Home » Governance » Policy Consistency Critical for Savings Growth

National savings consist of private and public savings. Private savings include saving accumulated by households and businesses. Public savings are those of the Government, which are achieved through their budget surpluses. If national savings are so important, then how can we increase them?

This is a particularly hard question to answer. The trouble is that one policy might increase household saving rate, but at the same time reduce business and Government savings.

Increasing national savings hence require a proper policy mix devoid of policy reversals and contradictions.

Savings are important as they allow economic agents to accumulate funds for making investments in their businesses or covering shortfalls in operating cash flow.

Savings empower poor individuals by shifting the saver’s perception of his or her situation from “a day to-day struggle to survive to a longer-term view based on planning with a growing cushion of savings”.

These can also be thought of as the change in the wealth level or the change in assets held by individuals, less the change in liabilities.

As saving levels increase, so does the stock of wealth. This increase in the stock of wealth means that individuals are able to finance a higher level of consumption than before.

Policies to spur national savings are critical at this juncture of economic development.

It is very important for the economy to forego current consumption and save instead for future economic development.

To have more machines, we must produce capital instead of consumer goods.

To get more human capital, we must build schools and not use our resources to produce consumer goods. To create more and better technology, we must devote resources to research and development, not to the production of consumer goods.

We just have to save, if we are going to make progress in lifting the standard of living of the citizens of the country. But, as each of us knows, saving is hard because it requires patience and sacrifice.

What this means is that we save today, and these resources are used to produce machines and other capital, which will be used later to produce the goods we intend to purchase in the future.

Policy consistency and predictability is critical for the economy to be able amass a lot of savings.

There is great need for the Government to put in place measures that increase economic growth.

The Government needs to pursue overall macro-economic policies that provide for a stable economic climate, thereby fostering confidence among all economic agents who will become incentivised to increase their propensity to save.

Research has proven that there exist a negative relationship between savings and fiscal budget deficits. This implies that the amount of savings falls when the amount of budget deficit increases.

Since the early 1980s, the Government has run a deficit on its budget and has been a dissaver.

The reasons for this have been sluggish revenue growth and rising recurrent expenditure.

The Government should aim to reverse this situation through improved revenue realisation and controlling expenditures so that it makes a net positive contribution to national savings.

It is important to note that the private sector takes a cue from the public sector hence efforts by the public sector towards improving the savings will be complemented by the private sector.

Tax incentives to encourage higher rates of private individual and institutional savings need to be explored.

In the 1980’s and early 90’s, building societies issued PUPs, which was a common way of saving and these attracted a lot of interest from the banking public as they offered a better return in the market.

It is encouraging that the budget statement encouraged the financial system to work towards restoration of these saving instruments. This can then be channelled towards long-term investments.

The Reserve Bank of Zimbabwe should maintain a sound Monetary Policy that guarantees growth in the short-to medium-term.

Economic growth is important because it is the channel through which incomes in the economy can grow.

In the present environment, the Monetary Policy should assist in moving the economy out of deflation as this scenario is not conducive for savings.

Restoration of the various instruments of the Monetary Policy remains critical at this juncture for the economy to go back on a sustainable growth path, which is a pre-requisite for increased national savings. Policies that enable more money to be saved or channelled through the banking system are the responsibility of both monetary authorities and financial sector stakeholders.

Monetary authorities have to ensure the stability of the banking sector in order to re-gain confidence of a wary public.

Ensuring financial stability requires the RBZ to exercise appropriate and timely oversight and enforce rules consistently and predictably and thus minimise bank failures.

It can all be summed up in that the best strategy for national savings mobilisation is dependent on sound, stable, and credible macro-economic policy rules which will let businesses and consumers plan rationally for the long run.

On the other hand the Government should set the precedence by avoiding budget overruns and running surplus on its fiscal accounts which equate to public savings.

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

Source : The Herald