Savings and Investment

The rate of growth in GDP has been constrained as investment has not been increasing at a satisfactory rate, especially by the private sector. The gap between savings and investment has been widening. Moreover, the incremental capital output ratio (ICOR)2 has deteriorated continuously in the past few years, indicating that the country has not been able to boost productivity of investment. The gap between savings and investment has increased over time. The government initiatives seem to be ineffective in
case of converting the level of saving in to level of investment. It is clear that the rate of national savings has been approximately constant in the tenure of this government. In case of investment, the government could not achieve the target of MTMF in each revised MTMF. In FY 2012-13 the estimated savings and investment was 26.8 and 25.45 percent respectively.

Considering the business as usual scenario, the national savings might be 32.18 and 32.86 percent of the nominal GDP in FY 2013-14 and FY 2014-15 respectively and total investment might be 26.71 and 27.05 percent of the nominal GDP in FY 2013-14 and FY 2014-15 successively.3 The savings-investment gap has increased sharply and it will continue further, if the existing policies prevail in future. The saving –investment gap might reach at 5.47 and 5.81 percent of the nominal GDP in FY 2013-14 and FY 2014-15 respectively.

The MTMF targets are that in FY 2014-15, there will be no gap between savings and investment and it might be 29.6 percent of the current GDP. The policy responses, to date, however, have not been able to support such ambition.