Growth and jobs next year

Impact of a possible programme to be factored in, Gdp growth target may well be less than the achievement this year

Economic growth is the first casualty under an IMF programme. The National Economic Council (NEC), described as the highest economic decision-making body, has fixed the GDP growth target for next year (2019-20) at four per cent. It seems reasonable against the achievement of 3.29 per cent in the current year (2018-19), but dismal when compared to 5.53 per cent in the year before. Before the IMF jumped in, the dreamers of the 12^th Plan (2018-23) targeted the growth rate for 2019-20 at 5.4 per cent. At the NEC, the ambition of the Planning Commission is usually contained by the realism of the Ministry of Finance, the realism being defined by the length of the purse. Presently, however, neither the ambition of the planners nor the realism of the exchequer has any relevance. The IMF’s estimate of growth in the current year is 2.9 per cent. That was before the staff-level agreement. Now with the preconditions of an Extended Fund Facility being met at a break-neck speed, and the impact of a possible programme to be factored in, the target may well be less than the achievement in the current year. As a matter of fact, the number is already there, projected at 2.8 per cent. This is dangerously close to the population growth, implying stagnant income per capita. More ominously, the present pool of the unemployed will expand as the entire addition to the labour force will also remain unemployed due to the contraction of economic activity.



There will thus be two macroeconomic frameworks, one for the master, one for the little girl, who lives down the lane. This won’t be for the first programme. All IMF programmes in the past had their own. Not much should, therefore, be read into it. More attention has to be paid to the thinking behind the macroeconomic framework approved by the NEC. At his maiden press conference last week, the Adviser on Finance observed that low growth need not be jobless. As evidence, he compared the PPP government period, of which he was a part, with the PML-N period, the party who blocked his proposal for a Reformed General Sales tax and thus the IMF programme. In the case of the PPP, the average growth per annum was as low as 2.8 per cent, coincidentally the same as the IMF projection for next year, but the jobs created totalled around 6.9 million. The PML-N, on the other hand, posted a higher annual growth of 4.8 per cent, but produced a much smaller number of jobs, i.e. 5.7 million.

This is remarkable as far as it goes. The PPP’s period was marked by a very high oil price, worst floods in our history and the Chaudhry Court causing unending uncertainty. The PML-N had its share of judicial activism, but the oil price fell steeply and there were no natural disasters of serious magnitude. So what made the difference? The PPP is past master at creating jobs in the government sector. One of Yusuf Raza Gillani’s boasts is that he went to jail for this. What is called General Government Services subsector of GDP grew by 10 per cent per annum during the PPP regime and seven per cent under the PML-N. During the IMF programme executed by the PML-N, it was 5.8 per cent. It entered double digit once the IMF was off the PML-N’s back. The main difference was that the PPP failed to complete the IMF programme and the PML-N completed the programme. The IMF just closes the currency printing press and restricts public spending.

Published in The Express Tribune, May 31^st, 2019.

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