Several research studies have shown that Pakistan’s economy has not only stagnated but regressed during the last three years. The average GDP growth rate in 2022-23, 2023-24 and 2024-25 has been only 1.7 percent, while in 2022-23 it actually contracted due to the floods.

As is well known, four sectors absorb over 75 percent of the employed workers. These sectors are agriculture, manufacturing, construction and wholesale and retail trade which account for the bulk of the economy. The last three-year average growth rates of these sectors are: Agriculture 3.1 percent, Manufacturing -0.3 percent, Construction -1.6 percent and Wholesale and Retail Trade -0.2 percent. The figures show that three of the four labour-intensive sectors saw a decline in growth. This resulted in a big decrease in the number of employed.

The Population and Housing Census of 2023 revealed that in the second half of 2022-23 and the first half of 2023-24 the labour force was almost 85 million. The number of employed workers was 66.2 million and the number of unemployed was close to 18.8 million. This implies an unemployment rate in the country of 22.1 percent. The unemployment rate of over 22 percent in 2023 was the highest ever over the 30-year period, beginning from 1998. There have been three population censuses during these years — in 1998, 2017 and 2023. The reported unemployment rates in these censuses are as follows: 1998: 19.7 percent, 2017: 9.4 percent, 2023: 22.1 percent. These figures show that there was an increase in the unemployment rate by over 12 percentage points between 2017 and 2023. The bulk of unemployed workers would fell below the poverty line due to zero earned income.

Unfortunately, during the last three years, the average inflation rate has also touched the highest ever level. The annual rates of inflation were as follows: 2022-23: 29.2 percent, 2023-24: 23.4 percent and 2024-2: 4.7 percent. Thus, the average rate of inflation for these three years works out to over 19 percent. The year 2022-23 witnessed the highest-ever rate of inflation but 2024-25 witnessed prices coming down.

We can see from the above that the last three years have witnessed a toxic combination of low GDP growth rate, high rates of inflation and widespread unemployment. In other words, these two factors combined to push up the level of poverty in the country. The double-digit inflation had a highly negative impact on the real incomes of workers. As per the wages index of construction workers, reported by the Pakistan Bureau of Statistics, in June 2025, the index of construction wages stands at 227.5, with the base year, 2015-16, equal to 100. It was 174.3 in June 2022.

Over the last three years, the cumulative increase in average wages of construction workers has been 30.5 percent. During the same period from June 2022 to June 2025, the overall increase in the consumer price index has been 50.7 percent. This implies that the real wages of construction workers have fallen by as much as 20.2 percent since 2022. This implies that a large percentage of employed construction workers fell into poverty. According to available reports, the average daily wage of a construction labourer is Rs 1,152 which is less than the minimum wage of Rs 37,000. For some other categories of workers, the fall in real wages is 18 to 19 percent.

Two points are noteworthy here. First, the unemployment rate jumped to a peak of over 22 percent in 2023 and increased further by June 2025 because of the low growth rate of only 2.7 percent in 2024-25. Second, real incomes of the employed in sectors like construction and personal services have fallen. Consequently, these two negative trends have combined contributed to a peak in the incidence of poverty in Pakistan of 44 percent.

Clearly, in order to increase employment and reduce the poverty level, we will have to devise new ways to accelerate the GDP growth rate. In this context, there is good news from the State Bank of Pakistan which has projected the GDP to grow between 3.5 and 4.25 percent in FY26. This projection is based on signs of a recovery in the Large-Scale Manufacturing sector and a healthy jump in home remittances which are expected to cross $40 billion. Encouragingly, the credit agencies have also lately upgraded the country’s rating.

But the real battle lies in increasing the growth rate and containing inflation. For this, we need investment and business-friendly policies, free of bureaucratic red tape. Pakistan has a very low ranking on the ease of doing business index. This explains why the country lags behind its peers in economic growth and export expansion. Urgent measures are required to attract investment in labour-intensive sectors such as agriculture, manufacturing and construction. These industries hold the potential to generate mass employment for semi-skilled and unskilled workers.