Pakistan’s investment to GDP ratio declined to 15.2 percent from 15.5 percent of Gross Domestic Product (GDP), the approved working paper of the National Accounts Committee revealed.
On the other hand, the savings to GDP ratio improved from 13.8 percent to 15 percent of GDP during the outgoing fiscal year of 2020-21.
The total Gross Fixed Capital Formation (GFCF) is projected at Rs. 6,492 billion but remained short to achieve the fixed target, a national daily reported.
The low investment and savings have contributed to the continued cycles of bust and boom, with the current fiscal year’s GDP growth predicted to clock in at 3.94 percent.
The paper also attributed the current growth to be primarily led by higher consumption instead of investment, as figures for both domestic and foreign investment showed less than satisfactory progress.
Lower investments and savings keep the economy stuck in boom and bust cycles and keeps the country dependent on financing from external channels that only aggravates the twin deficit crisis.
The private sector has also performed less than its potential, primarily due to the high cost of doing business and high energy and security costs.
For now, the National Savings is aimed at 13.8 percent of GDP with a focus on replacing consumption-led growth with investment-led growth.
New Monetary policy is said to target a reduction in interest rate so that the investors may be encouraged. This coupled with consumer financing will likely boost the economy.
Other measures on the cards to boost capital formation and attract both domestic and foreign investment include improving ease of doing business, tax holiday to special economic zones, and withdrawal on constricting taxes on banking transactions.
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