Investment and Saving

Essay by Kafray July 2007

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EXECUTIVE SUMMARYSaving and investment play a vital role in economic development. Savings are encouraged because they lead to capital formation and capital generates further production. In recent past, approach to economic development has undergone many refinements, specially its objectives and means to achieve them. The development strategy lays more emphasis on the distributive justice and provision of basic needs and its objectives. More consideration is given to non-economic factors for ensuring efficient utilization of resources. The investment in physical terms is no longer treated as the sole causative factor in the process of economic development. The scope of investment has, in fact, been enlarged to include creation of physical assets as well as development of human capital. In a developing country like Pakistan, where population is growing at a fast pace, and the productive capacity of the economy is low, there is urgent need for accelerating investment to achieve a reasonable growth rate.

The inadequacy of national savings in Pakistan has resulted in heavy dependence on external aid. On the other hand, scanty voluntary domestic saving has led to resort to deficit financing as means for realizing forced savings resulting in continuing inflationary pressures. Thus both the budgetary and balance of payment positions have been subjected to severe strain.

Pakistan is a developing country with population increasing at the rate of 3% per annum. Like other developing economies it is endeavoring to accelerate the rate of economic growth so as to improve the quality of life for her people to such a level which can ensure the fulfillment of basic needs.

The achievement of socio-economic objectives of national economic policy is constrained by the growth of the country's productive capacity which in turn largely depends on the reasonable rate of real investment. The most crucial element in any strategy...