INSTITUTE

INSTITUTE OF
OF BUSINESS
BUSINESS
MANAGEMENT
MANAGEMENT SCIENCES
SCIENCES

NAME : FAIZA ANDLEEB

AG. NO.:2009-AG-857
DEGREE :M.COM
SEMESTER: 4th
COURSE TITLE: PORTFOLIO MANAGEMENT
TOPIC: IMPACT OF DECLINE IN SAVINGS &
INVESTMENT ON ECONOMIC GROWTH
SUBMISSION DATE :29.05.2011
ASSINGED BY :Mr. HAMZA MUKHTAR
 ACKNOWLEDGEMENT
All praise and thanks for “ALLAH ALMIGHTY” the most
gracious and merciful, real bless of the universe, whom I
never heard ‘Nay’ whenever I knocked at His door, who gave
me the ability to contribute a drop of awareness and
cognition from the existing ocean of knowledge and wisdom.
I offer our countless salutations upon the “HOLY PROPHET
MUHAMMAD “(peace be upon him) the entire source of
guidance for humanity as a whole forever.

I, pay sincere gratitude to our Advisor Mr. HAMZA

MUKHTAR , for his highly specialized guidance and
especially for giving us chance to enhance our knowledge.
 CONTENTS
• Brief introduction of savings, investment & economic
growth.
• Types of savings & investment.
• Factors affecting savings & investment.
• Relationship of savings, investment & economic
growth.
• An overview of current economic condition of
Pakistan & world. (In context of savings &
investments)
• Conclusion
 SAVINGS
• The part of a person’s income that is not spent.
• Savings can be termed as money that is saved
through a bank or any other financial organization
that provides the facility.
• Savings is mostly done for a long period but the
growth rate of money is very low.
Sources Of Savings
• Domestic private sector (S)
• Public sector (G-T)
• Foreign sector (NX)
Types Of Savings
• Emergency reserve fund.
e.g. Banks, Credit Unions, Money market mutual funds .
• Accumulation fund.
e.g. (CDs), Ultra short-term bond funds, Short-term bond funds,
Mortgage-backed bond funds.
• Long-term investments.
It need to be diversified into five tiers if at all possible.
• College education savings.
It may be savings accounts, CDs, stocks or bonds with some
tax benefits.
 INVESTMENT
• The investing  of money or capital in order
to gain profitable returns, as interest,
income, or appreciation in value.
• In business, the purchase by a producer of
a physical good, such as durable equipment
or inventory, in the hope of improving future
business.
• Total Pakistan investment bond companies
1,718.
 Types Of Investments.
• Short-term investments
• Bonds
• Stocks.
Besides these three, there are also,
• Real estate (Buying a house)
• Commodities (gold & silver)
• Collectibles (Such as baseball cards)
• Mutual funds.
 Difference b/w Saving & Investments.
No.
Objecti
ve Short term needs.    growth
Vehicle Bank or money market Stocks, bonds and
s Accounts, certificates, Of mutual funds.
Used   deposit (CD).

Risk      The risk factor is almost Risk factor is always involved

with the money.
Absent.

Source Interest and capital gains.

of Retu Interest paid on money
deposited.
rn  
Key Returns have outpaced
Benefit Money is safe and inflation over the long term.
   Accessible.        
Key
Drawba Returns historically.        Can lose money if securities
decline in value.
ck
Pakistan Savings Certificates
• Defense Saving Certificates (DSC)
• Special Saving Certificates Registered (SSCR)
• Regular Income Certificates (RIC)
• Bahbood Saving Certificates (BSC)

Investment Opportunities In Pakistan

• Saving Scheme
• Trading and Investment in Stocks
• Investment in Real Estate in Pakistan
• Investment in Mutual Funds
• Investment in – Forex Market Trading.
• Investment in Commodities and Precious Metals
• Investment in various Esoteric Avenues
 DEFINITION OF
ECONOMIC GROWTH
• Economic growth refers to a
sustainable increase in living
standards. It implies increased per
capita income, better education and
health as well as environmental
protection.
 Factors Affecting Savings &
Investment.
• Inflation
• Interest rate changes.
• Income tax rates.
• Decline in income level.
• Expectations
• Cultural & social factors
• Political instability
• Exchange rate changes
• Unemployment
Relationship Of Savings, Investment &
Economic Growth.

Increase in savings & investment

•The potential for further investment expands
and this eventually increases.
•The economy’s capacity for growth in terms of an
increase in goods and services.
•It also provide chances of FDI in a country and increase
economic growth as an increase in exports.
•This can help to improve the standard of living, provide
more job opportunities and greater prosperity, which is
indicative of improved economic growth.
Decrease in savings & investment
• The potential for further investment decreases and
this means that fewer goods and services will be
available for satisfying needs.
• It result in the eventual shrinking of possibilities
for economic growth.
• Communities in which this happens will eventually
become poorer and the possibility of further savings
might be eliminated, with catastrophic results for
investment and any capacity for economic growth,
increasing poverty, unemployment, etc.
 Economy Of Pakistan in 2009-10,Economic
Growth Issues

• Pakistan economic growth faced a serious set back in fiscal year

2009 because of the depressed consumer credit market, slow
progress of public sector programmers, inflation, reduction in
subsidies, security threat, instability in the state and energy
crisis.
• Additionally, no attention was given to the agriculture sector.
The exports declined by six percent and imports by 10 percent.
The only thing that became a silver lining was the increment in
remittances by 22%. Shortages of energy and power don't let
the boom entered into the industrial sector. The sanction applied
by IMF on different sectors creating a hurdle. This resulted in
unemployment and services sector decline. Because of security
crisis the graph of investment do not take any surge.
Saving and Investment Behavior in Pakistan
COMPARISON WITH OTHER
COUNTRIES
 Global Financial Crisis
• In growth and in investment Pakistan lost
investor because of global economic situation,
through financial markets which collapse the
external demand for its exports and decline in
availability of external capital to finance or
invest in growth process of the country.
According to global financial crisis of 21st
century was felt on market and investor
confidence in many developing countries,
including Pakistan, as banking systems and asset
markets came under stress.
 The Budget Strategy Paper
‘2011-14'
• It,addresses the limitation of fiscal managers
to bring the economy back on high growth
track, curb inflation, and generate employment.
But the solutions are far and few.
• Worrisome Indicators
a. Falling Trend Of Investment & Savings.

There is a falling trend over the past five years, making

future prospects of growth and absorbing rapid
increasing labor force dimmer.
b.Investment-To-GDP Ratio

Investment-to-GDP ratio from 22 percent in FY06 is expected

to be as low as 11.5 percent this year. This is in sharp contrast
to our giant neighbours whose investment-to-GDP ratios are
hovering around 40 percent.

c.Decline In FDI
According to SBP the FDI flow into the state during July to
November period of this fiscal year fell by 54% but when
combined with portfolio investment reported a decline was
25.6%.

d. Slow Growth In Real Income

The purchasing power was on very high level of 86 percent five
years back; is projected to be in mid-nineties which is a factor
of reduction in savings & investment.
 The saving rates are obviously on a downhill journey
despite the high interest rates scenario. No wonder
that growth rate is likely to be around 2.8 percent, as
compared to targeted 4.5 percent.
f. Recent Floods
No wonder that growth rate is likely to be around 2.8
percent, as compared to targeted 4.5 percent. The
fall is partially attributable to the recent floods.
g. Energy Shortfall
Energy shortfall, especially shrinking gas supply to
industry creating unemployment & is adding woes to
potential growth.
h. Fiscal Deficit
The federal government is expecting a surplus of 0.6
percent from provinces to make the overall deficit
at 5.5 percent. However, if provinces fail to show
surplus, the deficit may cross 6 percent.

OVERALL IMPACT ON GDP

The budget deficit deviated negatively, on

average, 21 percent from target in past five years
and its slippage is at 28 percent this year, with
expected deficit of 5.5 percent--which can be
missed as in nine months deficit was at 4.5 percent
of GDP.
 Government Is Planning's.

• To target budget deficit at 4.5 percent for the next

year and to reduce it by 0.5 percent in each year till
FY14.
• FBR has revised its tax revenue targets to Rs1,588
billion (9.1 percent of GDP) which is again very
optimistic.
• FBR seeks Rs 125 billion from additional revenue
measures and Rs10 billion from administrative measures.
• Government planned of transferring higher revenues to
provinces after 7th NFC Award.
 EXPECTED CRISIS WILL FACE
BY GOVERNMENT
• The responsibility to provinces after 18th amendment, is so
difficult. That will increase the burden of already overstaffed
federal government.

• About 27.6 percent growth is required in FY12 to reach target

of Rs1,952 billion (9.7 percent of GDP).

• If the revenue target is achieved, the government will be short

by Rs 40-50 billion from day one.
Government Borrowing

Sources Start of the April 30th

year 2011
Rs. (billions) Rs. (billions)

SBP 62 196

Scheduled Increased 17
Banks
MONEY AGGREGATES

• For the week ending April 30, 2011 SBP

borrowing, credit to private sector marginally
declined by Rs 11 billion to reach Rs 157 billion.
• Currency in circulation declined further by Rs 25
billion to reach Rs 96 billion for year to date
whereas demand and time liabilities increased by
Rs 40 billion. Overall, money supply increased by
Rs 16 billion to reach Rs 556 billion, or 9.62
percent.
KEY MONETARY AGGREGATES AS ON APR 30
An All Over the World Overview
CONCLUSION
At the end, I want to conclude that,
• There is decline in savings.So,Government of Pak.
should make policies supportive of increase in
domestic savings.
• Public and Foreign Investment are canceling out the
negative effect of interest rate on private
investment. There should be a check of Causality
for the Interest rate and Investment.
• Remittances effect the saving positive and
significantly. More effective policies for transfers
of Remittances and further job creation in the
abroad should be explored.
• The inflation rate in Pakistan was last reported at
13.04 percent in April of 2011.So, Govt.should take
steps to appreciate the currency.

• Budget deficit for 2011-12 will be Rs 1,181 billion (6.4

percent of GDP) and 2012-13 will be Rs 1,243 billion
(6.1 percent of GDP). Govt.should try to decrease its
expenditure to fill the budgeted deficit.
• Savings rates should also be stable to encourage
savers or investors.
• Extra credit based incentives should also be
provided to exporters. This, will ultimate effect
the investments & savings.
• More industries in the country can reduce the
unemployment & increase per capita income.
• If, all these things are implemented in the
country the IMF or loans can also be paid and the
country savings & investment ratio can be
increased which will cause a strong &
economically developed nation.