The Asian Development Bank has projected a 2.5 per cent growth in Pakistan’s economy for the current fiscal year ending in June. Although the State Bank of Pakistan has retained its earlier forecast of 2.5pc to 3.5pc, the continued lag in domestic aggregate demand makes the lower end of the range appear more realistic.
The sluggish pace of demand is evident from the tanking of consumer inflation to a 60-year low of 0.7pc in March, the negative growth in large-scale manufacturing and lower-than-expected tax revenues.
Traders have reported, and consumers have confirmed, that Eid-related sales this year were significantly weaker compared to last year — another indicator of faltering domestic demand, which remains insufficient to push economic growth beyond 2.5pc.
What merits deeper analysis is: if the economy grows at 2.5pc — below the initial 3.6pc target set by the hybrid government — which sectors will underperform, and what will be the implications for employment and real incomes?
With industries set to grow far below expectations, suppressed demand appears inevitable
The 3.6pc growth target was based on expectations that the industrial and services sectors would expand by 4.4pc and 4.1pc, respectively, while agriculture was forecast to grow just 2pc due to a high base effect from the 6.2pc increase in FY24.
However, with large-scale manufacturing (LSM) output contracting by 1.78pc during July 2024-January 2025, expecting a turnaround exceeding 1pc appears overly optimistic, even if delayed effects of monetary easing and sector-specific incentives begin to show.
Small-scale industries, though less closely tracked than LSM, are closely linked to it. Given their interdependence, it’s unlikely that small-scale industries will significantly uplift overall industrial performance.
This raises serious concerns: if industrial growth falls well short of the 4.4pc target — seemingly inevitable — how many jobs will be lost, and what will be the effect on industrial workers’ real incomes?
if industrial growth falls well short of the 4.4pc target — seemingly inevitable — how many jobs will be lost, and what will be the effect on industrial workers’ real incomes?
The textile industry, the largest job-providing industry in Pakistan, has long been struggling with high input costs, and the recent imposition of a sales tax on cotton may further compound its problems, making it too difficult for the sector to sustain even the current workforce.
The outlook for agricultural workers is equally bleak. Even achieving the modest 2pc growth appears challenging, particularly due to a 40pc water shortage in Sindh, Pakistan’s second-largest agricultural region.
Farmers have warned that such shortages could devastate crop yields and affect livestock breeding negatively, yet no effective measures have been taken to address the issue.
Compounding this is the ongoing dispute over new canals on the Indus River, which Sindh-based farmers and politicians claim will deplete agricultural and drinking water supplies.
These groups have also long argued that Sindh receives less water than it requires and have called for a revision of the inter-provincial water-sharing agreement.
These issues have become politically charged, and if not handled with care, may exacerbate the already polarised environment, potentially leading to destabilising protests and movements.
Thus, even if agriculture manages a 2pc expansion, it will be insufficient to generate new employment or improve farmers’ real incomes — given the high prices of inputs, energy, and persistent effective interest rate pressures. Furthermore, such modest growth will be inadequate to stimulate key service sectors like transport, banking, insurance, and wholesale and retail trade.
With the industry set to grow far below expectations and agriculture unlikely to perform much better than last year, a marked slowdown appears
inevitable despite potential support from increased imports, modest export expansion, and incremental gains in information technology (IT) and IT-enabled services.
All these trends point to rising unemployment, declining incomes, and deepening poverty.
According to Trading Economics, Pakistan’s unemployment rate stands at 7.5pc, with approximately 6.36 million people unemployed — a figure likely to rise by fiscal year-end.
Meanwhile, the World Bank estimates that 40.5pc (or more than 101m out of a total 250m) Pakistanis live below the lower-middle-income poverty line, earning less than $3.65 (roughly Rs1,000) per day.
These are sobering facts that cannot be brushed aside with lofty rhetoric — especially amid intensifying political divisions and ongoing militancy and terrorism in Khyber Pakhtunkhwa and Balochistan.
In such turbulent times, all institutions must operate within their constitutional limits to prevent the country from descending into chaos and to foster an environment conducive to realising recent foreign investment pledges.
The commitment of foreign investors to Pakistan’s mineral and maritime sectors is a welcome development, as is the country’s aspiration to become a regional trade hub. However, only a stable political landscape and a steadily growing economy can turn these promises into reality.
Published in Dawn, The Business and Finance Weekly, April 14th, 2025
