SBP Governor Highlights Low Savings Rate as Key Structural Challenge

State Bank of Pakistan (SBP) Governor Jameel Ahmad has pointed out that despite positive trends in macroeconomic indicators, Pakistan continues to struggle with fundamental structural issues, notably the nation’s consistently low rate of domestic savings.

The governor expressed these concerns during a seminar held in Karachi on Monday.

He stated that while the economy has shown signs of improvement, such as a decrease in inflation and a recovery in growth, “some long-standing structural challenges remain unresolved”.

“One of the most critical of these is our persistently low domestic saving rate,” he emphasized.

Citing the most recent Pakistan Economic Survey, the SBP governor noted that Pakistan’s domestic savings rate is 7.4% of GDP.

“This figure is considerably lower than the South Asian average of 27% and the East Asian economies’ average of 41%.”

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Jameel Ahmad explained that Pakistan’s dependence on foreign capital to fulfill its development requirements is a consequence of its low savings rate.

“However, this dependence has not been without consequences,” he added. “It has led to recurring balance of payment problems, instability in foreign exchange markets, and inflationary pressures, which have collectively undermined our growth potential.”

The central bank’s chief suggested that Pakistan must boost domestic savings and direct them into productive investments to prevent the boom-bust cycle.

Regarding the present condition of Pakistan’s capital markets, the governor mentioned that the government bond market has evolved over the past two decades to provide a wide array of securities, including fixed-rate, floating-rate, and Sharia-compliant options with differing maturities.

“However, the banking system remains heavily concentrated in the government bond market,” he observed.

Jameel Ahmad revealed that the SBP has implemented measures to broaden access to and deepen the country’s bond market, including reforms to the primary dealer system.

“The scope of the investor portfolio’s securities account has been broadened to encompass microfinance banks, CDC, and NCCCPL. This initiative offers approximately 100 million branchless banking and mobile banking users across the nation the chance to invest in government securities.”

Furthermore, he stated that account opening has been streamlined through the Customer’s Digital Onboarding Framework. “These reforms collectively aim to diversify the investor base, improve liquidity, and enhance the resilience of the sovereign segment.”

He also noted the notable absence of a corporate debt market. “Outstanding corporate bonds account for less than 1% of our GDP, which is significantly lower than in other Asian countries.”

Jameel Ahmad stated that non-financial firms, as well as sectors like manufacturing, infrastructure, and renewable energy, continue to rely almost entirely on bank loans.