for their children’s wellbeing.
One ponders why then the very Pakistanis who settle abroad do a much better job in utilising their own human capital/ brains to create a meaningful impact in their organisation. It’s simply the refining process, supportive ecosystem and mental ease to plan forward.
Most private sector employees in Pakistan, in contrast, are eclipsed by monthly pay cheques, traffic routine, expensive education, lack of retirement planning and unprofessional “Seth” culture.
According to the latest “Future of Jobs” report by the World Economic Forum, there is a marked change in the skills in-demand or out-of-demand.
Pakistan’s youth is primarily employed in the agriculture or blue-collar semi-skilled jobs. Blame the old public school curriculum, commercialisation of private schools and lack of quality research conducted by universities. Clearly, the brain drain hasn’t helped either.
The future belongs to the information age – the era where knowledge, digitisation and innovation are the keys. Pakistan needs to realise its strengths or lack thereof.
Our labour class is not as skilled as that in the developed economies, and energy prices in Pakistan are still higher than many regional countries. But we have young minds, which are sadly being consumed by joblessness, wrong jobs, low salaries or TikTok-ification. These could surely be put to more productive use.
Pakistan’s GDP growth higher than South Asia
Fun fact: between 1960 and 1990, Pakistan’s GDP growth was higher than that of South Asia for all but just five years. In the last 30 years, however, it has been higher in only two annual readings, according to World Bank data. A remarkable reversal for a country that posted its highest population growth rate in the 1980s, suggesting that greater economic activity would be needed to maintain the same standard of living.
The time-period division has not been made to imply that a U-turn was made precisely in the 1990s, but to mark a turnaround that gradually saw Pakistan go from vying to be a South Asian powerhouse to a country now riddled with crises.
Similarly, choosing the GDP measure as a yardstick is meant to convey that a faster-growing population needed higher growth to accommodate the incoming job-seekers that would pile up each year.
It is widely believed that Pakistan now needs an economic growth rate of over 7 percent to ensure its unemployment doesn’t increase faster. Just for context – what we saw in 2019-2020 was a contraction, meaning a move in the opposite direction. And no, Covid-19 is not to blame. Groundwork for economic contraction had been laid much before, and Covid-19 just ensured we were thrown into the pit, rather than falling into it.
Coming back to the original argument, one could argue that the rest of the South Asian nations began their developing cycles just as when Pakistan had ended its and was walking on the path of a developed nation. But who are we kidding?
World Bank data shows total unemployment (as percent of total workforce) in Pakistan has increased every year from 2014 onwards, reaching its highest level of 4.45 in 2019 and 2020. Its per-capita earnings, although lower but still close to the South Asian average in 2000, has taken on a completely different route since, angrily drifting away in protest of economic mismanagement.
However, Pakistan’s issue isn’t just horrible economic management. It hasn’t been nationalisation or privatisation – the constant swing between who should own what. Nor has it been just the poorly-negotiated trade agreements, as the Pakistan Business Council (PBC) recently described it in its ‘Charter of Economy’.
What it has been is a gradual shift away from manufacturing. And whatever industrial or manufacturing that does exist has not added the kind of value or multiple it ought to.
Sift through data available with the Pakistan Bureau of Statistics, and it will reveal the general trend.
The industrial sector – one of three components of GDP – has stood at 19.3 percent. It was there when 2000 came, and it has stubbornly remained there in 2020. Share of the services sector has gone up from 53.6 percent to 61.4 percent, a massive increase given that there are only three components in the overall pie. Agriculture, not to be ignored, has also come down from 27 percent to 19.3 percent.
This is how the composition of Pakistan’s economy has evolved since 2000.
In isolation, one would be inclined to say that a change in composition is not entirely harmful. However, when you take into account tax contribution, chances of evasion, and the manner in which Pakistan’s informal economy has boomed, the picture becomes clearer.
It will not be a stretch to argue that the industrial sector, by virtue of being formalised, regulated, and governed (loosely as the term can be used in Pakistan), would, and should, contribute more in taxes. In the services sector, the same cannot be said. There are several loopholes, lesser regulation, and greater opportunities to evade taxes. Leave out agriculture since its contribution to taxes has always been a thorny issue.
Debt facts: where does our Pakistan stand?
The global economy has witnessed four waves of debt accumulation over the past 50 years. The first three waves resulted in a financial crisis in many emerging and developing economies.
According to World Bank report “Global Waves of Debt” published in 2019, the latest global debt wave since 2010 has caused the largest, fastest and most broad-based increase in debt in emerging and developing economies.
Taken together, their total debt rose 54 percentage points of gross domestic product (GDP) to a historic peak of almost 170 percent of GDP in 2018. This number has continued to climb and the debt burden of least developed countries surged to a record $744 billion in 2019.
Responding to a call from the World Bank and the International Monetary Fund (IMF), the G20 endorsed the Debt Service Suspension Initiative (DSSI) in April 2020 to help 73 of the poorest countries in the world manage the impact of the Covid-19 pandemic. Pakistan was also eligible for this initiative.
Latest data from the International Debt Statistics 2021, compiled by the World Bank, shows that amongst the 73 countries eligible for debt service suspension, Pakistan has the highest monthly debt servicing requirement, standing at $346.9 million.
The country’s total external debt increased 8 percent in 2019 relative to the previous year. It was primarily due to increase in IMF credit.
A country’s capacity to bear rising debt levels can be judged from the debt servicing-to-exports ratio. The ratio measures the amount of debt and interest payments in relation to the country’s export earnings and reflects the proportion of exports being used to cover the debt servicing requirement.
A higher ratio spells danger for governments and concerted efforts must be made to expand the base of inflows to comfortably meet the debt servicing requirement.
A disaggregated analysis of Pakistan’s external debt reveals that 79 percent of the country’s external debt comprises public and publicly guaranteed debt. Although the growth rate of public and publicly guaranteed debt has been declining, it is still quite sizable in magnitude.
Other low-income and developing countries have also registered a sharp rise in this category.
Overall, the World Bank report shows that for the 73 countries eligible for DSSI, the rise in public and publicly guaranteed long-term external debt has doubled over the past decade. China is by far the largest creditor for this group, with a share of 63 percent by the end of 2019. In addition to China, private financing has recorded a fivefold increase since 2010.
Macro condition and stagflation
Pakistan’s economy passed through a rough patch in the outgoing fiscal year where gross domestic product (GDP) turned negative along with double-digit inflation.
Many media commentators and analysts are of the view that there are signs of recovery in the economy. On the political front, there is a lot of political turbulence going on now under the umbrella of Pakistan Democratic Movement (PDM).
On the economic front, the government is under pressure to deal with the high unemployment and inflation rates. Under the volatile political situation, the government is trying to resume the International Monetary Fund (IMF) loan programme where the IMF may ask for raising electricity and gas tariffs along with certain institutional reforms.
The government has already fulfilled certain conditions to resume the Extended Fund Facility (EFF) of the IMF. Owing to the slow pace of disbursement of funds in the first three months of FY21, the government has achieved 1.1 percent fiscal deficit and has met one of the quantification criteria.
On the monetary front, the State Bank of Pakistan (SBP) has brought down the policy rate to 7 percent in a span of six months. The impact of this adjustment has started to reflect in the real economy. The lower policy rate has eased liquidity conditions for leveraged businesses.
The index of large-scale manufacturing increased 4.8 percent in the first three months of FY21. Although many small businesses have closed down and a large chunk of people rendered jobless till now, yet large businesses have got decent loan deals from financial institutions.
In order to generate business under tough economic conditions, financial institutions are offering loans on easy terms to large businesses. In some cases, these businesses have started to bring back their employees who were on forced leave. The current recession has reduced gross external requirements of the country. The current account turned into surplus in the first three months of FY21, which is considered a boon for the economy.
Analysts are of the view that this surplus is temporary as it has been achieved due to low imports and high remittances. In addition, the country received a reasonable amount of remittances in the first four months of current fiscal year, which increased foreign exchange reserves of the SBP to around $12.7 billion. The capital inflow strengthened the rupee in the last month.
There is a resurgence of second wave of Covid-19 and the government is contemplating and deliberating to restrict business hours. Now, it has become difficult for the government to carry on with strict restrictions since business lobbies have started to raise clamour.
They are of the view that their businesses are not yet out of the previous lockdown effects and their balance sheets will deteriorate with another set of restrictions.
The double-digit food inflation is creating many difficulties for the urban poor. In this vein, wheat, sugar and other staple food items have become costly a great deal.
The reduction in the real wage of urban poor will redistribute income to landlords and merchants. Thus, the higher food prices will give benefit to landlords and merchants operating in the agriculture sector. If the situation continues like this, the economy will experience stagflation.
In a nutshell, the large-scale industrial sector has revived to an extent due to a slight fiscal dose and monetary relaxation. However, the agriculture sector is facing crisis, which will gradually constrain the output of industrial sector.
Fisheries development can improve exports
Pakistan can make a quantum leap in export promotion of the country by upgrading its marine fisheries sector in collaboration with China.
Pak-China Joint Chamber of Commerce and Industry (PCJCCI) President S M Naveed said on Saturday that keeping in mind the sea potential of Gwadar and the China-Pakistan Economic Corridor (CPEC), the marine fishing sector needed an urgent upgrade, for which Chinese methods of fishing and the fish processing technology could be highly useful.
To a question, he suggested bringing Chinese expertise and investment in the fisheries sector in case the government assures hand-holding coupled with favourable policies. To another query, he informed that some Chinese companies had already evinced their interest to enter into joint ventures for making modern boats, sheds, and ice for marine fisheries.
Naveed said that the Chinese way of fisheries development may curb illiteracy among fishermen by transferring modern technology for preserving and processing marine fisheries, which will ultimately bring prosperity to the fishermen by enhancing the competitiveness of our fisheries sector in the world market.
He urged replacing primitive methods with modern techniques by equipping the fishermen with a modern navigation system to discriminate between edible and trash fish, apart from identifying species and size of the different fish.
He added that the fisheries sector and its allied areas were crucial in generating economic activity along the coast of Sindh and Balochistan as they supported livelihood of about one million fishermen and their families.
Government committed to boosting it exports
Information technology (IT) related exports of the country rose 44 percent during the current year and the government is making efforts to enhance them further, said Federal Minister for IT and Telecommunication Syed Aminul Haque.
Addressing the second Pakistan Malaysia Friendship Association (PMFA) Appreciation Awards Ceremony on Friday, he said 5G would be introduced in Pakistan very soon after which the country can be turned into a knowledge-based economy.
Haque added that 5G was partially functioning in many countries and pointed out that 5G broadband could not work on existing telecom towers.
“The IT ministry o took the pandemic as an opportunity rather than a crisis,” he said, adding, “When all the sectors of the country were registering decline in the wake of the pandemic, the IT industry of Pakistan was travelling on a positive trajectory.”
The minister informed the participants that the government is making efforts to generate employment for IT graduates. He pointed out that around 25,000 students graduated in IT related majors from different varsities of Pakistan every year. Talking about Pakistan’s economy, Haque said that key economic indicators turned positive in the last few months.
Wheat packaging causes losses worth pkr 57bn
Pakistan is facing annual losses of up to Rs57 billion due to packing of wheat flour in non-laminated bags.
Pakistan Standards and Quality Control Authority (PSQCA) had issued a notification making it implementation of food grade polypropylene laminated sacks mandatory.
However, flour mills continued to flout this notification and packed wheat flour in non-compliance of orders of PSQA.
In this regard, Pakistan polypropylene woven sack manufacturers have written a complaint to the Ministry of Industries and the prime minister that the country is losing 3-4 percent wheat flour annually due to packing in non-laminated bags.
The letter highlighted that despite high prices of wheat flour in the country between 3-5 percent of it is wasted during handling as the flour leaks through the low quality woven bags.
The manufacturers of laminated bags have also referred to a study that up to 0.5 kilograms wheat flour leaks out of 20 kg bags by the time it reaches the end destination.
The wastage accounts between 460,000 and 768,000 tonnes, which amounts to losses worth Rs34.56 to Rs57.60 billion per annum. In terms of cultivated area, the loss is equivalent to 276,000 to 460,000 hectares.
“Just by controlling wastages during transportation and handling, the nation can save significant quantity of essential food item,” the letter highlighted.
PSQCA has already issued an SRO for mandatory use of food grade, one side laminated and one side woven polypropylene sacks.
The letter, also forwarded to the ministry of food security, refers price difference between the non-food grade and food grade sack that is only Rs0.22 per kg of wheat flour.
It also added that in many areas of the country, mostly urban centres, including Karachi, Lahore and Rawalpindi, wheat flour and other food commodities are packed in unhygienic conditions.
ADB issues 1st Pakistan rupee-linked bonds
The Asian Development Bank (ADB) has raised Rs1.83 billion ($11.4 million) in a first issue of local currency Karakoram bonds by a multilateral development bank of which Pakistan is a member.
Karakoram bond is an offshore bond denominated in Pakistan rupees and settled in US dollars, listed on a major stock exchange and settled through an international central securities depositary. The international bond issue pays a 7.50 percent semi-annual coupon and matures in August 2023. The bonds were arranged by Citigroup Global Markets and sold to European asset managers.
Net proceeds from the sale of the bond will be included in ADB’s ordinary capital resources. Previously, the ADB had no local currency loans in Pakistan, but this option will be offered in future projects as an alternative to dollar borrowing. It is anticipated that ADB’s local currency loans will be a boost to private sector development in Pakistan.
“Engineering local currency solutions is both an art and a science,” said ADB Treasurer Pierre Van Peteghem. “Not only must we marry investor demand with market conditions to achieve optimal currency and interest rates, but we must also dedicate time and resources to a close dialogue with the government to achieve the best possible outcome.”
“The Pakistan rupee-linked Karakoram bond floated by the ADB is an excellent initiative. I am confident it will have significant mutually beneficial outcomes for Pakistan and the ADB,” said Adviser to Prime Minister on Finance and Revenue Abdul Hafeez Shaikh.
State Bank of Pakistan (SBP) Governor Reza Baqir congratulated the ADB team and affirmed his appreciation of ADB’s support for Pakistan’s financial and economic development.
“ADB’s inaugural issue of Pakistan rupee-linked Karakoram bonds will help deepen capital markets of Pakistan while channelling funding to vital economic sectors,” he said.
ADB appreciates the support provided by the SBP to facilitate coordination with the government to successfully start this programme.
Pakistan secures $800mn in debt relief
Pakistan has so far secured $800 million worth of debt freeze deals from 14 members of the richest club of G-20 countries, as it still awaits ratification by remaining six countries including Saudi Arabia and Japan involving $1 billion transactions.
Pakistan along with 76 other poor African countries had qualified for the G-20 debt relief initiative, announced in April this year for May-December 2020 period, to combat the adverse impacts of the pandemic.
During the past seven months 14 countries ratified their agreements with Pakistan, which has provided fiscal space of $800 million to Islamabad for the time being, according to the government sources. In addition to these 14 nations, two other countries had also approached to extend debt relief to Pakistan.
The official documents showed that Pakistan has not yet finalised the debt rescheduling modalities with Japan, Russia, Saudi Arabia, United Arab Emirates and the United Kingdom.
Although these six countries have not yet ratified the debt relief related agreements, these G-20 members are expected to conclude the deal before end of next month, said a senior official of the Ministry of Economic Affairs while responding to a question. He said that Pakistan was not making repayments to these six countries too, on the understanding that these members would eventually sign-off the deals.
Pakistan was expecting a total $1.8 billion temporary debt relief from the members of G-20 nations for May-December 2020 period, according to the Ministry of Economic Affairs. This included $1.47 billion principal loans repayments and $323 million interest on the loans.
The economic affairs ministry’s estimates had shown that Pakistan can get $613 million worth of temporary relief from Saudi Arabia, $309 million from China, $23 million from Canada, $183 million from France, $99 million from Germany, $6 million from Italy, $373 million from Japan, $47 million from South Korea, $14 million from Russia, $1 million from UK and $128 million from the US.
So far, Pakistani authorities have entered into 27 debt rescheduling agreements with about 16 countries, according to the Ministry of Economic Affairs.
The maximum relief was expected from Saudi Arabia to the tune of $613 million for May-December period, said the sources. Japan was also expected to provide $373 million relief. However, agreements with these nations were still pending the final nod. The Russian Federation is also expected to ratify the revised terms by end of next month, which once ratified could provide temporary relief of $14 million.
Pakistan owes $25.4 billion to the Group of 20 rich nations as of August this year. On April 15, the G-20 nations announced a freeze on debt repayments from 76 countries, including Pakistan, during May to December 2020 period, subject to the condition that each country would make a formal request.
FPCCI stresses continued growth of large scale manufacturing
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has said that a positive growth in large-scale manufacturing (LSM) will help achieve the annual economic growth target, besides creating jobs if the trend continues in coming months.
According to data, LSM output recorded a significant growth of 7.65 percent in September, besides reporting a 4.8 percent growth during the first quarter of the current fiscal year.
While addressing a delegation of various industrial sectors, FPCCI President Mian Anjum Nisar said, “Growth of the industry has shown a ray of hope for the revival of economic activities in the country.” Expressing concern, he added that the data of October 2020 might be critical to sustain the momentum of industrial production during the second wave of Covid-19 in the country.
He stated that during the year 2019-20, LSM output had dropped alarmingly by 10.17 percent year-on-year. The industrial production after suffering from the damage inflicted by the coronavirus pandemic mainly in the construction, sugar, automobile, and pharmaceutical sectors was now clearly reflecting a revival in economic activities in Pakistan.
For the current fiscal year, the government had set the economic growth target at 2.1 percent, which will improve in the current economic situation but is not enough to create jobs for a growing population.
Nisar said the significant decline in interest rates and reduction in duties on raw materials are expected to further spur economic activities in the current fiscal year, as manufacturing activity showed that more than half the sub-sectors in LSM rose in September.
He highlighted that the growth has now broken a cycle of constant contraction in past one year. “Large businesses had been bearing the brunt of high interest rate, issues of the Federal Board of Revenue (FBR) and high energy prices,” he added.
The FPCCI chief called for out-of-the-box solutions for economic growth, as the Covid-19 outbreak had adversely impacted the world’s economy as well as Pakistan’s trade and industrial sectors.
Nisar suggested that the government should formulate long-term and consistent policies for the revival of industry and considerable improvement in exports, as contrary to regional countries, Pakistan’s exports have remained stagnant.
“Some of the impediments to industrial growth include the cost of production, poor governance, obsolete technology, lower productivity, lack of competitiveness, supply constraints, and energy issues,” he added.
Despite pandemic, exports of knitwear pick up pace
Knitwear and hosiery exports increased 12.3 percent year-on-year in the first four months (July-October) of current fiscal year despite the global economic disruption caused by the Covid-19 pandemic.
This textile sub-sector earned the highest amount of foreign exchange worth $1.183 billion for the country compared to earnings of $1.053 billion in the same four-month period of previous year.
According to statistics compiled by Pakistan Bureau of Statistics (PBS), the number was 25 percent more than exports of readymade or woven garments, 32 percent more than exports of bed wear and 318 percent more than exports of towels.
“The knitwear garment sector is maintaining the top position in the textile group and other groups,” remarked Pakistan Hosiery Manufacturers and Exporters Association Central Chairman Riaz Ahmed. PHMA South Zone Chairman Tariq Munir appreciated the government for taking all necessary measures for enhancing exports by prioritising export sectors and introducing separate gas and electricity tariffs for the five major export-oriented industries.
PHMA North Zone Chairman Farrukh Iqbal emphasised that if the government considered proposals of the knitwear sector, resolved all its problems, ensured smooth availability of basic raw material – cotton yarn – and uninterrupted supply of utilities, the sector could further enhance its exports by approximately 30-50 percent annually.
“Global exports of knitwear stood at $237 billion in 2019 as per trade statistics of the Trade Map and Pakistan’s knitwear exports came in at $2.79 billion, with a share of just 1.17 percent,” said Ahmed.
The south zone chairman called it an alarming situation that Pakistan’s cotton production had plunged from 6.85 million bales to 4.02 million bales, a decrease of 41.27 percent till November 15 this season, according to a report of Pakistan Cotton Ginners Association (PCGA).
“This shortfall will have a dreadful effect on textile exports, especially those of the knitwear (hosiery) sector, which is labour intensive and provides approximately 40 percent of urban employment, particularly to the female workforce,” said Iqbal.
“Therefore, the government should allow duty-free import of cotton yarn as it has already permitted duty-free import of cotton.”
The central chairman lauded the government, particularly the Federal Board of Revenue (FBR), for improvement in refund processing by shifting from the FASTER to FASTER Plus system, which was processing refund claims efficiently within 42-72 hours without human involvement.
SPI raises 0.24pc
The Sensitive Price Indicator (SPI) for the week ended November 19, 2020 registered an increase of 0.24 percent for the combined income group, going up from 142.71 points during the week ended November 12, 2020 to 143.05 points in the week under review. The SPI for the combined income group rose 7.70 percent compared to the corresponding week of previous year. The SPI for the lowest income group increased 0.24 percent compared to the previous week. The index for the group stood at 150.95 points against 150.35 points in the previous week, according to provisional figures released by the Pakistan Bureau of Statistics (PBS). During the week, average prices of 13 items rose in a selected basket of goods, prices of 18 items fell and rates of remaining 20 goods recorded no change.