By Moaaz Manzoor

Pakistan's unemployment rate increased to 7.1% in FY2025-26 despite the economy growing by 3.7%, underscoring the challenges of generating sufficient employment opportunities for a rapidly expanding workforce, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The survey highlights the labour market as one of the key areas requiring sustained policy attention as population growth, urbanization and changing economic structures continue to place pressure on employment creation.

According to the survey, the increase in unemployment occurred despite improvements in several macroeconomic indicators, including economic growth, investment, industrial activity and external sector stability.

The report notes that Pakistan's population reached approximately 252 million during FY2025-26, with a large proportion comprising young people entering working age. The continued expansion of the labour force has increased the need for job creation across agriculture, industry and services.

The Ministry of Finance notes that while economic activity improved during the fiscal year, labour market adjustments often occur with a time lag, particularly following periods of economic stress and stabilization measures.

According to the survey, Pakistan's economy grew by 3.7% during FY2025-26 compared with 3.18% in the previous year. Growth was recorded across all major sectors, with agriculture expanding by 2.89%, industry by 3.51% and services by 4.09%.

Large-scale manufacturing recorded growth of 6.11%, while private investment increased by 12.8%, indicating improving business confidence and economic activity.

Despite these positive developments, the survey notes that employment generation remains a major challenge due to demographic pressures and the need to create jobs at a pace that matches labour force growth.

The services sector continued to account for the largest share of employment opportunities, followed by agriculture and industry. However, structural shifts within the economy and productivity improvements in some sectors can affect the pace of job creation.

The survey highlights the importance of human capital development in improving labour market outcomes. Education, vocational training and digital skills programmes are increasingly viewed as essential for preparing workers for changing employment requirements.

According to the report, literacy improved to 63% during FY2025-26, while the proportion of out-of-school children declined from 38% to 28%, indicating progress in educational participation and human capital development.

Technical and vocational training initiatives also expanded during the fiscal year. Programmes implemented through institutions such as the National Vocational and Technical Training Commission focused on improving employability and providing market-relevant skills.

The survey highlights the growing role of digital skills in employment generation. DigiSkills.pk surpassed 5.14 million trainings during FY2025-26, helping participants develop competencies in freelancing, digital marketing, e-commerce, web development and other technology-related fields.

Pakistan's freelancing sector continued to expand rapidly during the fiscal year. Freelancer exports surged by 51% to $856.3 million, creating new income opportunities for individuals participating in the digital economy.

According to the Ministry of Finance, entrepreneurship, technology adoption and private-sector investment will play important roles in creating future employment opportunities.

The survey notes that private investment increased by 12.8% during FY2025-26, while industrial and construction activity also strengthened. These developments are expected to support employment creation as economic recovery continues.

Labour migration remained another important source of employment and income generation. Overseas employment opportunities continued to contribute to household incomes and remittance inflows, which reached $30.3 billion during the fiscal year.

The report highlights ongoing government efforts aimed at improving the business environment, supporting investment and promoting sectors with strong employment potential.

According to the survey, sustained economic growth, increased investment, industrial expansion and skills development will remain critical for addressing labour market challenges and improving employment outcomes.

While the economy returned to a stronger growth trajectory during FY2025-26, the rise in unemployment to 7.1% highlights the need for continued efforts to expand economic opportunities and ensure that growth translates into broader employment gains across the country.

Credit: INP-WealthPk