By any rational standard, Pakistan remains an undeveloped country with a very low ranking internationally in terms of income levels. According to the IMF estimates, Pakistan with an estimated GDP per capita of $1450 was ranked 141out of 194 countries in 2015. By way of comparison, the GDP per capita of Norway and the US, ranked fourth and fifth internationally, were estimated to be $74,822 and $55805 respectively during the same period. South Korea, which had more or less the same income level as Pakistan in 1960’s, was ranked 28 with GDP per capita of $27,195 in 2015. Even India, which had lower GDP per capita than Pakistan till the end of 1980’s, seems to have outperformed us. It was ranked 139 with GDP per capita of $1617 in 2015. Obviously, the people of Pakistan cannot expect to enjoy the high standards of living of the peoples of highly developed countries with high income levels. But the growing inequalities of income and wealth in the country deny an average Pakistani even the basic necessities of life while the elite of the society are leading luxurious lives which would be the envy of many even in the highly developed rich countries. The ostentatious style of life of the Pakistani elite is definitely a source of social discontent. Their emphasis on consumerism also has a negative effect on the prospects of Pakistan’s economic progress in the coming years.

In most rich countries with highly developed social and physical infrastructure, generally the problem which slows down the growth of the economy is that of insufficient demand or consumption leading to unutilized productive capacity. The revival of domestic and/or external demand enables such countries to put to use the unutilized capacity, thereby increasing their GDP growth rates. The problem in less developed and low income countries like Pakistan is exactly the reverse of that of the rich countries. In Pakistan, it is the low level of the productive capacity and its slow growth, and not insufficient demand, which hold back the growth of the economy. The productive capacity of countries like Pakistan can be enhanced by raising the national saving and investment rates. Other things remaining the same, the higher the national investment rate, the higher would be Pakistan’s GDP growth rate. In this scenario, consumerism leading to a high rate of consumption reduces the reservoir of domestic savings available for investment purposes forcing the country to rely on foreign loans or foreign investment to fill up the gap between national savings and the desired rate of national investment. Thus, consumerism to which Pakistani elite are currently addicted, retards Pakistan’s economic growth and forces it to place growing reliance on external borrowings and investment to meet the requirements of the desired level of national investment. An excessively high level of reliance on the inflow of foreign capital can land a country into a debt trap besides having negative consequences for its foreign policy as economic dependence and an independent foreign policy designed to serve the best interests of the country cannot go together.

Keeping in view the foregoing considerations, let us see where we stand in terms of national saving and investment rates compared with India and China. In 2015, China’s national saving and investment rates were approximately 49% and 43% of GDP respectively. The high national investment rate enabled Chinese economy to grow at the fast rate of 6.9% while the surplus of national savings over national investment enabled it to run a huge balance of trade surplus, which in turn allowed it to invest abroad while maintaining massive foreign exchange reserves. As for India, its national saving and investment rates were 31% and 33% of GDP respectively in 2015 enabling it to achieve a high GDP growth rate of over 7% in 2015 while keeping its external debt liability within reasonable limits.

The condition of the Pakistan economy as compared with the Chinese and Indian economies is pathetic, to put it mildly. Pakistan’s national saving rate was as low as 14.6 of GDP in the financial year 2015-16 while the national investment rate stood at 15.2% during the same period. Unsurprisingly, its GDP grew at the low rate of 4.7% while there was a substantial increase in its debt liability. Unless the government and the nation as a whole take energetic steps to raise Pakistan’s national saving and investment rates, it is doubtful that the country would be able to achieve even the modest target of GDP growth rate of 5.7% set in the budget for 2016-17. For Pakistan to achieve high GDP growth rates of 7% and above, the country would have to raise its national saving and investment rates to over 30%. As things stand right now, there are no indications that Pakistan is anywhere near achieving those ambitious targets.

The moral is quite clear: unless we as a nation adopt austerity and a simple style of life, our economic growth rate will remain low and we will continue to suffer from the rapidly growing burden of debt liability. It is the job of Pakistan’s leaders, both civilian and military, to set an example by practicing austerity in their private and official lives while encouraging others to do the same. What we see instead is exactly the opposite with our political leaders leading an ostentatious and luxurious style of life and the civilian and military elite following in their foot-steps to the detriment of the nation’s future. Our persistence on this dangerous course can only produce disastrous results for the country. We must, therefore, take stock of the situation and adopt necessary corrective steps.

To encourage austerity and a simple living style, there should be high import duties and taxes on all luxury items. On the other hand, taxes on necessities of life should be lowered to make the life of the common man easier. Rates of interest on investment in government saving schemes and bank deposits should be raised to encourage the people to reduce their consumption and increase their savings. Ironically, the government and the State Bank of Pakistan during the recent past have lowered the rates of interest applicable on the various saving schemes and bank deposits which can only have a discouraging effect on our saving habits. Such an approach would make sense only if, as in rich countries, the objective was to encourage the people to increase their consumption rather than savings. As explained earlier, the need of the hour in Pakistan instead is to encourage saving habits among the people. The investment climate in the country should be improved to encourage the people to save and invest in industrial and agricultural sectors so as to enhance the country’s productive capacity. This would require ending corruption, overcoming the energy crisis, a rapid increase in investment in the country’s social and physical infrastructure, and putting in place the necessary framework for regulating economic activities.

The fact that our national saving rate is among the lowest in the world with all the attendant negative consequences is bad enough. But what is even more deplorable is that there is little realization among Pakistan’s leadership and elite of the disastrous consequences of the current addiction to consumerism and luxurious living for the economic health of the country and its future progress. The continued indifference of our political, civilian and military elite to the imperatives of austerity and self-reliance can only spell disaster for the future of our country.