CHRONIC low savings continue to be a major factor in low economic growth and pervasive poverty, except at times in the area of agriculture where growth depends on several other factors, including weather and water availability.

National savings which were 13.4 per cent to 17 per cent of the GDP in the first half of the 1990s came down to 12.7 per cent last year after that had dipped earlier to 11.4 per cent.

As a result growth in gross total investment came down last year to 2.5 per cent, while gross fixed investment was up 1.8 per cent and private sector investment increased 0.1 per cent from 13.2 per cent the year before at current prices.

That has to happen as private savings last year grew by a negative 6.5 per cent, household savings grew by negative 6.5 per cent, household savings grew by negative 6.5 per cent and corporate savings by a negative 6.5 per cent.

Domestic savings recorded a growth of 2.7 per cent against 29.7 per cent the year before and a negative growth of 11.6 per cent in fiscal year 1999.

All this is happening in a country with a population growth of almost 3 per cent after climbing down from over 3 per cent in the early 1990s.

The savings pattern in Asia is glaring. While the savings rate of Pakistan is around 15 per cent or lower of the GDP, the Indian rate is around 25 per cent and the East Asian rate is 30 per cent and over. No wonder East Asia makes rapid headway.

In Pakistan, the government is not a saver but in chronic deficit peaking to 10 per cent of the GDP; the corporate sector is not much of a saver the growth last year was a minus 6.5 per cent, and the public is a poor saver.

One of the major reasons for small savings is the large population and the large number of dependents on a wage earner in a poor family. too many children, depended mothers and fathers widowed or divorced sisters, and handicapped brothers add to the family burden and reduce the savings.

The style of Muslim life also increases the family spending, particularly on the various ceremonies. Mr H U Beg once explained our high spending as due to the belief we are the heirs of the Mogul empire.

Very poor returns from savings and investment net of the high inflation, is also a major disincentive to savings. Many feel that those who spend their savings on some consumer durables, the prices of which keep on rising, are wiser than those who put their money in savings accounts.

Inflation has been a major disincentive to savings as the savers found they were losing against inflation which in reality has been far higher than the official figures.

The varied taxes and the pervasive corruption, too, reduce the savings. Currently the high 15 per cent general sales tax, which inflates the prices of most items, except the simple form of food, reduces the savings and puts Rs 185 billion this year into the treasury.

On the other side those who had invested greatly on the stock exchange, hoping for large capital gains in the middle 1990s came to grief. Look at the prices shares of most of the Mudarabas leading companies and banks. Once the banks were a licence to print money, but not in Pakistan for the ordinary share-holders or even depositors.

Currently the interest rates on bank deposits and national savings schemes are coming down steadily with the argument that inflation is around five per cent or lower and many not be more than six per cent this year. The interest rates for those who put their money on national savings schemes have come down by one third, compared to what they were getting two years ago and the trend is to continue to the horror of pensioners, widows etc who were depending on their interest incomes to make a living.

The banks out to come up with larger returns on deposits by reducing the very large gap between their intermediation rates. Now they charge high interest rates for lending and pay very low rates on deposits and keep anything from 6 to 8 per cent for themselves. Which is utterly impermissible.

The governor of the State Bank of Pakistan, Dr Ishrat Husain, wants this large gap to be reduced so that the depositors get a better deal. But bankers argue they are plagued by the non-performing loans as almost Rs300 billion and the loan default of Rs170 billion. In addition the large bank staff cost a great deal, and senior bankers with their high salaries and expensive perquisites are costing for more.

Hence the World Bank is pressing for effective and adequate banking reforms and funding that to the extent of 350 million dollars. How much the banks change and how soon remain to be seen.

Instead of the savings we see a great deal of rural indebtedness in the vast rural areas of the country where poor borrowers pay 10 per cent interest in a year or more and failing that mortgage their land to the lender, sometimes the entire family itself which becomes bonded labour for years.

This vicious cycle is to be broken by the Khushal Bank and a new bank for small and medium industries. How much they can change the profile of rural indebtedness remains to be seen.

Of course, the people have to be educated to reduce the number of their costly ceremonies and guided to make their ceremonies simple. That cannot be done through an edict of the state or by applying old laws severely. Instead the people need a great deal of social education and economic guidance.

Above all, savings improve along with the increase in employment and rise in skilled employment, which means higher earnings and larger savings. Self-employment by such persons can also increase their incomes and augment their savings.

Surely the country cannot make real headway by increasing its gross total investment in a year by 2.5 per cent and making investment of 1.9 per cent of the GDP more as was done last year. That was down from 18.1 per cent and 17.9 per cent in final years 1997 and 98. Instead it has to rise to at least 25 per cent with savings rising to 22 per cent through systematic endeavours. That is possible if there are no ups and downs in our economy, instead of the frequent upsets it has been enduring, partly due to political upheavals and climatic variations.

Higher savings and larger investment have to become true national objectives and have to pursued with singular devotion. There is no magical path to a brighter future save through far higher savings and really larger productive investment.