Boosting domestic savings to break vicious debt cycle

LAHORE: Pakistani middle class would have to strike a balance between consumption and conservation in the favour of the latter as one of our economy’s structural problems are very low saving and investment rates because the poor cannot economise even if they want to owing to the fact they barely survive on what they earn.

The country-wise data for regional economies reveal that the national savings rate as percentage of GDP in 1980 was 16.68 percent in Pakistan, 17.96 percent in India, 48.83 percent in China, 9.68 percent in Bangladesh, and 30.16 percent in Sri Lanka.

In the year 2000, it was still the same at 16.96 percent in Pakistan but increased to 23.22 percent in India, 36.83 percent in China, 22.74 percent in Bangladesh, though it declined to 20.66 percent in Sri Lanka. In 2014 the saving rate in Pakistan was very low at 11.82 percent compared to 30.01 percent in India, 49.97 percent in China, 30.29 percent in Bangladesh, and 26.86 percent in Sri Lanka. Current saving rate hovers around 30 percent in all regional economies but it is below 12 percent in Pakistan. This shows that as Pakistan's saving rates declined or stagnated its growth became suspect, while other regional economies experienced robust growth.

Domestic saving shields countries from the need to finance their investments from foreign countries and donors. Countries having low national saving rates depend on foreign assistance for development and investment. This is the reason during high foreign inflows into Pakistan the GDP growth surges and goes down when inflows ebb.

The lopsided growth in Pakistan had an adverse impact on its per capita income. In fact Pakistan had the highest per capita income in the entire region. In the year 1980 the per capita income in Pakistan was $296, while it was $271 in India, $193 in China, $219 in Bangladesh, and $272 in Sri Lanka, according to World Bank statistics.

Even at the start of this century we were ahead of both Bangladesh and India. In 2000, Pakistan’s per capita income increased to $514, per capita income was $457 in India, $949 in China, $356 in Bangladesh and $854 in Sri Lanka. It means that in two decades China and Sri Lanka overtook Pakistan by a large margin.

In 2013, per capita income was $1,275 in Pakistan, $1,498 in India, $6,807 in China, $957 in Bangladesh, and $3,279 in Sri Lanka. So five years back we were ahead of Bangladesh only. In 2016-17 even Bangladesh left us behind. All the four economies in review are posting sustained growth and the income gap between them and Pakistan is rapidly widening.

This depicts that other economies continued to gain over Pakistan in prosperity in last 40 years. The deteriorating governance during this period contributed to weakening of all regulatory institutions and state service delivery that impacted the wellbeing of its people.

In 1980, the exports of goods and services as percentage of GDP was 12.5 percent in Pakistan, 6 percent in India, 8.4 percent in China, 5.5 percent in Bangladesh, and 32.2 percent in Sri Lanka. In 1980, exports of Pakistan as percentage of its GDP were highest after Sri Lanka. In the year 2000, it was 13.4 percent in Pakistan, 12.8 percent in India, 23.8 percent in China, 14 percent in Bangladesh, and 39.5 percent in Sri Lanka. This means that when the regional economies were multiplying their exports there was stagnancy in Pakistan.

In 2013, Pakistan’s export as percentage of its GDP declined nominally to 13.2 percent maintaining the stagnancy exhibited in earlier decades. India’s exports as percentage of its GDP doubled from 12.4 percent in 2000 to 24.8 percent in same year.

Exports from China increased to 26.4 percent of its GDP, while Bangladesh saw its exports step up to 19.5 percent of its GDP almost a fourfold increase from 5.5 percent in 1980. Sri Lanka’s exports as percentage of its GDP stood at 22.5 percent in 2013. Currently our exports are only 8 percent of our GDP. The exports as percentage of GDP have increased in all economies except China that saw a nominal decline.

Exports are the main source of reducing poverty in developing countries. Labour-intensive jobs are transferred to developing economies as the higher wages make manufacturing in developed economies unviable.

The jobs created alleviate poverty and it did reduce at a very high pace in China, India, and Bangladesh during 1980-2013 than Pakistan, where it is, in fact, at a higher level than it was in the 1980s.