KARACHI: Former State Bank of Pakistan (SBP) governor Dr Ishrat Husain said on Thursday it’d take 70 years for Pakistan to double its per capita income at the current rates of savings, investment and population growth.

Speaking at the International InsureImpact Conference 2023 organised by the Securities and Exchange Commission of Pakistan (SECP), Dr Husain said the non-bank financial sector must step up to the plate and mobilise domestic savings to achieve better economic growth.

As opposed to the banking sector, the share of the non-bank financial sector, which includes insurance and asset management industries among others, in the overall asset base has remained stagnant in the last 10 years, he said.

“This is not the right direction. I would’ve expected the non-bank financial sector to grow a lot faster than banks,” he said.

The investment ratio in Pakistan is about 15 per cent, half of neighbouring India’s. The Incremental Capital Output Ratio (ICOR) — which reflects the relationship between the investment made in an economy and the consequent increase in its GDP — for Pakistan is as high as four.

In other words, a relatively high Rs400 worth of capital investment is necessary to generate Rs100 of extra production.

With such a high ICOR, Pakistan’s economy can only get a 3-3.5pc GDP growth rate, said Dr Husain. “With a population growth rate of over 2pc, you’d have only 1pc growth in your per capita income,” he said while urging non-bank financial companies to mobilise domestic savings aggressively to increase per capita income, which hovers around $1,600 versus India’s $2,400.

“The objective of all non-bank financial institutions should be to mobilise household and corporate savings,” he said, noting that their role is even more important because the government has been “dissaving” by constantly running large fiscal deficits.

While urging the SECP to limit itself to “light regulation,” the former SBP governor called for consolidation in the insurance sector.

Drawing a comparison between India and Pakistan, he said the neighbouring country achieved an insurance penetration rate of 4.2pc with only 57 insurance companies. In contrast, Pakistan has as many as 42 insurance companies and a penetration rate of 0.87pc, even though India’s economy is 10 times larger than that of Pakistan.

Speaking on the occasion, Sindh Chief Minister Maqbool Baqar said the creation of Sindh Insurance Ltd will provide insurance coverage for provincial government properties and crops etc.

“This initiative makes Sindh the first province in Pakistan to establish its own insurance company. This serves as a model for other provinces to follow to improve financial protection and resilience,” he said.

Published in Dawn, December 15th, 2023