Domestic Resource Mobilisation for Development in Pakistan

This paper examines the determinants of private, domestic, and household savings in Pakistan. The analysis shows that private savings can be expected to grow gradually as a result of rising per capita income, falling dependency burden, improved financial deepening, and macro stability. Bivariate causality tests between GNP and savings show that GNP causes both domestic and public savings. However, the causality test is inconclusive in the case of causation between GNP and private savings. This finding has important policy implication in the sense that once a virtual cycle succeeds in accelerating growth, saving would catch up with a lag. In this sense, financing of investment is not a major constraint. The paper underlines the following policy options: (i) a strong effort spread over tax policy (tax reforms as well as tax administration), expenditure restraint, effective expenditure management, and public sector corporate reforms should aim at raising public savings to about 6 percent of the GDP; (ii) the incentives for private savings in Pakistan need to be revamped.