The study cites four major reasons for the low savings rate in Pakistan: (i) not having enough money to save, a condition linked to the prevalent rate of inflation as well as the periodic rise in the tariffs of utilities notably electricity that has been a condition for loans procured from multilaterals/bilaterals; (ii) difficulty in setting financial goals which may reflect lack of information regarding savings schemes. In this context, however, it is also relevant to point out that the Federal Finance Minister Ishaq Dar recently revised the applicable rates on different national savings schemes downward with, one may well assume, the express objective of lowering the budgeted debt servicing payments on rising domestic debt. This decision has led to a further decline in the savings with the National Savings Centre; (iii) preference for spending in the immediate term. Here too the major factor that plays a role is the rate of inflation and even though the rate has come down significantly during the tenure of the Sharif administration, largely attributed to the massive decline in the international price of oil, yet the perception fuelled by recent forecast by the government as well as the multilaterals, reveals that a consumer perceives that spending today's rupee is more financially advantageous for him than saving for the future; and (iv) low interest rate environment. Banks typically give very low rates of return to the public. While the government intentionally lowered the rate of interest on loans procured by industry with the objective of promoting productivity yet by ignoring the depositors in this equation may well account for lower savings.
However, the factor that has not been mentioned in the study is the decision taken by the Finance Minister in the budget to tax all cash withdrawals from banks - a decision opposed by traders that reports indicate accounts for a massive increase in the cash economy with a commensurate rise in the illegal or parallel economy. Thus whatever the government's objective in imposing this levy its outcome has been negative as far as bringing the non-filers into the tax net is concerned.
In economic theory, national savings has an identity with investment or, in other words, where national savings are lower than investment, as has been the case in Pakistan since it gained independence, the shortfall is met with borrowing from abroad which explains why multilaterals, particularly International Monetary Fund, regard Pakistan as a perennial borrower. There is an urgent need to revisit policies relating to savings.