The Pakistan Stock Exchange (PSX) has recommended to the government the introduction of an investment and saving accounts scheme as part of its proposals for the 2023-2024 budget.
Recognizing the crucial role of saving and investment in socio-economic development and capital formation, the government supports the initiative to address Pakistan’s economic challenges, including slow economic growth, unemployment, and rapid population growth.
Pakistan currently faces the obstacle of low saving rates, which hinder sustainable national economic development. The PSX asserts that higher savings and increased capital formation can lead to a permanent boost in economic growth rates. To facilitate this, the PSX suggests the introduction of Registered Savings and Investment Accounts (RSIAs), which would enable individuals to accumulate savings towards life goals.
RSIAs, similar to retirement savings schemes in other countries such as Individual Retirement Accounts (IRAs) and Roth IRAs in the United States, offer tax benefits and allow the accumulation of capital free of taxes on interest, dividends, and capital gains. Eligible investments in these accounts include listed stocks, ETFs, tradable bonds, and mutual funds. Such schemes can also be designed to target other objectives like funding children’s education or providing for the future needs of disabled individuals.
Drawing inspiration from the successful UK Individual Saving Accounts (ISAs), which are tax-free and encompass various types such as Cash ISAs, Stocks and Shares ISAs, Innovative Finance ISAs, and Lifetime ISAs, the PSX suggests that the introduction of different ISAs in Pakistan would not only encourage savings but also attract investment in banks, capital markets, unit trusts, investment funds, corporate bonds, government bonds, peer-to-peer loans, and crowdfunding debentures.
By introducing UK-style ISAs, the PSX anticipates an increase in savings and investment across different asset classes and financial instruments. To implement this vision, the PSX proposes that the government establish a mechanism and regulatory framework for the launch of Registered Savings and Investment Accounts and Individual Savings Accounts. This would effectively channel savings from unproductive and undocumented sectors into the formal, productive sectors of the economy.
The PSX emphasizes the successful track record of RSIA and ISA schemes in other countries, where they have played a vital role in directing savings towards productive investments through capital markets. Additionally, these schemes often constitute the primary source of retirement income. In Pakistan, the proposed accounts would also contribute to the government’s objective of documenting the informal sector.
The introduction of investment and saving accounts schemes holds the potential to stimulate economic growth, increase national savings, and attract investments across various sectors. If implemented, this initiative could lead to long-term benefits for Pakistan’s economy and the well-being of its citizens.