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Long Term Savings Culture – Grabbing Hold Of Financial Future

Every year, National Savings Day is celebrated on 31st October, still Pakistan continues to be categorized among the low savers of the world. Historically, the highest national savings rate has been much lower than regional peers at the same income level. One of the strong reasons for the informal saving channel to exist is the paucity of savings instruments that an individual has access to. The financial system now needs to focus on providing innovative liability products to give the investors and savers various options to choose from, according to their risk/return preference. Extending outreach of financial services to currently unbanked areas is also expected to enhance the level of financial savings.

A variety of factors are responsible for a low savings rate in Pakistan. Generally, the factors which influence the rate of savings in the economy include economic growth, rise in per capita income, favorable demographic structure, prudent fiscal stance, positive real returns, expected inflation rate, development of the financial sector, and cultural and psychological issues. However, the following factors may also give us some logical links for the current low level of savings in the economy.

1. There is a lack of investment avenues which provide inflation adjusted returns. High inflation reduces the value of savings and is a disincentive to save in financial assets. Some of the related issues are:

. Existence of high financial intermediation cost and low deposit rates
. Rise in the consumption propensity due to leasing/consumer finance schemes of the commercial banks.
. Lack of awareness about the existing financial products due to lack of financial literacy and general awareness.
. Access to financial products such as stocks, mutual funds, modarabas and other saving instruments are concentrated in big urban area such as Karachi, Lahore and Islamabad.

2. There are also cultural factors behind the low savings rate. For instance, Pakistanis are generally pro consumption; Generally, Pakistanis spend extravagantly on marriages, social functions and religious ceremonies. People invest in real estate for the purpose of ownership of houses, while some indulge in such investments for speculative purposes.

3. Due to the prevalent joint family system, the dependency ratio is very high in the case of Pakistan. Thus, it leaves a meager amount for saving for the sole bread-earner of the family.

4. There are other factors like poverty and inequality in the country. A consistent increase in disposable income is a necessary condition to accelerate the rate of household savings.

5. Moreover, the level of financial deepening in the economy is significantly low, due to which a significant number of households tend to rely on informal sources of savings such as the committee/BC system.

6. Overwhelming preferences for using cash to settle a variety of transactions could also be constraining savings. In fact, the preference might also be due to treatment of taxation of financial instruments that seems to discourage savings.

The ideal way to boost domestic savings in our economy will be to increase public savings. Public savings have been abysmally low in our country as the government has proved to be a major dissaver. Huge fiscal deficits have been incurred by the government on account of its low tax collection and high current expenditures. Furthermore, these deficits were mainly incurred to finance the current expenditure portion rather than the investment (development) expenditure. The deficits could have been indeed justified, had the government used it to finance investment expenditures, which typically help in fostering economic growth. Hence, to enhance public savings, it is imperative for the government to narrow down its fiscal deficit by enhancing its tax revenues or by taking austerity measures.

Another promising way to increase national savings would be to concentrate on household savings as they carry a significant portion of national savings. The theme of consumerism has been evident in a Pakistani’s lifestyle and our economic growth has primarily been driven by consumer-led growth.

Following steps can be taken to promote a savings culture in the economy:

. Efforts should be made to enhance accessibility of financial services to the largely excluded areas/sectors including rural areas;

. Introduction of innovative schemes to improve the share of contractual savings;

. Wider dissemination of information regarding alternative instruments of savings such as pension funds and creating awareness of life insurance policies as a viable investment option.


National Savings Organization is playing an important role in providing risk free saving and investment opportunities for the low-income segments of the country. It offers a variety of schemes to suit the needs of savers, including Senior Citizens, Pensioners and Widows to cater for endowments, retirement plans, and insurance policies. The social impact and contribution of National Savings Organization is indeed phenomenal towards sustainable economic status of citizens. As a custodian of the nation’s savings, today the National Savings is the largest investment and financial institution in Pakistan with a portfolio of over Rs3.4 trillion and more than 7 million valued investors are being served through a large network of 376 branches nationwide controlled by 12 Regional Directorates of National Savings (RDNS) and 4 Zones. Recently, on the instructions of Ministry of Finance, CDNS in collaboration with State Bank of Pakistan (SBP) have come up with the idea of registered premium prize bonds in the denomination of Rs40,000 which apart from draws will also be entitled to earn a profit @ 3% p.a.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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