Understanding the Factors Behind Low Saving Rates in Pakistan: Insights and Policy Recommendations

Savings play an essential role in economic growth and development as it provides resources for investment and financial stability. Pakistan, like many developing economies, faces challenges in promoting a robust savings culture. This study examines key determinants of savings behaviour, including macroeconomic factors, fiscal policies, interest rates, inflation, remittances, and religious beliefs. Findings suggest that enhancing financial literacy, offering tax incentives, and ensuring economic stability can boost savings. Policies to manage inflation and improve real interest rates are vital for encouraging household savings. The study also highlights theoretical insights, such as the Harrod-Domar model and the Permanent Income Hypothesis, underscoring the link between savings, investment, and long-term growth. To enhance savings, the government should adopt both short- and long-term initiatives, such as expanding financial literacy programs and promoting investment-oriented savings schemes. Tax and duty reductions for productive industries for encouragement may lead to higher savings. Ensuring financial stability, controlling inflation, and strengthening institutions are important for building saver`s confidence. Similarly, higher real interest rates encourage savings while inflation erodes their value emphasising effective inflation management essential for to build saving culture in Pakistan. As controlling inflation remains a key policy objective of URAAN project, this study indicates that higher savings are possible with decline in inflation in Pakistan. Consequently, an increase in savings is expected as inflation decreases. Moreover, higher savings can support the government in achieving its economic growth targets.