Sensible road map

Uzair M. Younus October 17, 2018

The writer is a South Asia analyst at Albright Stonebridge Group in Washington, D.C.

THE panic created by the sharp decline in the stock market was, ultimately, the final blow. With the
PTI government finally accepting that Pakistan must go to the IMF, it is now time to focus on what
exactly is needed to restore macroeconomic stability and implement a programme that paves the way
for sustainable growth.

In the near term, the government must undertake a series of unpopular measures that will affect average
citizens across Pakistan. This involves another round of rupee depreciation, further increases in electricity and
gas tariffs, more cuts to development projects, and the imposition of further regressive and indirect taxes. All
these measures are necessary, and Finance Minister Asad Umar must not be criticised for he has no alternative.
However, what the PTI government seeks to do following these unpopular decisions must be carefully
analysed, for if past plans are dusted off and re-implemented — which seems to be the case — then Pakistan
will most surely seek another IMF bailout in a few years’ time.

At the heart of Pakistan’s economic problems and its incessant addiction to bailouts is the country’s stagnant
labour productivity. Defined as the output per unit of labour input, labour productivity increases are primarily
achieved through the increased use of machinery, skills improvement and innovation. The core requirement to
increase labour productivity is to improve the skill set of a country’s labour force for, without better skills, the
workforce struggles to effectively use new machinery and be more innovative.

Servicing the economy through bailouts and donations cannot

succeed.
Data suggests that during this century, Pakistan’s labour productivity has increased by an appalling rate of 1.3
per cent per year, compared to 4.2pc per year in the 1980s. During this same period, India’s productivity has
increased by an average of 5pc per year. Here, it must be noted that while India has outpaced Pakistan in terms
of economic growth and productivity, it has still struggled to generate the tens of millions of jobs necessary to
absorb its youth into the labour market.

One does not need to be a rocket scientist to figure out why productivity growth has stagnated. According to
experts, nearly one-third of Pakistan’s labour force is illiterate, while another 40pc has under 10 years of
schooling. According to the federal government’s reports from 2015-16, the country’s literacy rate declined
from 60pc to 58pc. If one were to use the latest census figures, which place the country’s population at about
207 million, then Pakistan, a nuclear-armed nation, has almost 87m illiterate people. That’s more than the
entire population of Germany.

In Mr Umar’s own words, his government’s priority is to generate jobs and build homes while pushing through
structural reforms that seek to resolve issues such as the recurring circular debt problems in the energy sector.
All of these are challenges that he must seek to tackle head on. However, if the PTI, or any other party for that
matter, wants to help Pakistan achieve high rates of sustainable growth, then it must invest in the country’s
workforce through a strong skills development programme.

An uneducated and poorly educated workforce will not, no matter who rules in Islamabad, be able to compete
in an inter-connected, globalised marketplace where competition is cutthroat. For starters, the homes that the
PTI desires to build will be poorly and inefficiently contructed by this workforce, and the various inputs and
consumer durables that go into modern homes will be surely imported into the country. In fact, given the
current situation, Pakistan’s workforce will struggle to efficiently
and competitively make anything that the consumers inside and outside Pakistan seek to buy, thereby
perpetuating the trade imbalances Pakistan has witnessed in recent years. Moreover, an illiterate, unemployed
workforce is a breeding ground for all sorts of social ills, which further compound the economic challenges.

In the age of the Fourth Industrial Revolution, where even advanced economies are finding it challenging to
retrain their workforce for the jobs of the future, Pakistan is wholly unequipped to grow and prosper. The
policy of sustaining the economy by seeking bailouts and geopolitical rents from allies, and relying on the
donations and charity of overseas Pakistanis, cannot and will not succeed.

The way out of this economic quagmire is only through an effective skills development and education
programme. Without this, all the tall claims of development — which are usually made towards the end of an
IMF programme — and the proposed anti-corruption efforts of this government, will fail to deliver sustainable
growth, leaving Pakistan stuck in a never-ending cycle, in which a spurt of growth is quickly followed by an
economic crisis.

The writer is a South Asia analyst at Albright Stonebridge Group in Washington, D.C.

Published in Dawn, October 17th, 2018