ABOUT a decade ago, a research report highlighted that much of the country`s economic woes centred around low savings and investment. Pakistan seemed to be in a low-savings-and-investment trap, wrote Amjad Ali, an analyst at the State Bank of Pakistan`s (SBP)Policy Review Department, in his staff notes in January 2016. That piece also included the input and views of two other researchers.

He also pointed out that economic growth spurts are unsustainable, and low growth is generating fewer domestic savings.

As of May 2026, gross capital formation remains challenging as policymakers struggle to improve investment rates.

Gross capital formation was around 12.94 per cent of GDP in 2024, generally reflecting a decline from higher levels in recent decades.

In August 2025, the State Bank of Pakistan Governor Jameel Ahmed had cautioned that despite improvements in key macroeconomic indicators, Pakistan continues to grapple with structural challenges, foremost among them the country`s persistent low domestic savings rate, having dropped to just 7.4pc of GDP (far below the regional average of 27pc). This created a chronic reliance on external financing and contributed to recurring economic boom and bust cycles. He called for deeper capital markets.

Looking at the latest external sector trends, remittances have increased to $33.86bn, posting an 8.5pc increase during 10MFY26, according to SBP data.

Despite the war and tensions in the Middle East, remittances from across the region increased and accounted for 53pc or $18.2bn during July-April FY26. The highest inflow from Saudi Arabia was recorded at $7.93bn followed by the second highest $7.008 bn from the UAE.

Similarly, official figures show that exports of services surged by 17.05pc during 9MFY26, driven largely by higher earnings from the information technology sector. The government projects information technology (IT) exports to reach between $4.5-4.6bn by the end of FY26.

Despite increases in remittances inflows and IT-driven exports, the country`s foreign economic assistance rose by 19.7pc.

Total foreign economic assistance inflows (excluding IMF disbursements), comprising both loans and grants, amounted to $6.59bn during 9MFY26, up from $5.51bn in the corresponding period of last year.

Inflows in March stood at $731.3m, compared with $555bn in the same month last year.

While acknowledging the gains, certain analysts stress the need to recognise emerging pressures promptly and initiate effective measures to address them.

For achieving a middle power status, it also requires a robust economic foundation, capable institutions, and an inclu-sive development model, said former State Bank governor Dr Ishrat Husain.

He emphasised, `The real task is to translate that capability into sustained economic transformation.

Overall, there are already some visible impacts on the economy due to the Middle East war, says Dr Hafiz A Pasha.

The current account deficit, he adds, in the balance of payments by the end of FY26 will be significantly larger than originally projected.

On May 6, Finance Minister Muhammad Aurangzeb emphasised a strategic shift towards domestic capital mobilisation to secure economic self-sufficiency, reduce reliance on international financial institutions, build a stronger, more resilient economy and increase the participation of youth and women. He highlighted that Pakistan has sufficient internal resources to support development, quoting the Pakistan International Airlines` privatisation as an example.

Key points on his instance and action include the establishment of the Capital Market Development Fund to broaden the investment base and modernise the capital market.

To encourage local investment and improve the participation of youth and women, he focused on boosting retail participation in mutual funds and aligning national savings schemes with market dynamics to enhance financial inclusion and deepen the savings base.

Analysts at the State Bank of Pakistan and the Pakistan Institute of Development Economics are of the view that a significant portion of economic activity bypasses the formal banking sector, making the mobilisation of savings difficult.

Macroeconomic instability and high volatility inflation erode the purchasing power, leaving households with little to save. Low interest rate, informal, regulated channels offer poor (negative) returns compared to inflationary pressures. High youth dependency ratios put pressure on household income.

Foreign experts elsewhere generally trace the causes of poverty to lack of access to essentials by citizens, such as clean water, nutritious food, basic health care, equality and social justice; conflict and instability to jobs and livelihoods; poor basic infrastructure and climate change; and lack of government support and personal safety nets. If you are a citizen, your biggest worry is inflation.

Based on SBP data for the week ending May 14, Pakistan`s short-term inflation measured by the Sensitive Price Index showed a 14.52pc year-on-year increase.

It may be noted that the prime minister reportedly recently ordered the accelerated merger of the Board of Investment and the Special Investment Facilitation Council (SIFC). Under the new structure, the SIFC will drive the government agenda to attract foreign direct investment. •