ISLAMABAD, JUN 7: /DNA/ – Pakistan’s gross domestic savings have collapsed from 17.4 percent of GDP in 1992 to just 6.4 percent in 2024, the weakest in a generation and far below every regional peers, warns a new policy viewpoint titled Mobilizing Domestic Savings: A Finance Bill and Institutional Reform Agenda for Pakistan, authored by Dr. S. M. Naeem Nawaz, Professor of Economics, and Mr. Wajid Islam, Research Economist, both at PIDE, and published by the Pakistan Institute of Development Economics. The paper urges the Finance Bill FY2026–27 to launch a targeted National Savings Mobilization Package before the country’s shrinking savings base triggers yet another external financing crisis
The report delivers a pointed diagnosis: behind almost every balance-of-payments emergency and IMF programme of the past three decades lies the same structural failure, a nation that has progressively stopped saving and is now compelled to finance its future with borrowed foreign money. With Pakistan’s thirty-year savings average standing at just 10.9 percent of GDP, the gap with regional peers is stark. Over the same period, Bangladesh saved nearly 21 percent of GDP, India over 28 percent, and Vietnam close to 30 percent. As the authors observe, these countries were not wealthier at the outset, several began poorer than Pakistan. They made saving safe, rational, and rewarding. Pakistan, the report argues, did the opposite.
The authors trace the collapse to a self-reinforcing inflation–consumption trap. With 93.6 percent of national income now absorbed by consumption and inflation repeatedly outrunning bank deposit returns, formal saving has become a guaranteed slow loss. Households respond by hoarding cash, buying gold, and investing in property, assets that finance no factory and create no employment. Compounding the damage, the government has itself become a net dissaver, borrowing so heavily from domestic banks that little credit remains available for productive private investment.
The policy viewpoint calls for the Finance Bill FY2026–27 to address this through a structured National Savings Mobilization Package. At its core is a proposal to restore and redesign savings-related tax incentives, including a capped tax credit for approved long-term savings instruments under a redesigned Section 62 of the Income Tax Ordinance, a provision withdrawn through the Finance Act 2022, subject to minimum holding periods and clawback provisions to contain fiscal cost. Voluntary pension incentives under Section 63 should be strengthened with targeted additional support for first-time contributors, women, and self-employed and informal-sector workers. A reintroduced protection-linked savings credit under Section 62A should cover health insurance, life insurance, and family takaful to build precautionary savings and reduce distress financing.
A central concern of the report is the protection of vulnerable savers. It recommends capped concessions under the Second Schedule of the Income Tax Ordinance for approved products serving pensioners, widows, Shuhada families, women, and senior citizens, ensuring fiscal support reaches genuine small savers rather than large passive income holders. The authors also caution firmly against reintroducing transaction or entry-point taxes on transfers into approved formal savings instruments, noting that such levies have historically driven households toward cash and informal channels.
The report further argues that a significant stock of household wealth currently locked in cash, gold, real estate, committees, and foreign currency must be redirected into regulated financial channels. Expanded retail access to Sukuk, Shariah-compliant savings instruments, voluntary pension schemes, takaful, micro-insurance, REITs, regulated gold funds, and digitised National Savings products, with simplified Know Your Customer requirements for small-balance accounts, can begin to close this gap.
“For thirty years we have financed our ambitions with other people’s money, and paid for it with recurring crises,” said Dr. S. M. Naeem Nawaz. “The choice is no longer austerity versus growth. It is whether we keep renting our future from foreign creditors, or finally rebuild the domestic savings base that every successful economy has relied on.”
“This is not about advising households to be frugal, it is about changing the incentives and nudging them to save,” said Wajid Islam. “Make formal saving safe, rewarding, and tax-efficient, and Pakistanis will save. The Finance Bill is the single best tool we have to start that shift this year.”
The authors caution that tax incentives alone will not be sufficient. Sustained progress requires price stability, credible after-tax real returns, stronger consumer protection, and disciplined public expenditure management. Unless public-sector dissaving and fiscal crowding-out are addressed in parallel, mobilized savings risk being absorbed by recurrent budget deficits rather than channelled into productive investment. To ensure accountability, the report recommends an annual Savings Mobilization Dashboard tracking domestic savings rates, formal savings uptake, voluntary pension participation, retail Sukuk investment, women-owned accounts, and private-sector credit allocation.
The Pakistan Institute of Development Economics (PIDE) is Pakistan’s premier public policy research institution, established in 1957 and headquartered in Islamabad. PIDE conducts independent, evidence-based research on the country’s economic, social, and development challenges and regularly advises policymakers through publications, conferences, and policy dialogue.
