Balanced investment to GDP ratio to ensure economic stability: Experts

The primary source of finance for developing countries such as Pakistan comes from private sector investments. The private sector investments in Pakistan are heavily influenced by a small number of strong firms and their decisions influence the interest rates as well as several other factors.

Talking to WealthPK, Additional Secretary Finance Aamir Nazir Gondal said the interest rate was now 22 percent. It has increased significantly during the last five years and has almost tripled since June 2020.

The ratio of investments to GDP (gross domestic product) dropped from 15.7 percent in May 2019 to 13.3 percent. This is not significant for Pakistan. The investment ratio must be raised; otherwise, we will face an even more severe crisis.

He added, "Conducting a thorough investigation into these matters was imperative; only then can evidence-based policies be developed to attract investment and realize Pakistan's full economic potential."

"Meanwhile, conventional factors like global economic conditions, political instability, and policy unpredictability are often cited as investment sentiment dampeners; the peculiar relationship between the interest rates and investments in Pakistan can tell us the trajectory of economy," he pointed out.

Talking to WealthPK, former federal minister for commerce and trade Gohar Ejaz said many sectors like textiles, industry, and real estate were affected by the past inflationary pressure as a result of high interest rates. He emphasized the necessity of concentrating on recovering development by making the most of current resources and enticing new investments.

He explained that lower interest rates promote investment by lowering the cost of borrowing, promoting economic expansion, and perhaps raising the ratio of investment to GDP. To achieve consistent economic growth, emerging nations must take advantage of this partnership.

The unreported money undercurrent that permeates the economy and finds its way into the investment channels cannot be ignored. The bulk of private sector companies engage in data-fudging practices, such as maintaining several accounting records, which account for very little of the actual company activity.

While some justify these behaviours by citing inefficiencies in government spending, others abstain from interest-based transactions because of their religious beliefs.

Talking to WealthPK, Nasim Beg, CEO of Arif Habib Consultancy, highlighted the adverse effects of high interest rates on the businesses, affecting capital expenditure, inventory costs, employment, and market dynamics.

The intricate dance between the interest rates and investment underlines the need for sound policy interventions to spur sustainable growth and economic resilience, he added.

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