ADB sees moderate rise in saving rates

ASMA RAZAQ

ISLAMABAD: The Asian Development Bank (ADB) has projected domestic saving rates in the country will increase moderately or remain at a similar level while the labour force growth is expected to increase in the next 20 years.

The ADB report titled 'Long-Term Projections of Asian GDP and Trade' while selecting 12 developing economies that are People's Republic of China; Hong Kong, China; India; Indonesia; the Republic of Korea; Malaysia; Pakistan; the Philippines; Singapore; Taipei, China; Thailand; and Vietnam says that Pakistan and the Philippines are projected to maintain a steady increase in their labor forces until 2030.

The report reveals that growth in capital stock in the above-mentioned economies is projected to contribute less to GDP growth in 2011-2030 than it did in 1981-2007. This is because capital was the major source of growth in the past, and as the marginal productivity of capital declines, the contribution of growth in capital stock to GDP growth tends to fall.

Pakistan and the Philippines are the exceptions, since they started off with lower growth in capital stock. These results suggest that, while labour and physical capital have been a major source of growth in developing Asia in the past, the same factors will turn into main cause of growth slowdown in the future.

Asia's rapid economic growth in nearly 3 decades has been mainly due to robust growth in physical capital accumulation. In 10 out of the 12 economies studied, average growth in physical capital stock was more than 5 .8 percent per year between 1981 and 2007, which contributed more than 2 .3 percentage points to average GDP growth.

According to the report, over the past decades, the saving and investment gap is found to be persistently positive in the People's Republic of China (PRC); Hong Kong, China; Indonesia; Malaysia; and Singapore, while others such as India, Pakistan, the Philippines, and Vietnam always borrowed from abroad to finance their domestic investments.

In some economies where ageing of the population is not as imminent as those in East Asia (ie the PRC), Indonesia, India, Malaysia, Pakistan, and the Philippines, the domestic saving rates are projected to increase moderately or to remain at a similar level of the recent past. Also enormous variation exists among the 12 developing economies in their domestic saving rates, with the nominal domestic saving rate ranging from 39 .8% in Singapore to 11 .2% in Pakistan during 1966-2007.

The report forecasts that in the next 2 decades, labour force growth is expected to decrease in most economies, mainly due to fertility decline and population ageing. Pakistan is the only country where labour force growth is expected to increase in the next 20 years.