Inflation Shapes HR and the Future of Private Sector Employment in Pakistan

Inflation in Pakistan is heaving to new highs, waving the very foundation of the economy, and leaving private sector employees in a toss with shudder purchasing supremacy. Increase in daily expenses have led to an addition in the cost of living that has surpassed salary estimates at workplaces, thereby putting a challenge on firms to think anew on the issue of HR policies. The test of this uncertain economy is not only to maintain business but also to safeguard the financial health of your existing staff and to attract new talent at a time when uncertainty appears to be growing.

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The graduate perspective

Being a fresh HR graduate and trying to turn a stable job in the turbulence of Pakistan's private sector sounds more like a big dream than anything. Opportunities are shadowed by the relentless wave of inflation, making each job look like an anchor in an uphill battle. Each day is a battle with mounting costs that keep eating into my confidence as I send application after application, only to come face-to-face with the stark reality of a shrinking job market. The pressure to find a moment, not just to fill, but also to be one that can sustain increasing costs of living, is overwhelming, leaving me with questions as to whether, in all this, my aspirations can live through the harsh economic storm.

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https://www.statista.com/statistics/383760/inflation-rate-in-pakistan/

This is the inflation rate for Pakistan from 1987 to 2029. The course of this series has radically altered in just the past few decades.

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Inflation and inflationary

Inflation is back in the spotlight, climbing to 8.2 percent in February. The impact of rising prices is well-documented, especially for low-income households. For these families, increasing costs for essential goods can be devastating, making it difficult to cover basic needs and healthcare. This financial strain can even lead to tough decisions, such as choosing between sending a child to school or putting them to work. The private sector also feels the pinch, as higher costs can squeeze profit margins, lead to reduced consumer spending, and ultimately affect overall economic stability. The current economic climate in Pakistan is characterized by serious challenges, with rising inflation reaching about 29% in mid-2024. This surge in inflation goes on to reduce purchasing power and hurt the private sector, in which most employees have their real incomes falling. This puts immense pressure on companies to increase salaries and benefits when the cost of living is high and bolting, while at the same time operational costs are increasing and profit margins are falling.

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In an exclusive interview with WealthPk, Mujeeb Zahur, Managing Director of S&P Global Private Limited, said the private sector was suffering acutely due to surging interest and inflation rates crossing the mark of 27 percent. Soaring utility prices have badly affected businesses, he said, and questioned how meaningful contributions to economic growth can be made in such bleak circumstances. He added that banks had increased investments in risk-free government securities, instead of private sector lending, which heightened the credit shortage and acted as a drag on economic expansion. The State Bank of Pakistan reports that at mid-2024, it surged to over 27% in inflation and interest rates standing at 23%, significantly higher from previous years. This deadly combination of high inflation and high interest rates makes for a very difficult business environment. According to a recent assessment by the World Bank, this scenario is putting a burden on the private sector, with economic growth projected to slow significantly.

Rising inflation is darkening the days of those working in the private sector and fresh graduates, as many frantically trying to pay off their mounting debts are left feeling not very free or secure after all. Each day is a struggle for employees. Purchasing a bag of groceries is beginning to seem like trying to run an expensive obstacle course. Starting salaries of 35,000/- to 45,000/- PKR, which seemed adequate just a year ago, now struggles to cover the basics, leaving people to sacrifice small comforts and face the relentless worry of how to make ends meet. Every trip to the store is a stark reminder of how far the hard-earned money must stretch, creating a constant, gnawing anxiety about the future.

The?effects?of?inflation?on?workers?are?really?devastating. Employees toil long hours, but as prices soar, and wages lose their toil, turning once manageable expenses into daunting financial hurdles.

Fresh graduates, stepping into the workforce with hopes and dreams, are also feeling the sting of inflation. Despite landing a decent job in private sector, most find that the cost of living is eating away at a certain paycheck. The excitement of starting a career is overshadowed by the harsh reality of mounting expenses for housing, healthcare, and necessities.

Private sector -financial tension And HR strategy implementation?

“The pressure of rising inflation has squeezed the morale of people working in companies across Pakistan. Firms are rewriting HR policies to help staff ride out erosion in purchasing power. Salaries and compensation structures have come under increasing scrutiny as firms actively make changes to cope with the impact of spiraling living costs. It is bringing in strategies such as cost-of-living adjustments and performance bonuses to ease financial stress and keep employees motivated. As silent inflation is trimming down the real wage, traditional salary structures cannot keep pace; hence, some companies have commenced incorporating cost-of-living adjustments and pay increases controlled with inflation. No doubt, this move aims at ensuring that the wage of the employee grows at par with the cost of living to sustain the same level of living. For instance, companies like Unilever Pakistan have introduced variable benefit packages that include transport and house allowance packages to cushion their employees from the effects of inflationary pressure.” As mentioned by "Unilever Pakistan Annual Report," 2024.

Performance-based incentives and profit-sharing plans have, over time, assumed an increasing role in tying reward packages to company performance and changing economic conditions. These strategies also motivate employees as they couple their remuneration package with the success of the organization. In addition, HR departments are assessing other benefit solutions, such as wellness programs and financial planning services, to offer support at a more rounded level than direct salary adjustments.

The 2024 report of “Deloitte” underlines that human-centric strategies are of utmost importance for success in the future. With businesses working more and more relentlessly against the challenges of rising inflation and economic uncertainty, a people-first approach becomes important. It underlines companies that genuinely focus on employee well-being by offering compensation and benefits that are fair and very supportive in building resilience in their workforce but also link to driving success in the long term. Making staff the heart of their strategic plan, organizations can build stronger, more engaged, and more productive teams, better surfing the economic pressures. It means that not only seeking investment in human-centered strategies as the way out of the current challenges but an investment that assures sustained growth and prosperity in the future.

"Alizeh, an HR intern at Suno News, jibed, 'While I'm getting hands-on experience in handling workplace issues, I'm still waiting for the day when my stipend catches up with inflation—until then, she says, "I'm learning how to stretch zero into infinity!"

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A balance between recruitment, compensation, and career development- Revamped HR policies in Pakistan

In response to the evolving economic landscape, several private sector companies in Pakistan are revising their HR policies to create a more balanced approach to recruiting fresh graduates. The focus is on aligning company needs with fair compensation and providing meaningful career development opportunities to attract and retain young talent. In view of the need to have a fair and competitive recruitment process, firms should award fresh graduates with salaries that not only reflect current market rates, adjusted for inflation, but are also commensurate with qualifications and skills. Building this culture of fairness requires well defined cross functional open salary bands. This is followed by new hires being able to see what they must look forward to in terms of career growth path, role clarity within the job specification and great mentorship programs. Performance incentives can be given with bonuses to inspire and reward exceptional work, training that helps further their expertise in a certain area and fast-tracked promotions allowing success for both men/women.

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Structured Solutions

Given the current economy, it is recommended for Pakistani companies to adopt a handful of important best practices to attract (and more importantly retain) fresh graduates but those benefits to attract graduates who desperately seek work-life balance are moot if you do not offer opportunities for free time in the first place: flextime, remote telework—those things. The value of this flexibility has never been higher than in the aftertimes, or during days such as these.

To ensure that new employees are motivated and engaged immediately, effective onboarding should include orientation programs, peer mentoring, and regular check-ins during the first few months.

A reward system plus constant feedback is also vital to maintain high spirits and guarantee that young graduates remain inspired as well as appreciated for their commitment. This way, companies can strike a balance between what they need from such generation employees’ and what their expectations must be, leading to a more motivated workforce which has better skills thereby fostering economic development in Pakistan.

Aimmon R. Aftab

Aimmon is a recent Bs. Hons Business Management Specialized Human Resource Management graduate of Forman Christian College University and an HR associate at Bookme.pk.