Pakistan’s Bank Deposits-to-GDP Ratio Falls to Lowest Among Peers: SBP

Pakistan’s deposits-to-GDP ratio has dropped to its lowest level among peer economies, according to a new report by the State Bank of Pakistan (SBP). The SBP report shows that while the share of adults with bank accounts jumped from 16 percent in 2015 to 64 percent in 2023, this has not translated into higher savings. The ratio of bank deposits to GDP has fallen from 36.9 percent in FY21 to 31.9 percent, indicating that most new accounts are used for transactions rather than savings. The central bank attributed the weak deposit growth to economic uncertainty and low or negative real returns on bank deposits, which have pushed households and businesses to move their savings into gold, real estate, and other inflation-hedging assets. It warned that the decline in long-term deposits, those with maturities over three years, poses a risk to fixed investment financing and may constrain future economic growth and income expansion. The report also identified taxation and religious factors as contributing to the trend. The imposition of withholding taxes on banking transactions and withdrawals has discouraged deposits, particularly among lower-income individuals and small cash-based businesses. Additionally, religious reservations about interest-based banking continue to deter a segment of the population from engaging with conventional banks. A 2015 Knowledge, Attitude, and Practices (KAP) survey found that 7.5 percent of respondents avoided traditional banking products on religious grounds. The SBP noted that the ongoing transition toward Islamic banking could help reverse the trend by attracting new depositors. It also emphasized that developing habitual saving behavior and deepening financial inclusion remain critical for boosting deposit mobilization and long-term capital formation.