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Private sector investment

17 3 1
13.08.2020

ARTICLE: Pakistan is amongst the nations with the lowest investment and saving rates in the world. This has obstructed progress towards a sustainable economic growth. According to data from the Economic Survey of Pakistan 2019-20, the investment-to-gross domestic product (GDP) ratio deteriorated to 15.4% in the outgoing fiscal year. The pressure of a shrinking national economy suggests that the government's journey to address structural imbalances is yet to show results. However, there is hope in the sense that the savings rate has started to improve mainly due to significant improvements in the external account.

Savings increased from 10.8% to 13.9% of GDP in the last fiscal year, exceeding the government's target and expectations. The reduction in interest rate to 7% in June 2020 provided much-needed relief to industries which can now benefit from long-term lending and working capital loans. Full-cost loans are generally taken by the SME sector and indirect exporters and this is a very significant relief for them. It is possible to improve the economic position of Pakistan if the savings rate is facilitated to grow further, which in turn requires choosing long-term investment over short-term consumption. The figures below show the high degree of household consumption in contrast to the abysmal state of investments over the years.

Private investment has been declining for several years, suggesting that private investors have been losing confidence in the economy. This can be attributed to skewed priorities such as the non-favoring of exports and reliance on low value-added products, archaic technology, lack of policy continuity and redundant business practices. Due to a lack of profitability, Pakistan has not been able to access quality resources, leading to a vicious cycle where the country unsuccessfully competes for investments and market share in the world economy. The unprofitable nature of the economy is exacerbated by unreasonable anti-export biases, inefficient energy costs and high tariffs, leaving firms in a quandary as exorbitant amounts have to be set aside to meet these requirements.........

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