DECLINE IN SAVINGS
ONE OF THE GREATEST CHALLENGES PAKISTAN FACES IS THE LACK OF A SAVINGS CULTURE AND LOW RATE OF PRIVATE SAVINGS.
June 6 - 12, 2011
In the wake of dismal increase in growth rate over the past few years, the rate of private saving in Pakistan remains low as compared with many of the developing economies in Asia. One of the greatest challenges, we face is the lack of a savings culture and low rate of private savings.
National savings and investment are crucial for economic development of Pakistan. The greater the rate of saving the greater will be the funds available for capital formation and investment in the country. Unfortunately, however, Pakistan is moving in the reverse direction.
The rate of national saving is on the decline instead of witnessing an increase which is dire need of the hour. During the financial year 2010-2011, decline was witnessed in the volume of savings on account of inflationary pressure. The government had managed to collect nearly Rs555 billion in 1997-98 against Rs459 billion in 96-97 when the then government had reduced the rate of profit on savings. The decision was reversed in view of the shortfall in the volume of savings and this had a salutatory effect on the declining saving rate. The government of Gen. Pervez Musharraf had twice reduced the rates of profits. Under the pressure from IMF, the government ordered another cut of 1.5 per cent in July 2000 on national saving schemes perturbing retired officials, old people, students, trusts and orphans as National Savings Schemes were the safest mode of investment other than stocks and real estate.
The present PPP government has enhanced the rate of profit on National Savings Schemes (NSS) with effect from January 1, 2011.
Official sources told PAGE that the federal government has taken this initiative in the wake of increasing trend in the interest rate scenario and in line with the policy of the government to offer competitive market-based rates to investors of national savings schemes.
Giving the details of the rates, they said that the rates for Special Savings Certificates, Regular Income Certificates, and Defence Savings Certificates have been enhanced from existing 12.13 per cent, 12.36 per cent and 12.60 per cent to 13.33 per cent, 13.44 per cent and 13.55 per cent p.a. respectively.
The profit rate of savings accounts has also been enhanced from 8.75 per cent to 9 per cent p.a., while the rates on schemes of Pensioners Benefit Accounts and Bahbood Savings Certificates have been enhanced from 14.64 per cent to 15.36 per cent in line with the policy of offering subsidized rates to specialized segment of the society.
Following is the summary of NSS profit rates.
Scheme Profit Rates (up to 31-12-2010) p.a Revised Profit Rates (w.e.f. 01-01-2011) p.a.
Pensioners Benefit Accounts 14.64 pc to 15.36pc
Bahbood Savings Certificates 14.64pc to 15.36pc
Special Savings Certificates Account 12.13pc 13.33pc
Regular Income Certificates 12.36pc 13.44pc
Defence Savings Certificates 12.60pc 13.55pc
Savings Accounts 8.75pc 9.00pc.
Pakistan has a long history of dependence on multilateral and bilateral development partners. Over the decades, the share of grants as percentage of total foreign assistance has declined forcing the country to procure loans at harsh conditionalties. Given the positive impact of national savings on economic growth, there is an urgent need for improving the tax base, promoting instruments that encourage savings culture in the private sector, and attracting remittances from abroad. These increased savings would then have to be channelized towards productive investments, which in turn require pro market reforms, experts told this scribe.
Compared to the rapidly-growing economies in Southeast Asia, the Pakistan economy has been characterized by low saving and investment rates over the past two decades. Indeed, the low rate of domestic investment is often attributed to the low rate of domestic saving, they said.
According to them, absence of attractive avenues for savings is a cause of concern for the country's already low savings rate.
They stated that there is an urgent need to increase domestic savings. However, with limited avenues available for investment, it is unlikely that savings can be increased. Unless yields on domestic instruments are made attractive, people will continue to save less and consume more, further deteriorating the already difficult situation. The low yields are justified by stating that inflation has been declining. Inflation may be in the single digit category.
The latest decisions of the government increasing the prices of diesel, gas levy of GST on gas and electricity bills and services and turnover tax on shop keepers are all going to fan inflation and the financial year may end up with an inflation rate of 7/8 per cent making life miserable specially of pensioners and retired people who are living on the profit of their savings.
On the other hand, country's total public debt stood at an estimated Rs8,160 billion by end March, 2010 and at this level it is equivalent to 56 percent of GDP. Of the total public debt, rupee-denominated amounted to 31 percent of GDP while foreign currency-denominated was the equivalent to 25 percent of GDP.
We need to follow the saying of the father of nation Quaid-e-Azam Mohammad Ali Jinnah that "We Musalmans in general and young men in particular do not know the value of money. A paisa saved today is two paisa tomorrow, four paisa after that and so on and so forth. Because of our addiction to living beyond means and borrowing money we lost our sovereignty over this subcontinent."
In order to put the country on the path of progress and prosperity, we need to live within our means and give up habit of borrowing. Only through commitment and hard work, we can achieve the goal of progress and prosperity.