KARACHI: Pakistan`s domestic savings have dropped to just 7.4 per cent of GDP far below the regional average of 27pc creating chronic reliance on external financing and contributing to recurring economic boom-bust cycles, said State Bank Governor Jameel Ahmed on Monday.

Speaking at the conference `Unlocking the Capital Markets Potential for Banks`, Mr Ahmed said the country`s low savings rate, coupled with declining investment, has constrained long-term growth prospects.

According to the Pakistan Bureau of Statistics, private investment has declined from nearly 12pc of GDP in 2008-09 to just 9pc in 2024-25. Public investment has also fallen sharply, from 4pc to 2.9pc of GDP over the same period.

Pakistan ranks the lowest in the region in terms of total investment. World Bank data shows gross fixed capital formation in Pakistan at 12pc of GDP, compared to 20pc in Sri Lanka and over 31pc in Bangladesh.

`These low savings and weak investment trends are directly linked and must be addressed to build sustainable growth,` said Mr Ahmed. He emphasised the need for robust, deep, and diversified capital markets to channel domestic savings into productive investments effectively.

The SBP chief outlined a series of recent regulatory reforms aimed at broadening participation in Pakistan`s bond market. These include the designation of nonbank financial institutions as Special Purpose Primary Dealers and the expansion of Investor Portfolio Securities (IPS) accounts to microfinance banks, the Central Depository Company (CDC), and the National Clearing Company of Pakistan Ltd (NCCPL).

`These reforms unlock new investment avenues for millions of digital banking users and lay the groundwork for broader market development,` he said.

However, Mr Ahmed expressed concern over the underdeveloped state of corporate debt and equity markets. Outstanding corporate bonds account for less than 1pc of GDP, with minimal secondary market activity and limited involvement from the non-financial sector.

Similarly, equity market penetration remains modest, with investor accounts and market capitalisation significantly lagging behind peer economies.

While acknowledging recent macroeconomic improvements-such as falling inflation and a gradual recovery in growth-the governor noted that structural challenges like low savings and limited financial inclusion remain pressing.

He called for coordinated efforts by regulators, financial institutions, government bodies, and investors to promote financial literacy, expand market participation, and foster a transparent, innovation-driven financial ecosystem.