Pakistan’s Fiscal Challenges
The interview delves into the fiscal challenges faced by Pakistan, highlighting issues like high debt levels, reliance on borrowing, and the need for a more sustainable fiscal policy.
This clip was originally posted on New Wave Global Facebook Page.
Tackling Debt, Borrowing, and Sustainability
Nauraiz Rana: According to some recent figures, 79% of Pakistan’s population is still unbanked. Up to about 56% of the population does not engage in any financial products, either formally or informally. Only 4% of the population saves with formal institutions, and even fewer have a line of credit. These numbers have not changed much in the last two or three years.
Zafar Masud: Financial inclusion is a complex issue with social, political, and economic dimensions. It also has a direct impact on economic growth and investment. Without financial inclusion, it is difficult to achieve high savings rates and investment levels. This is because people who are not included in the formal financial system are less likely to save and invest their money.
Supply-side factors that impede financial inclusion:
- Lack of infrastructure: The lack of physical infrastructure, such as ATMs and branches, can make it difficult for people to access financial services.
- High costs: The cost of providing financial services in Pakistan is high, which can make it difficult for banks and other financial institutions to offer affordable products and services to low-income customers.
- Regulatory barriers: Some of the regulations governing the financial sector in Pakistan can make it difficult for banks and other financial institutions to reach low-income customers.
Demand-side factors that impede financial inclusion:
- Lack of awareness: Many people in Pakistan are not aware of the benefits of formal financial services.
- Lack of trust: Some people in Pakistan do not trust banks and other financial institutions. This may be due to past experiences with fraud or corruption.
- High transaction costs: The cost of using financial services can be high for low-income customers.
Implications of low financial inclusion for the economy:
- Low savings rates: People who are not included in the formal financial system are less likely to save their money. This can lead to lower levels of investment and economic growth.
- Low investment levels: Businesses are less likely to invest in Pakistan if they cannot access the finance they need. This can lead to slower economic growth.
- Increased poverty: People who are not included in the formal financial system are more likely to be poor. This is because they have fewer opportunities to save and invest their money.
Ways to improve financial inclusion in Pakistan:
- Invest in infrastructure: The government should invest in physical infrastructure, such as ATMs and branches, to make it easier for people to access financial services.
- Reduce costs: The government should work with banks and other financial institutions to reduce the cost of providing financial services.
- Reform regulations: The government should reform the regulations governing the financial sector to make it easier for banks and other financial institutions to reach low-income customers.
- Increase awareness: The government and financial institutions should work to increase awareness of the benefits of formal financial services.
- Build trust: The government and financial institutions should work to build trust with low-income customers. This can be done by offering fair and transparent products and services.
- Reduce transaction costs: The government and financial institutions should work to reduce the cost of using financial services for low-income customers.
Improving financial inclusion is essential for economic growth and poverty reduction in Pakistan. By addressing the supply-side and demand-side factors that impede financial inclusion, the government and financial institutions can make it easier for people to access the financial services they need to save, invest, and grow their businesses.
See full video podcast here
Zafar Masud in Discussion with Nauraiz Rana of New Wave Global — Video Podcast