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Pakistan’s savings culture faces significant challenges, mainly due to inflation, low interest rates, and limited financial literacy. Despite the growing popularity of digital currencies like Bitcoin, traditional savings options in Pakistan have been struggling to keep pace. In this article, we’ll examine why a typical 10,000 PKR investment in a savings account five years ago would now be worth only around 4,386 PKR.
The Decline in Traditional Savings
Traditional savings in Pakistan have been facing a tough environment. With inflation running at high rates, the interest rates provided by banks on savings accounts have failed to match the pace of price increases. As a result, savers have seen their money lose value rather than grow. A 10,000 PKR deposit in 2020, for example, would have provided a negative return after adjusting for inflation, leaving it worth only about 4,386 PKR today.
Inflation vs. Bank Interest Rates
Inflation remains one of Pakistan’s most significant economic challenges. While inflation rates have eased somewhat in recent months, they remain high enough to outpace the returns offered by most savings accounts. The return on savings in banks has been so low that it fails to compensate for the erosion of purchasing power caused by rising costs of living.
Pakistan’s heavy reliance on cash has further undermined the savings rate. With approximately Rs 9.1 trillion in cash circulation as of March 14, a large portion of the population continues to hoard money in non-interest-bearing forms. This widespread cash hoarding contributes to the low official savings rate and limits the country’s overall economic growth.
Gold, Property, and Other Alternatives
In the absence of appealing savings options in the formal banking system, Pakistanis have turned to alternative forms of savings, such as gold, real estate, and even livestock. These asset classes, while offering some form of value retention, do not provide the liquidity or growth potential that modern financial instruments like stocks or bonds can.
Given the widespread dissatisfaction with traditional savings options, there is a need for innovative, regulated financial products that can offer better returns. Simplifying access to investment options, like the 90-day T-bills, and offering fractional investments in gold or stocks could encourage more Pakistanis to shift their savings from cash to formal assets.
Conclusion
Pakistan’s traditional savings methods have failed to provide adequate returns for most people, leaving them at the mercy of inflation and devaluation. As we look to the future, it is clear that the country needs a more robust financial system that offers higher returns, better accessibility, and financial education. Without these changes, the savings rate will remain stagnant, and the full potential of the economy will not be realized.
