ISLAMABAD: Pakistan’s gross domestic savings have collapsed from 17.4 percent of GDP in 1992 to just 6.4 percent in 2024, the weakest level in a generation and far below every regional peer, according to a new policy viewpoint by the Pakistan Institute of Development Economics (PIDE). The report urges the government to launch a national savings drive in the upcoming budget before the next crisis hits.
Structural failure behind repeated crises
The policy viewpoint, titled “Mobilizing Domestic Savings: A Finance Bill and Institutional Reform Agenda for Pakistan,” argues that behind almost every balance-of-payments emergency and IMF program of the past three decades lies the same structural failure: a nation that has progressively stopped saving and now finances its future with borrowed foreign money. With Pakistan’s thirty-year savings average at just 10.9 percent of GDP, the gap with regional peers is stark. Over the same period, Bangladesh saved nearly 21 percent of GDP, India over 28 percent, and Vietnam close to 30 percent. These countries were not wealthier at the outset—several began poorer than Pakistan. They made saving safe, rational, and rewarding. Pakistan, the report argues, did the opposite.
Inflation–consumption trap
The policy paper traces the collapse to a self-reinforcing inflation–consumption trap. With 93.6 percent of national income now absorbed by consumption and inflation repeatedly outrunning bank deposit returns, formal saving has become a guaranteed slow loss. Households respond by hoarding cash, buying gold, and investing in property—assets that finance no factory and create no employment. Compounding the damage, the government has itself become a net dissaver, borrowing so heavily from domestic banks that little credit remains available for productive private investment.
Proposed National Savings Mobilization Package
The policy viewpoint calls for the Finance Bill FY2026–27 to address this through a structured National Savings Mobilization Package. At its core is a proposal to restore and redesign savings-related tax incentives, including a capped tax credit for approved long-term savings instruments under a redesigned Section 62 of the Income Tax Ordinance, a provision withdrawn through the Finance Act 2022, subject to minimum holding periods and clawback provisions to contain fiscal cost. Voluntary pension incentives under Section 63 should be strengthened with targeted additional support for first-time contributors, women, and self-employed and informal-sector workers. A reintroduced protection-linked savings credit under Section 62A should cover health insurance, life insurance, and family takaful to build precautionary savings and reduce distress financing.
Protecting vulnerable savers
A central concern of the report is the protection of vulnerable savers. It recommends capped concessions under the Second Schedule of the Income Tax Ordinance for approved products serving pensioners, widows, Shuhada families, women, and senior citizens, ensuring fiscal support reaches genuine small savers rather than large passive income holders. The authors also caution firmly against reintroducing transaction or entry-point taxes on transfers into approved formal savings instruments, noting that such levies have historically driven households toward cash and informal channels.
Redirecting household wealth
The report further argues that a significant stock of household wealth currently locked in cash, gold, real estate, committees, and foreign currency must be redirected into regulated financial channels. Expanded retail access to Sukuk, Shariah-compliant savings instruments, voluntary pension schemes, takaful, micro-insurance, REITs, regulated gold funds, and digitized National Savings products, with simplified Know Your Customer requirements for small-balance accounts, can begin to close this gap.
