Not very long ago, economists from Chicago, went on a hyper drive to increase the savings rate of the country, which eventually led to the ousting of a very famous military ruler. The rationale was simple; increase savings, augment investment and bask in the glory of economic growth which would eventually ‘trickle down’ to everyone’s benefit. Savings they did boost and glory they did create, but only for a few.
Since then, the model has changed, most investments in yester years have been made through FDI, aid and multi/bilateral loans; money that doesn’t belong to us and is most definitely not suitable to depend on. Currently, Pakistan’s savings stand at 13.8 per cent of the GDP or Rs2.5t. Of this, about Rs1.7t or 9.5 per cent of the GDP is attributed to domestic citizens, whereas the rest is contributed by non-resident Pakistanis. According to informal sources, the number of overseas Pakistanis roughly arrives at about seven million, less than four per cent of the Pakistani population. If overseas citizens, a drop in the ocean, can contribute as significantly as 30 per cent to the savings rate, citizens on ground should have another reason to worry about the lack of opportunities present in the economy, employment level and per capita incomes.
The explanation doesn’t require much looking around. With inflation crossing 13 per cent and incomes growing by less than three per cent, the average middle income earner’s savings have been corroded while fresh thrift stands discouraged. Moreover, the latest poverty figures that belong to 2005-06, report that about 24 per cent of the population lives below the poverty line of $1.5 a day. Much has changed in the last five years; exchange rate depreciation, persistent double digit inflation in the last three years, floods and a recent brief statement by a notable minister indicating that the poverty rate may have reached as high as 75 per cent.
Maybe thrift is not a cultural practice in this part of the world and neither is investment. This would be the only explanation why even during periods of high growth, capital investment has been the least favoured variable of choice. During the last decade, private consumption alone has stood at an average of 70 per cent of GDP, if calculated through the expenditure approach. Similarly, fixed capital formation or investment as a percentage of GDP has varied between 15 and 18 per cent, with the higher bound characteristic of high growth years. During the high growth period, the telecom and financial sectors being star performers, invested heavily in expansion (infrastructure, fixed assets such as buildings, etc). Now that these sectors, especially telecom, have entered the saturation and contained growth phase, less can be expected in terms of capital formation from them. Going forward, keeping the current power shortage in mind, the power sector can be expected to be the blue eyed son of investment.
Nevertheless, dissatisfaction prevails. Most saved money ends up in the hands of the government through national saving schemes and banks offering ever more in T-Bill auctions to the extent latest figures show public sector credit crossing the private sector credit, which has been hovering around the Rs3t mark over the last three years. Even more dismal is the thought pertaining to the government’s usage of the money it is entrusted with; about 83 per cent of the funds the government receives is used for recurring expenditure such as debt servicing, salaries, defense, etc, whereas the balancing figure is supposedly for infrastructure development. In Europe, prior to the industrial revolution, the church and religion were the be-all of it all. The age of renaissance and liberal thinking came only after industrialists or traders had made enough gains to challenge the state and its norms. If proverbially, history does repeat itself, then investment fuelled by our own savings is the only way forward. One doesn’t need to look far, there is India and then our lost wing Bangladesh.
The writer is an economic researcher and freelance journalist