Savings - savior of the Pakistan's economy.

• Author: Asghar, Arooj

Byline: Arooj Asghar

Pakistan's economy is characterized by low levels of household savings which play a very crucial role in stimulating sustained economic growth. At the same time consumers borrow in order to consume. Households are the backbone of any economy. This is not different in Pakistan because their consumption account for about 60-70 percent of the gross domestic product (GDP). However, the recent past has been characterized by significant economic impacts on households. In particular, the financial health of households have been affected in many ways, including a decrease in household savings, increase in household debt through massive financing in the form of credit extensions and leasing finance thus a decrease in economic growth.

Domestic savings represent the stock of savings which residents of a country and its public institutions accumulate without taking into account the net factor incomes flowing from abroad. As a rule, high savings show a trend of seriousness about wealth creation and long term commitments. We as a nation are extravagant and like spending unnecessarily, if we have some money. As a matter of fact, spending and savings behavior of the community is determined by various factors such as the material and social needs people have, tradition, the standard of living and the age distribution of the population. Over the years, Pakistan has accumulated more debt than savings because it normally borrow in order to consume, which has then cultivated a culture of dis-savings in the country.

Domestic savings are essential for attaining a sustained level of economic growth and play a crucial role in promoting strong and sustained economic growth if channeled towards profitable, sound and appropriate investment opportunities. In comparison with other emerging markets, Pakistan's saving rate is considered to be relatively low. As per economists, such low levels of national savings contribute to increases in resource constraints pressures and impedes investments that can potentially enhance growth. Access to credit is critical to businesses and individuals. This is because access to financing is crucial to their survival, sustainability, growth and ultimately to a country's economic growth, employment and asset formation. At the same time, the development of banking sector can also be achieved.

In a nutshell, Pakistan is experiencing low levels of economic growth coupled with low levels of household savings. Also, the...