KARACHI: Both the savings and investment declined during the previous fiscal year but the gap between the two remained the same (at minus 1.1 per cent) compared to FY13, said a State Bank report issued recently.

The fall reflects poor economic growth. Banks have been investing over 80pc deposits into the government papers while depositors were facing continuous high inflation.

The Monetary Compendium for July 2014 said the target for the FY14 was set at 15.1pc of gross domestic product (GDP) which fell to 14pc, lower than 14.6pc in FY13.

The private sector investment fell to 8.9pc, close to the target of 9pc, from 9.6pc in FY13.

The low investment has been a persistent problem for the country as it kept the economic growth much below the average growth rate.

The major critical role was the banks’ strategy which preferred to invest in the government papers instead of mobilising the private sector. The trend, supported by the government, benefitted banks by keeping them profitable but it hurt economic activities.

Though the present government has been struggling hard to mobilise the private sector, no significant change has appeared so far. The government borrowed much less, only 20pc, from banks in FY14 compared to FY13.

As a result, the liquidity of the banks changed its direction from government papers to private sector, which borrowed Rs383 billion in FY14. But the gap between savings and investments remained unchanged.

Public and general public investment slightly increased during last fiscal year, rising to 3.5pc compared to 3.3pc in FY13. However, it fell significantly lower than the target of 4.5pc.

The most crucial were the savings which further declined keeping the country among the lowest savings rates in the region (excluding Afghanistan). The national savings fell to 12.9pc from 13.5pc a year before. The rate is about 26pc in India.

The State Bank reported that the domestic savings also declined to 7.5pc from 8.3pc in the preceding year. The main reason for this is increasing cost of living in the country.

Published in Dawn, August 9th, 2014