KARACHI: Both the national and domestic savings hit the bottom in the FY14 since the savings rates were the lowest in five years, the State Bank reported on Monday.

Pakistan has one of the lowest savings rates in the region (except Afghanistan). The low savings widen the saving/investment gap and does not augur well for economic development.

The SBP’s Statistical Supplement reported that the national savings have been declining since FY10 and hit the lowest in FY14. The savings rate was 13.6pc of GDP in FY10 which spiked to 14.2pc in FY11 but fell to 12.8pc in FY14. In FY13 the rate was 13.5pc.

Private savings have been declining for the last five years. It rose to the highest in FY11 at 17.1pc of GDP but it fell sharply to 12.6pc in FY14.

Under the head of private savings, the household savings kept falling during the last four years but corporate savings remained unchanged at 2pc since FY10. The household savings fell to 10.6pc in FY14 from the highest 15.1pc in FY11. It is the lowest saving rate in the last five years.

Savings are crucial for the growth of the economy but both the national and private savings never crossed 20pc of GDP while India and Bangladesh have over 20pc savings rates.

However, the low savings rate is also an indicator that Pakistan is consumer-oriented. The share of consumers in the economy is over 80pc which is the highest in region.

During the first decade the consumerism was officially promoted with low inflation and low interest rates. It helped the economy to grow but it changed the orientation of the economy.

The State Bank’s report also showed that domestic savings have also touched the lowest rate in FY14. The domestic rate was the highest in FY10 at 9.8pc which stated falling each year to reach 7.4pc. In the previous year FY13, the rate was 8.3pc.

The year FY14 proved the worst for the savings; all the savings rates hit the lowest level.

The inflation has started falling in FY15 but the interest rate is still high. Analysts believe that despite low inflation the savings rates may not improve since the consumerism is on the higher side.

Published in Dawn, December 16th, 2014