Pakistan’s domestic savings level has declined to a measly 7.4 percent of the gross domestic product (GDP). According to the Governor of the State Bank of Pakistan (SBP) Jameel Ahmed, the low savings level has resulted in reliance upon external financing and repeated boom-bust economic cycles. Meanwhile, reports reveal that Pakistan lags far behind in domestic savings, with the regional average at 27 percent of GDP compared to just 7.4 percent in Pakistan.

 

Addressing the conference “Unlocking the Capital Markets Potential for Banks,” on Monday, the SBP governor warned that Pakistan’s long-term growth prospects remain weak due to declining investment and a low savings rate. Data from the Pakistan Bureau of Statistics (PBS) indicates that private investment levels have fallen to 9 percent of GDP in 2024-25 from 12 percent in 2008-09.

 

However, the decrease in investment is not limited to the private sector, as public investment has recorded a steep decline from 4 percent to 2.9 percent over the aforementioned period. Reports suggest that Pakistan now ranks the lowest in the region in terms of total investment.

 

Data from the World Bank (WB) shows Pakistan’s gross fixed capital formation to sit at 12 percent of GDP, far below Bangladesh’s 31 percent and Sri Lanka’s 20 percent. For reference, gross fixed capital formation is a measure of a country’s investment into physical assets that boost future production, such as buildings and infrastructure.

 

The SBP’s governor highlighted the need to address the low savings rates to help “build sustainable growth”. He stressed the importance of capital markets to help funnel domestic savings into productive investments.

 

Investing in the domestic capital market is attractive for investors as well, as the Pakistan Stock Exchange (PSX) has been performing exceptionally over the past year. The PSX has proved to be an avenue of high returns for investors, as the benchmark index of the PSX, the KSE-100 index, has grown by over 92.4 percent over the past year.

 

According to reports, participation in the PSX remains subdued compared to other economies in the region, given the low number of investor accounts and market capitalisation. The SBP’s governor has taken notice of the low level of financial inclusion, offering possible solutions to remedy the issue.

 

As per the details, he has directed government bodies, regulators, and financial institutions to promote financial literacy to boost market participation.