Impact of Savings & Invesment on Economic Growth

8/6/2019 Impact of Savings & Invesment on Economic Growth

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INSTITUTE OF BUSINESSINSTITUTE OF BUSINESS

MANAGEMENT SCIENCESMANAGEMENT SCIENCES

INSTITUTE OF BUSINESSINSTITUTE OF BUSINESS

MANAGEMENT SCIENCESMANAGEMENT SCIENCES

NAMENAME :: FAIZA ANDLEEBFAIZA ANDLEEBAG. NO.AG. NO.:2009:2009--AGAG--857857

DEGREEDEGREE :M.COM:M.COMSEMESTERSEMESTER: 4th: 4th

COURSE TITLECOURSE TITLE: PORTFOLIO MANAGEMENT: PORTFOLIO MANAGEMENTTOPIC:TOPIC: IMPACT OF DECLINE IN SAVINGS &IMPACT OF DECLINE IN SAVINGS &

INVESTMENT ON ECONOMIC GROWTHINVESTMENT ON ECONOMIC GROWTH

SUBMISSION DATESUBMISSION DATE :29.05.2011:29.05.2011ASSINGED BYASSINGED BY :Mr. HAMZA MUKHTAR:Mr. HAMZA MUKHTAR


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ACKNOWLEDGEMENTAll praise and thanks for ALLAH ALMIGHTY the mostgracious and merciful, real bless of the universe, whom Inever heard Nay whenever I knocked at His door, who gaveme 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 PROPHETMUHAMMAD (peace be upon him) the entire source ofguidance for humanity as a whole forever.

I, pay sincere gratitude to our Advisor Mr. HAMZAMUKHTAR , for his highly specialized guidance and

especially for giving us chance to enhance our knowledge.


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CONTENTS Brief introduction of savings, investment &

economic growth.

Types of savings & investment.

Factors affecting savings & investment.

Relationship of savings, investment & economicgrowth.

An overview of current economic condition ofPakistan & world. (In context of savings &

investments) Conclusion


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SAVINGS

The part of a persons income that is not spent. Savings can be termed as money that is saved

through a bank or any other financial organizationthat provides the facility.

Savings is mostly done for a long period but thegrowth rate of money is very low.

Sources Of Savings

Domestic private sector (S)

Public sector (G-T) Foreign sector (NX)


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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 sometax benefits.


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INVESTMENT

The investing of money or capital in orderto gain profitable returns, as interest,income, or appreciation in value.

In business, the purchase by a producer ofa physical good, such as durable equipmentor inventory, in the hope of improving futurebusiness.

Total Pakistan investment bond companies1,718.


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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.


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Difference b/w Saving & Investments.

No.

Objecti

ve Short term needs. growth

Vehicles

Used

Bank or money marketAccounts, certificates, Of

deposit (CD).

Stocks, bonds and

mutual funds.

Risk

The risk factor is almost

Absent.

Risk factor is always

involved with the money.

Sourceof Retu

rn

Interest paid on moneydeposited.

Interest and capital gains.

KeyBenefit Money is safe and

Accessible.

Returns have outpacedinflation over the long term.

KeyDrawba

ck

Returns historically.Can lose money if securitiesdecline in value.


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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


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DEFINITION OF

ECONOMIC GROWTH Economic growth refers to a

sustainable increase in living

standards. It implies increased percapita income, better education andhealth as well as environmental

protection.


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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


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Relationship Of Savings, Investment &Economic Growth.

Increase in savings & investment

The potential for further investment expands

and this eventually increases.The economys capacity for growth in terms of anincrease in goods and services.It also provide chances of FDI in a country and increaseeconomic growth as an increase in exports.This can help to improve the standard of living, provide

more job opportunities and greater prosperity, which isindicative of improved economic growth.


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Decrease in savings & investment

The potential for further investment decreases andthis means that fewer goods and services will beavailable for satisfying needs.

It result in the eventual shrinking of possibilities foreconomic growth.

Communities in which this happens will eventuallybecome poorer and the possibility of further savingsmight be eliminated, with catastrophic results forinvestment and any capacity for economic growth,increasing poverty, unemployment, etc.


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Economy Of Pakistan in 2009-10,Economic

Growth Issues

Pakistan economic growth faced a serious set back in fiscalyear 2009 because of the depressed consumer credit market,slow progress of public sector programmers, inflation,reduction in subsidies, security threat, instability in the stateand 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 inremittances by 22%. Shortages of energy and power don't letthe boom entered into the industrial sector. The sanctionapplied by IMF on different sectors creating a hurdle. Thisresulted in unemployment and services sector decline. Becauseof security crisis the graph of investment do not take anysurge.


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COMPARISON WITH OTHERCOUNTRIES


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Global Financial Crisis

In growth and in investment Pakistan lostinvestor because of global economic situation,through financial markets which collapse theexternal demand for its exports and decline in

availability of external capital to finance orinvest 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 andasset markets came under stress.


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e u get Strategy aper2011-14'

It,addresses the limitation of fiscal managersto bring the economy back on high growthtrack, curb inflation, and generate employment.But the solutions are far and few.

Worrisome Indicatorsa. Falling Trend Of Investment & Savings.

There is a falling trend over the past five years, makingfuture prospects of growth and absorbing rapidincreasing labor force dimmer.


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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 contrastto our giant neighbours whose investment-to-GDP ratios arehovering around 40 percent.

c.Decline In FDIAccording to SBP the FDI flow into the state during July to

November period of this fiscal year fell by 54% but whencombined with portfolio investment reported a decline was25.6%.

d. Slow Growth In Real IncomeThe purchasing power was on very high level of 86 percent five

years back; is projected to be in mid-nineties which is a factorof reduction in savings & investment.


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e. Decline In Saving Rates

The saving rates are obviously on a downhill journey

despite the high interest rates scenario. No wonderthat growth rate is likely to be around 2.8 percent, ascompared to targeted 4.5 percent.

f. Recent FloodsNo wonder that growth rate is likely to be around 2.8percent, as compared to targeted 4.5 percent. Thefall is partially attributable to the recent floods.

g. Energy Shortfall

Energy shortfall, especially shrinking gas supply to

industry creating unemployment & is adding woes topotential growth.


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h. Fiscal DeficitThe federal government is expecting a surplus of 0.6

percent from provinces to make the overall deficitat 5.5 percent. However, if provinces fail to showsurplus, 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 itsslippage is at 28 percent this year, with expecteddeficit of 5.5 percent--which can be missed as innine months deficit was at 4.5 percent of GDP.


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Government Is Planning's.

To target budget deficit at 4.5 percent for the nextyear and to reduce it by 0.5 percent in each year tillFY14.

FBR has revised its tax revenue targets to Rs1,588

billion (9.1 percent of GDP) which is again veryoptimistic. 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 NF

C Award.


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EXPECTED CRISIS WILL FACE

BY GOVERNMENT The responsibility to provinces after 18th

amendment, is so difficult. That will increase theburden of already overstaffed federalgovernment.

About 27.6 percent growth is required in FY12 toreach target of Rs1,952 billion (9.7 percent ofGDP).

If the revenue target is achieved, the governmentwill be short by Rs 40-50 billion from day one.


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Government Borrowing

Sources Start of theyear 2011

Rs. (billions)

April 30th

Rs. (billions)

SBP 62 196

ScheduledBanks

Increased 17


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MONEY AGGREGATES

For the week ending April 30, 2011 SBPborrowing, credit to private sector marginallydeclined by Rs 11 billion to reach Rs 157 billion.

Currency in circulation declined further by Rs 25billion to reach Rs 96 billion for year to datewhereas demand and time liabilities increased byRs 40 billion. Overall, money supply increased byRs 16 billion to reach Rs 556 billion, or 9.62percent.


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KEY MONETARY AGGREGATES AS ON APR 30


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An All Over the World Overview


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CONCLUSIONAt the end, I want to conclude that,

There is decline in savings.So,Government of Pak.should make policies supportive of increase indomestic savings.

Public and Foreign Investment are canceling out the

negative effect of interest rate on privateinvestment. There should be a check of Causalityfor the Interest rate and Investment.

Remittances effect the saving positive andsignificantly. More effective policies for transfersof Remittances and further job creation in theabroad should be explored.


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The inflation rate in Pakistan was last reported at13.04 percent in April of 2011.So, Govt.should takesteps to appreciate the currency.

Budget deficit for 2011-12 will be Rs 1,181 billion (6.4percent of GDP) and 2012-13 will be Rs 1,243 billion(6.1 percent of GDP). Govt.should try to decrease itsexpenditure to fill the budgeted deficit.


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Savings rates should also be stable to encourage

savers or investors. Extra credit based incentives should also beprovided to exporters. This, will ultimate effectthe 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 thecountry savings & investment ratio can beincreased which will cause a strong & economically

developed nation.


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Impact of Savings & Invesment on Economic Growth

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