Low employment remains one of the biggest challenges for the government. The unemployment rate shot up from 5.8% in 2018 to 6.9% in 2019 as the total number of jobless people rose by approximately 1 million to 4.7 million in that period, the Pakistan Bureau of Statistics’ recently released Labour Force Survey shows. The country’s economic condition worsened in the subsequent years in the aftermath of the coronavirus pandemic. This has likely pushed unemployment even higher. With shrinking earning opportunities and economic uncertainty, fears of job security have climbed, a survey carried by the Paris-based market research firm Ipsos shows.
It is one of the state’s main responsibilities to create employment opportunities but due to economic constraints, the government of Pakistan has limited capacity to do so. Theoretically, a government can take various measures on the fiscal and monetary policy fronts to lift employment levels. It can, for instance, take measures – such as increasing government spending or reducing taxes – that can push the aggregate demand for goods and services higher which would lead to real GDP growth and jump in employment levels. The central bank, by lowering interest rates which reduce the cost of borrowing, can also encourage people and businesses to increase spending. But none of these options are feasible at the moment. Rather, the present circumstances have forced the government to decrease spending, increase taxes, and raise interest rates.
The economy has come under stress due to the large drop in the value of the local currency, inflation climbing to an alarming level of 11.5% in November and widening of the current account deficit which stood at $5.1 billion in the first four months of the ongoing financial year as opposed to a surplus in the same period last year. The total liquid foreign reserves, held by the State Bank of Pakistan, have fallen rapidly from their peak of $20 billion in August to $16 billion in the final week of November. Despite these challenges, the government has not run out of options and it can still meaningfully increase employment levels.
The government needs to reassess its revenue collection plan and expenditure outlay by increasing the tax net and improving its compliance. At the same time, the authorities need to engage the private sector for job creation. Instead of doling out additional subsidies that the government cannot afford right now, business-friendly policies should be introduced that can spur investment in industries, ranging from agriculture to energy. The private sector participants should be encouraged and rewarded for making investments that improve or expand their operations while creating hundreds of new jobs.
The energy sector is one area where the government should concentrate, given this sector can directly affect the performance of many other industries and can have a profound impact on the economy.
Some of the biggest energy companies in Pakistan – like Oil and Gas Development Company Limited (OGDC), Pakistan Petroleum, PSO, Parco and Cnergyico (formerly Byco Petroleum) – are a strategic asset of the country. They produce and distribute fuels that run the nation’s economic engine. Moreover, various other industries, such as transportation and logistics, airlines, fast moving consumer goods and chemicals rely heavily on the energy sector’s products.
Poor performance of the energy sector can bring the entire country to a standstill, and the citizens who have experienced fuel crises understand this all too well. Likewise, the growth and expansion of this sector can trigger economic development and create thousands of jobs.
Within the energy space, oil refining is an industry from where the authorities can get the greatest results in the shortest time. That is because virtually, all domestic oil refiners have already finalised plans to upgrade and expand their plants, with each mulling about investing hundreds of millions of dollars. One major oil refinery in Balochistan, for example, has earmarked more than $850 million for its upgradation project under which, it will install 15 plants to produce high quality fuels. This industry-wide effort will undoubtedly create thousands of direct and indirect jobs besides supporting other industries that will provide equipment, materials, and other related goods and services.
Oil refining can also have a huge impact on the economy. The investment from refiners will push the country’s petrol and diesel production higher. This could go a long way in reducing the need to import expensive refined products and help in arresting the widening current account deficit.
The refining industry, however, has been waiting for the government to introduce the oil refinery policy which is expected to offer incentives to the sector to undertake capital-intensive projects. The policy is reportedly in the final stages of development although its approval has been delayed. The authorities should expedite the process and bring the new policy to fruition so that the refiners can ramp up spending and create new jobs.
With that said, the government must also become efficient in its functioning if it wants to meaningfully improve employment and achieve economic growth through private sector investments.
For example, the recent unnecessary and perplexing decision to import furnace oil instead of using fuel stocks held by refineries has severely jeopardised refinery operations and further widened the current account deficit. Coordination and planning between government agencies must improve, otherwise, the policymakers would end up hurting the performance of the very industry they were expected to lift.
The writer focuses on subjects of business and economics
Published in The Express Tribune, December 13th, 2021.
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