Historical •By

•Anas Sohail
•Mohammad Ayan Mazhar

Trends in •Omer Farooqi

•Syed Iltifaat Rasool

Savings and
Investment
in Pakistan
Introduction

• Saving can also mean putting your

money into products such as a
bank time account.
• Investing means using some of
your money with the aim of
helping to make it grow by buying
assets that might increase in value,
such as stocks, property or shares
in a mutual fund.
 • In FY2022, the Gross Fixed Capital Formation (GFCF)
stood at Rs 8,992 billion against Rs 7,217 billion in
Saving and FY2021, thus, posting a growth of 24.6 percent as
compared to 16 percent growth in FY2021
Investment in • The GFCF in the private sector was estimated at Rs
Pakistan 6,704 billion against Rs 5,557 billion in FY2021
showing a growth of 20.6 percent
• GFCF in Public Sector remained at Rs 481 billion
during FY2022 compared to Rs 419 billion last year
registering a growth of 14.9 percent
• the GFCF in the General Government sector during
FY2022 stood at Rs 1,808 billion compared to Rs
1,241billion during FY2021, posting a growth of 45.6
percent
Saving and Investment in Pakistan
 • Pakistan center around low savings and
investment.
• In FY15, Pakistan ranked 151 among 175
countries in terms of investment rate, much
below its neighboring countries like India
(32), Sri Lanka (36) and Bangladesh (40).
• Pakistan has the highest national savings rate
Continued of 21.4 % which is much lower than other
regional countries at the same income level.
• High savings mean that the financial
institution will get more money in the form
of savings which they can further invest and
earn from and as a result flow of money will
increase and economy will move towards
growth.
Components of
Savings
• Public Sector which includes government
savings and savings produced by public
sector enterprises in the form of internal
resources.

• Private Sector which includes savings of

households and the corporate sector.
Business Environment
• Business conditions have remained
increasingly difficult for investment in Pakistan
• The unfavorable business conditions in
Pakistan have not only kept foreign investors
away from the country, but also prevent
expansion of local businesses
• The investment rate in Pakistan, which was
around 18 percent in 2000s, declined to only
15 percent in recent years and is continuing to
fall.
 • Lately Pakistan has achieved a reasonable
sense of stability on political front. However,
it has a history of frequent changes in
political regimes, which has affected the
Policy decisions regarding policy

Weaknesses • Because most of the policies were mostly

guided by Adhocism, particularly in case of
public sector investment, without taking care
of long-term objectives and genuine national
priorities.
  Public sector has played a leading role in
developing capital stock and had a very high
share in total investment until 1990s.
Low Public  Lack of resources
 spending choices of the government have
Investment been inclined more towards short term and
publicly popular programs
Role of
 Financial sectors are more shifted
Financial towards privatized institutions
Sector  Commercial banks are interested in
risk free government securities
 Government’s reliance on budgetary
borrowing from commercial banks
has increased
  Foreign investors avoided Pakistan as an
Declining investment destination.
 Unable to attract investment in oil and gas
Foreign  Decline in foreign investment resulted in
decreased production and technology
Investment
Determinants of saving rate
•Income level
Savings are positively associated with income. There
is a general consensus in economic literature that
people with low level of income have lower
propensity to save and vice versa.One reason for
collapse of saving rates in Pakistan in recent years is
persistently low real GDP growth
Pakistan's Real GDP Growth from 2001 to
2022
Determinants of saving rate

• Inflation
High inflation reduces the value of saving; and with
given nominal interest rates, it is a disincentive to save
in financial instruments.
Determinants of saving rate

• Rate of return
Rate of return on saving is the most important factor
affecting saving rate. Data for Pakistan suggests that
national saving rates have followed the trend on real
interest rate in general.
How to increase investment and saving?
• the government should design a coherent industrial policy and provide
adequate incentives so that manufacturers can move up in the value chain, and
invest in technology that will allow shift from producing low value added
products to high value products.
• An important task is to ensure continuity of conducive environment for
businesses (e.g., consistent policies, smooth energy availability, improved
governance, etc.)
• more schemes are needed to attract contractual saving schemes in private
sector like pension, provident fund, gratuity, old age benefit schemes, as well as
small savings (like committee/bisi system) into the formal financial system
• the government should reduce its overall budget deficit, and also focus on
mobilizing funds from non-bank sector
The Way Forward
• In the short run, Pakistan is confronted with the challenge to finance
its external finance
requirements stemming from current account deficits and foreign
debt servicing.
Successful conclusion of the seventh review of Pakistan’s reform
program which is
supported by an IMF Extended Fund Facility arrangement is on the
right direction.
• Stable fiscal policy with a higher, growth promoting path for PSDP,
based on
physical and human capital development will be obligatory.
Continued
• Subsidies targeted to stimulate development of innovative industries
and services will be essential. On the revenue side, growth-oriented
revenue policies will be helpful.
• the investment must be capable of considerably augmenting the share
of GFCF in GDP as well as increasing the efficiency to create additional
welfare.
• There is also need to continue policies which brought improvement in
related sectors.
For example, Prime Minister’s Agriculture Package and related
agricultural policies
remained more effective for better agriculture performance.
Continued
• As a Result, it is expected that potential output growth will be
upgraded, resulting in higher employment and real income growth. It
will also create additional capacity for exports and import substitution
and a stable exchange rate environment.
Thus, demand management fiscal and monetary policies should on
average be neutral and play their role of cyclical stabilizers when
temporary shocks create deviations from the long-term growth path.
THANK YOU