Factors Behind Low Saving Rates in Pakistan: Insights and Policy Recommendations

Résumé

Savings are extremely important for driving an economy, its financial stability and economic growth. In this connection Pakistan faces various challenges as saving culture lacks in country and investment levels are low. The current study is a review study and it aims to pinpoint factors behind citizen’s low saving behavior and lesser adaptability to save. To highlight the link between savings, investment and economic growth, key models are taken into discussion. Harrod-Domar model, the permanent income hypothesis and Solow growth model highlight the key links. Results of the review reveals the saving behavior is influenced by GDP, inflation, interest rate, fiscal policies, remittances, demographic aspects and faith beliefs. The initiatives needed to improve savings must be introduced in the short run and also cover the long run. They include encouraging financial literacy, raising consciousness about saving instruments, offering incentives about tax while ensuring macroeconomic stability. Building consumers’ confidence to save and ensuring their trust in financial institutions has become necessary. As monitoring inflation remains a key policy objective of Uraan project and this study indicates that higher savings are possible with decline in inflation in Pakistan. Consequently, an increase in savings is expected as inflation decreases. Moreover, higher savings can support the government in achieving its economic growth targets.