Urgency of inculcating savings culture in Pakistan


Mohammed Arifeen

Pakistan stands amongst the countries with lowest savings-to-GDP ratio, standing at a dismal 14.2 percent in 2015 compared to the global and emerging economies average of 25.6 percent and 31.4 perfect respectively.
Low savings has been in the form of slow economic growth, high unemployment, double-digit inflation etc.
Savings provides a greater momentum to economic growth in the form of investments. The national income greatly depends on savings available in the economy.
Strong evidence shows that countries with higher savings-to-GDP ratio have recorded phenomenal economic growth compared to countries with lower savings-to-GDP ratio.
Pakistan is at the last rank of the list with poor economic growth. Even then with such a low savings-to-GDP ratio, Pakistan has managed to record an average GDP growth close to 4 percent during the period due to foreign investment as it can be observed average Investment-to-GDP ratio in Pakistan has exceeded the average savings-to-GDP ratio.
If domestic savings are not much than a country can get a part of foreign savings to finance its investment needs.
Foreign Investors have taken investment as world recession combined with worsening law and order situation in Pakistan has compelled our citizen believe that Pakistan is no more an striking place to invest.
Pakistan cannot afford to be dependent on foreign inflows and there is an excess need to instill a culture of domestic savings.
Public savings have been very low in our country. Huge fiscal deficits have been incurred by the government on account of its low tax collection and high current expenditures.
Pakistan savings-to-GDP ratio, already the lowest in the region, missed the target set for the outgoing fiscal year and was even less than the preceding year
The budget for 2017-18 depicts that the savings ratio remains a cause for grave concern as it declined to 13.1 percent in fiscal year 2017 compared to 14.3 percent in fiscal year 2016. The ratio is about 26 percent in India.
Despite falling savings-to-GDP ratio, the deposits of scheduled banks significantly increased by Rs910 billion during the first 10 months of this fiscal year.
The tax-to-GDP ratio has been less at close to 11.0 percent compared to global average of 14.0 percent. These deficits were mainly incurred to finance the current expenditure.
The deficits could have been indeed defended if the government used it to finance investment expenditures which help in accelerating economic growth.
Therefore to quicken public savings, it is essential for the government to reduce its fiscal deficit by reducing its tax revenues or by taking austerity measures.
Countries with high tax to GDP ratios follow a policy with focus on progressive taxes as it get rid of income inequality and stop differences in society.
In order to improve its tax-to-GDP ratio, government has to step up and pursue stringent reforms in its tax structure.
The important sectors should be brought in to the tax net and any resistance should be strongly prevented.
One way to increase national savings would be to focus on household savings as they carry a substantial portion of national savings. It is that
Consumerism has been evident in a Pakistani’s lifestyle and our economic growth has primarily been driven by consumer-led growth.
According to the Economic Survey of Pakistan 2015, an average consumer in Pakistan allocated PKR 91 out of PKR 100 to consumption expenditure, implying. Pakistan consumer-based economy constitutes about 89 percent of the economy.
Thus, as a nation we have to restrict our unnecessary expenditures. Pakistani nation has disregarded for the future growth and prosperity
Our residences have become symbols of prestige. The soaring inflation leaves the masses with no choice but to consume. The banking products, which are the most popular means of savings, offer returns that are less to defeat inflation.
In such a negative economic condition an average Pakistani is better off in consuming today rather than saving for afterward.
There is a strong need to increase awareness of banking and mutual fund benefit products through advertisements, seminars, etc.
The other concerning figure was the low investment-to-GDP ratio which impacts the economic growth. However, the economic growth rate was at 10-year high despite missing most of the key targets.
The budget shows the investment-to-GDP ratio reached 15.78 percent in fiscal year, an increase of just 57 basis points over the previous year.
Compared to Pakistan, India attracted $62 billion in the year 2016, the highest in the world, followed by China.
People in Pakistan save only 14 percent of their monthly salary generally while worldwide, the average standard of savings is 27 percent. In Pakistan educated people are also more likely to keep their savings at home instead of in the banks.
This was disclosed by Standard Chartered Bank’s study ‘Emerging Affluent Consumers in Asia – The Race to save’. This survey was conducted in 8 countries including China, Hong Kong, Singapore, India, Taiwan, Korea, Kenya and Pakistan.
The survey further said that emerging affluent consumers in Asia could boost their savings by an average of 42 per cent if they move from a basic savings approach to a low-risk wealth management strategy.
This was the first time an emerging affluent consumer survey was conducted in Pakistan. About one thousand young graduates, belonging to higher middle class, were included in the survey.
This survey was conducted in Karachi, Lahore and Islamabad. People were asked specific questions regarding their income, saving, reasons for saving and other financial matters.
In Pakistan the primary reason for saving is for children’s education, for special treats, and for emergency purpose.
It was agreed that there is need of financial education and financial inclusion among the educated youth of country.

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