Finance Minister Muhammad Aurangzeb’s assertion that job creation is not the government’s responsibility and should instead be left to the private sector sits uneasily with Pakistan’s recent economic experience.
In an economy struggling to generate both growth and employment, such a view risks overlooking the state’s central role in shaping the conditions under which jobs can be created.
Over the past several years, Pakistan’s economic growth has remained persistently low and largely jobless, failing to absorb a rapidly expanding labour force. The social consequences are now stark. Official data shows the unemployment rate has risen to 7.1 per cent, leaving over eight million people jobless in a labour force of 77.2m. Poverty and underemployment have increased, household incomes have been squeezed, and social stress has intensified. Growth that does not translate into jobs is not merely inadequate — it is destabilising.
In theory, the private sector is indeed the primary engine of employment creation. In practice, however, Pakistan’s private sector has been systematically weakened by perennial political instability, macroeconomic volatility, policy inconsistency, and weak institutional support. High interest rates, unpredictable taxation, energy shortages, and currency instability have sharply reduced firms’ capacity and willingness to expand.
If the government can’t create jobs directly, it must at least create the conditions in which they can exist
Expecting the private sector to generate jobs in such an environment is tantamount to asking businesses to perform while policy actively constrains them.
Beyond macroeconomic mismanagement, governance failures have inflicted direct damage on productive sectors, particularly construction and real estate, which have been traditional engines of employment for both skilled and unskilled workers.
Even more unsettling, the Association of Builders and Developers has recently warned that an extortion mafia is extracting large sums from builders, with reports of staff being harassed. Such lawlessness does not merely raise costs; it destroys investor confidence, freezes activity, and suffocates sectors that have historically absorbed surplus labour.
If the government does not create jobs directly, it must at the very least create the conditions in which jobs can exist. This requires policy stability, affordable credit, reliable energy, and above all, the rule of law. Without addressing governance failures and security concerns, shifting responsibility to the private sector becomes an abdication rather than a strategy. In Pakistan’s current context, job creation is not just an economic outcome — it is a governance obligation.
Recent data from the Large-Scale Manufacturing (LSM) sector illustrates this contradiction clearly. Late 2025 has brought tentative signs of recovery, with output expanding 4.08pc year-on-year in the first quarter of FY26 (July–September 2025), supported by better performance of automobiles, cement, and food processing. The momentum, though encouraging, remains fragile.
Viewed over a longer horizon, this short-term improvement masks a deeper structural malaise. Over the past six years, Pakistan’s domestic manufacturing sector has been trapped in a persistent downward spiral. The Lahore Chamber of Commerce & Industry’s research shows that private investment in manufacturing has collapsed from Rs706 billion in FY19 to Rs377bn in FY25, a 46pc decline, marking the weakest phase of industrial expansion in over a decade.
Even more troubling is the warning that current investment levels are insufficient to replace depreciating machinery and industrial plants. In real terms, Pakistan’s industrial capital stock is shrinking rather than being renewed — a silent erosion of the economy’s productive backbone that steadily undermines competitiveness and future growth potential.
The causes of this collapse are neither obscure nor accidental. A hostile business climate — marked by policy inconsistency, regulatory unpredictability, and soaring operating costs — has steadily driven investors away. Frequent changes in tax regimes and statutory regulatory orders make long-term planning nearly impossible, while high and volatile energy tariffs have severely eroded competitiveness.
The Pakistan Textile Council notes that electricity costs average 13.2 cents per kWh in the country compared with 7.0 cents in Vietnam and 10.2 cents in Bangladesh, placing Pakistani exporters at a structural disadvantage.
These weaknesses are compounded by a broader macroeconomic environment characterised by political instability, a decline in the rupee’s value, chronically low foreign exchange reserves, and prohibitively high borrowing costs. Under such conditions, capital behaves rationally — it exits but does not expand.
The consequences of this prolonged investment drought are severe. Pakistan is undergoing a subtle but dangerous form of de-industrialisation: factories may still stand, but ageing equipment, declining efficiency, and technological stagnation are steadily reducing productive capacity. Export competitiveness weakens, job creation stalls, tax revenues shrink, and the state becomes increasingly dependent on indirect taxation, fuelling inflation and inequality.
The contrast with regional peers is stark. While Pakistan’s manufacturing and mining contribution to GDP has remained stuck at around 13.2pc for six consecutive years, countries such as Bangladesh and Vietnam have pursued consistent, investment-friendly strategies. As a result, Pakistan’s exports have fallen from 16pc of GDP in the 1990s to around 10pc in 2024, leaving growth dependent on debt and remittance-driven consumption — a key reason for the country’s recurring boom-bust cycles.
Against this backdrop, the recent 50-basis-point cut in the policy interest rate, though symbolically welcome, is economically inconsequential for industrial revival. When real borrowing costs remain deeply restrictive, a marginal reduction does little to alter investment decisions. For manufacturers facing double-digit financing costs, energy shocks, and policy uncertainty, the cut is more cosmetic than catalytic.
Published in Dawn, The Business and Finance Weekly, December 22nd, 2025
