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Consequences of Low National Savings

Sanderson Abel

Saving is the process of setting aside a portion of current income for future use. The resources accumulated in this way over a given period of time are referred to as “savings”. Savings may take the form of bank deposits and cash holdings or securities. How much individuals save is affected by their preferences for future over present consumption and their expectations of future income. If individuals consume more than the value of their current income, then their saving is negative and they are said to be dissaving. Individual saving may be measured by estimating disposable income and subtracting current consumption expenditures. 

Saving is important to economic progress because of its relationship to investment. An increase in productive wealth requires that some individuals abstain from consuming their entire income and make their savings available for investment. With the new Economic Zim Asset blue print requiring close to US$ 30 billion, without locals contributing towards this through domestic savings; it will be difficult to raise this amount. It is important then that economic agents; households, firms and the government play their part in raising the amount of savings in the country.

There has been concern over the lack of confidence by various stakeholders in the financial sector as one of the reasons why people are not saving. There is need for the people of this country to change their mind set and really let bygones be bygones just like what the economy did when we adopted the multicurrency system in 2009. The danger with the lack of confidence by locals is that if we ourselves are not confident, what will happen with external people from whom we want help. 

Charity certainly begins at home. There is need for us to cultivate our own culture of savings and foster that confidence so that foreigners can take a cue from us.

If as Zimbabweans we fail to save, the reality is that we will be punishing ourselves since it will be difficult to correct the situation prevailing in the country and we will miss out on the targets of Zim Asset. There is also the danger that at a personal level we will not be able to meet their targets of attaining life savings, procuring durables and failing to leave some inheritance for our own children and grandchildren.

Literature suggests that the persistence of the negative saving rate should not be regarded lightly. As Zimbabweans we have witnessed a scenario of low savings over a long period and the situation cannot continue since these low levels of household, private and especially national saving will take a toll over the long run. 

At the macro-economic level, saving is not just an indicator of thrift; it also plays a major role in the accumulation of capital and thus helps to determine future economic growth. At this level juncture where economic growth has been increasing at a decreasing rate since 2012, there is need to reverse the trend and return the growth trajectory on a positive path.

Another reality is that the low personal saving rate has been causing national savings to be insufficient to support the level of investment necessary to sustain a high level of long-run economic growth without excessive dependence on foreign capital. Our concerns around less foreign direct investment, less lines of credit, less international grants, less diaspora remittances goes to show the effects of yesteryear reduced amounts of savings. Correcting this anomaly should start now with all economic agents in the economy save a portion of what they are able. 

Another consequence of the low savings rates is that more capital must come from outside the nation for investment locally. Low savings rates for individuals means they will be more vulnerable to economic "shocks" such as casualty losses, loss of employment, etc. Developments during the recent World Economic Crisis have shown that dependence on the global savings can be easily affected by shocks and these translate to distortions to recipient countries.

Encouraging higher private saving would clearly help raise national saving. Moreover, the adequacy of personal saving is important from the perspective of individual welfare. Even if a country overall is saving adequately to fund future economic growth, savings might be distributed in a way that leaves certain groups with insufficient wealth hence requiring that individuals also should have their own personal savings they can rely on.

People therefore need to also understand the various reasons why they need to save. Some of the reasons for savings include a precaution against a sudden drop in income; to smooth out their consumption over their lifetimes; or to leave assets for their children. Gauging whether people are setting aside enough from their current income depends on what you assume those people will want to consume or bequeath in future, what wealth they have already accumulated and what returns on those assets will be. It is hence important that people are able to use the financial services sector to keep their savings. Using Banks to save will allow those economic sectors in need of capital to easily access it as banks play their intermediary role. This will make the savings base productive and completes the relationship between savings and investment in the economy.

Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on abel@baz.org.zw  or on numbers 04-744686 and 0772463008