Speaking to the business community in Karachi over the weekend, Finance Minister emphasised on the need to increase the country’s national savings – both private and public savings. This is a long unfinished agenda.
As early as 1948, the great founder of this poor country had warned that “we Musalmans in general and youngsters in particular do not know about the value of money; a paisa saved today is two paisas tomorrow….” But no one has ever listened to his advice, not so especially in the last decade or so where domestic savings have nearly halved from about 15 percent in early 2000s to about 7 percent by FY18.
If Asad Umar really wants to work on Quaid-e-Azam’s savings vision and consequently raise the country’s investment-to-GDP ratio from the current dismal rate of 16.4 percent to at least 21 percent over the next five years, he will have to work really hard. Because ideally, this should merely come on the back of foreign savings courtesy the CPEC. There ought to be a homegrown strategy to boost domestic savings failing, which the country’s GDP growth will taper off as soon as foreign savings dry up – as has happened many times in the past.
What does Asad really need to do? The answer has long been known. For instance, at the one end, there is a need to increase tax revenues and reduce government expenditure, especially capping the drains such as public sector enterprises and the circular debt. On that note, every government expenditure under the head of PSDP should come with a prior justification of economic and social value added and the same ought to be monitored and evaluated after the project with the head of P-Block made accountable for projects that don’t meet the desired economic and social value added.
At the other end, there is a need to boost private savings by achieving success in financial sector reforms including increasing financial inclusion, attracting investors to stocks and bonds, as well as increasing insurance penetration. Here the operative word is ‘achieving success’ rather then merely rolling out of reforms – too many government officials, ministers and too many central bank governors have ‘rolled out’ reforms without really achieving success. If reform plans don’t come with publicly announced targets and timelines, at the least there should be a public acceptance of failure.
One of the biggest challenges in channeling private savings to formal financial sector is the fact that more than half of Pakistanis, according to 2016 poll by Gallup Pakistan, prefers to buy property or gold as their avenue of savings or investment. The bigger players venture across borders and save in Dubai real estate. This is because ‘Pakistan grows in the dark and saves in the shadows’. To fix this problem, a host of measures ought to be taken, including the rolling of VAT mode taxation, proper maintenance of asset records and integration of the same with tax database.
But hang on, why is it then Pakistan’s need a savings wizard. A wizard has a secret spell whereas all these measures - to increase savings, developing capital market and insurance, unlocking the dead capital in real estate, documentation of economy, etc – are no secret spells. They are long known solutions. Well, the wizardry lies in how to achieve all this without seriously irking voters, shocking the country with short-to-medium term economic crises, and giving fodder to political opposition – the very reasons why no one has been really able to cast these spells before. If the PTI doesn’t have a wizard, they better have a ‘peer’ to prayer their way through the reforms.
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