Pakistan has always been a consumption based economy and it continues to be one; FY17 was no different as consumption was higher. Using GDP by expenditure approach, the household consumption increased by two percentage points from an average of 80 percent of GDP in FY14-16 to 82 percent in FY17. The government expenditure also increases in tandem from an average of 11 percent (FY14-16) to 12 percent in FY17, which warrants attaining efficiencies in fiscal expenditure.

This leaves little room for investment to grow that although increased from an average of 15.3 percent of GDP FY14-16 to 15.8 percent of GDP in FY17, is still too low from the requisite investment for the infrastructure building and industrial expansion for rising demand of bulging middleclass.

The classic Keynesian identity implies the domestic private savings are equal to investment plus net exports that have fallen alarmingly to 6.3 percent of GDP in FY17, from 8.7 percent of GDP (FY14-16). Yet again, there is a discrepancy in computation of numbers in the Economic Survey. According to table 1.6 in the Growth and Investment chapter of the latest Economic Survey, domestic savings stood at 7.5 percent of GDP, while a simple calculation by BR Research (explained in table) from statistical appendix of the same Economic Survey implies that the domestic savings stood at 6.3 percent.

Without delving into the debate of deliberate number fudging exercise, domestic savings either at 7.5 percent or at 6.3 percent are too low for creating space for investment. And whatever incremental investment is coming into the country, it relies on foreign savings, implying higher current account deficit - CAD that averaged at 1.2 percent of GDP in FY14-16, and is expected to be at 2.8 percent of GDP in FY17 (10MFY17 CAD 2.7% of GDP).

That is a scary statistic and should attract the attention of both central bank and ministry of finance. There is a need to entice households to save more. However, the real wages are sticky, whereas consumption basket is growing as modern services are rampantly entering into the economy. The other problem is that there are very few avenues for household to put savings in, and in days of falling interest rates, the incentive to save is declining.

Well, interest rates are not really low as real interest rates are in positive territory. So theoretically, the real consumption expenditure is growing, which shows that either the real income of households is not increasing proportionately to GDP growth, or the overall consumption basket is growing.

There could be another plausible explanation to this anomaly i.e. increasing number of dependents in households. A few days back, this column highlighted that unemployment at 5.9 percent is probably understated (read “Unemployment declining. Or is it so?” published on June 08, 2017); and if that is true, there could be case that a sizable fraction of youth coming into the age of employment is not earning but only consuming. Thus, the savings pie of average household has to decline.

Anyhow, the country needs to save to build requisite power, transport, and other infrastructure. We need to save to modernize mid-size cities; we need to save more to put aside sums for social uplifting of those living in rural and Peri-urban areas.

There is a need to build debt capital market; government should modernize CDNS, and policy decision has to be taken to enhance banks’ time deposits.

There is no formal effective system for pension and retirement funds; the government should intervene and make it mandatory for everyone to save for retirement.