For decades, discussions about Pakistan’s economic challenges have largely revolved around fiscal deficits, external debt, inflation, and recurring balance-of-payments crises. Yet one of the most significant and often overlooked indicators of economic health has steadily deteriorated in the background: the country’s domestic savings rate.
A recent policy note by the Pakistan Institute of Development Economics (PIDE) highlights the severity of the problem, revealing that Pakistan’s gross domestic savings rate has fallen to its lowest level in more than three decades. This trend poses a serious threat to economic stability and underscores the urgent need for policymakers to rethink their approach toward savings and investment. According to PIDE, Pakistan’s gross domestic savings rate has plunged from 17.4 percent of GDP in 1992 to just 6.4 percent in 2024. In practical terms, this means that for every Rs100 earned, only about Rs6 is saved. Such a low savings rate is alarming for any economy, particularly one that has spent much of the past thirty years grappling with financial instability, mounting debt obligations, and repeated reliance on international lenders for economic support.
The importance of domestic savings cannot be overstated. Savings serve as the foundation for investment, enabling economies to finance infrastructure projects, industrial expansion, technological innovation, and business development without excessive dependence on foreign borrowing. Countries with strong savings cultures are generally better equipped to withstand external shocks because they possess internal resources that can be mobilized during periods of economic stress.
Pakistan’s declining savings rate has had the opposite effect. With limited domestic resources available for investment, economic growth has become increasingly dependent on foreign capital, external loans, and remittance inflows. This dependence has left the country vulnerable to global economic fluctuations and external financing conditions. Whenever international liquidity tightens or foreign inflows slow down, Pakistan’s economy comes under immediate pressure, often forcing policymakers to seek emergency assistance from institutions such as the International Monetary Fund (IMF).
The decline in savings is not merely the result of individual financial choices. It reflects deeper structural weaknesses within the economy. One of the primary reasons behind the low savings rate is the limited disposable income available to most households. According to PIDE, nearly 94 percent of household income is consumed by essential expenditures, including food, housing, energy, transportation, healthcare, and education. With such a large share of earnings devoted to meeting basic needs, very little remains available for saving.
Inflation has further compounded the problem. Over the past several years, rising prices have steadily eroded purchasing power, making it increasingly difficult for households to set aside money for the future. Even those who manage to save often find that the returns offered by traditional financial instruments fail to keep pace with inflation. As a result, many savers perceive formal savings channels as ineffective in preserving wealth.
This has encouraged a shift toward alternative stores of value. Rather than depositing money in banks, many Pakistanis prefer to invest in gold, real estate, foreign currencies, or simply hold cash. These options are often viewed as safer and more reliable means of protecting wealth during periods of economic uncertainty. While such behaviour may appear rational from an individual perspective, it has broader implications for the economy because these assets do not always contribute effectively to productive investment and economic expansion.
The taxation structure applied to financial savings has also played a role in discouraging participation in the formal financial system. High withholding taxes on interest income reduce the attractiveness of bank deposits, particularly for tax-compliant individuals. Non-filers face even higher tax rates, further limiting incentives to save through regulated financial institutions. Consequently, formal savings instruments struggle to compete with alternative assets that are perceived to offer better returns and greater protection against inflation.
Recognising the seriousness of the situation, PIDE has proposed a comprehensive National Savings Mobilisation Package aimed at reversing the decline in domestic savings. The recommendations focus on expanding access to formal savings and investment opportunities while creating incentives for broader participation across different segments of society.
Among the proposals is the promotion of diverse savings products, including Sukuk, Shariah-compliant investment instruments, voluntary pension schemes, Takaful products, regulated gold funds, and digitised National Savings schemes. These options could help attract individuals who currently remain outside the formal financial system due to limited product availability or concerns about accessibility and compliance with personal preferences.
PIDE has also recommended simplifying know-your-customer (KYC) requirements to make it easier for low-income individuals and small savers to open accounts and participate in formal savings programmes. Such measures could significantly improve financial inclusion and bring a larger share of household savings into the regulated financial sector.
Tax incentives represent another important component of the proposed reforms. Offering preferential tax treatment for long-term savings could encourage individuals to retain funds within formal investment channels for extended periods. Similar incentives have proven effective in many countries by promoting retirement planning and long-term wealth accumulation.
Particularly noteworthy is PIDE’s emphasis on targeting groups that have traditionally been underserved by financial institutions. Women, pensioners, and workers in the informal sector often face barriers to accessing savings products and investment opportunities. Tailored programmes designed to address their specific needs could broaden participation and strengthen the overall savings culture.
The proposal to establish an annual savings mobilisation dashboard is also significant. By regularly monitoring savings trends and evaluating policy outcomes, authorities would be better positioned to assess progress, identify shortcomings, and make necessary adjustments. Greater transparency and accountability could help ensure that savings mobilisation remains a national economic priority rather than another policy objective that receives attention only during periods of crisis.
However, policy recommendations alone will not solve the problem. The success of any savings mobilisation strategy depends on broader economic stability. People are unlikely to save through formal channels if inflation continues to erode returns or if confidence in financial institutions remains weak. Therefore, efforts to promote savings must be accompanied by policies that support price stability, strengthen financial markets, and improve overall economic confidence.
Ultimately, Pakistan’s savings crisis reflects a deeper challenge confronting the economy. The country cannot indefinitely rely on external borrowing, remittances, and emergency financial assistance to sustain growth and maintain stability. Building a stronger domestic savings base is essential for reducing dependence on foreign financing and creating the resources needed for long-term investment and development.
The decline in domestic savings has been gradual, but its consequences are becoming increasingly difficult to ignore. Reversing this trend will require a combination of policy reforms, financial innovation, and a sustained commitment to creating an environment where saving is both possible and rewarding. If policymakers fail to act, Pakistan’s vulnerability to external shocks will persist, and the country’s ability to achieve sustainable economic growth will remain severely constrained. The time to strengthen the foundations of economic resilience is now, before the savings crisis becomes even more difficult to reverse.