A NEW study by Standard Chartered Bank shows that the “emerging affluent” class in Pakistan prefers to keep its savings in cash at home. The reasons given for this preference include wanting quick access to the money and little awareness of investing options. Included in a sample of eight countries where the study was conducted, Pakistanis save 14pc of their monthly income compared to an average of 27pc for the entire sample. This dismally low percentage points to important gaps in the economic landscape as well as cultural traits that value present consumption over long-term management of personal wealth. The gaps in the economic landscape can be identified as a low-interest-rate environment and a dire shortage of vehicles to mobilise long-term savings, coupled with widespread rackets in the property and commodity markets that offer outsize speculative returns, making steady and safe returns appear unattractive by comparison. The cultural traits are slightly more complicated. They include an excessive role of ego in wealth-management decisions, where present-day consumption and the accumulation of flashy goods like expensive mobile phones and cars are valued above the steady building of long-term assets. Besides, there is the government-sponsored culture of portraying returns on savings as something bordering on evil.

This is the legacy of the ‘consumption-led growth’ model that Pakistan seems to be following since 9/11 when massive infusions of foreign aid coupled with the aggressive liberalisation of imports led to a culture of consumption and quick riches. The nouveau riche created in that era, and whom the study euphemistically refers to as the “emerging affluent”, brought with them ways that measured the worth of life in terms of the purchasing power that one could flaunt. Even as Pakistan sank into the deadly quagmire of extremism and faced a rising arc of terrorist violence, society saw the emergence of a culture of consumption that had not been seen in the country before. A dissipative frenzy, that has since become ingrained in this class, ensued. This, sadly enough, has now become the engine of our economic growth.

The noxious side effects of this phenomenon are there for all to see in our trade deficit, driven by frivolous imports as much as by oil prices, and in a low-savings environment. This has starved our industry of investible resources and skewed the banking system away from serving as an intermediary between savers and depositors, and towards sovereign and consumer lending instead. The government has encouraged the trend by telling people, in veiled terms, that expecting returns on savings somehow goes against religious values. So long as our culture and economy are geared towards the gratification of short-term whims, the struggle against growing informality, external deficits and a low rate of investment will be a largely futile affair. 

Published in Dawn, April 26th, 2017