Poor economy affects savings—economists


    Poor economic performance is the main contributing factor to the country’s low savings, economic experts have said.

    They argue that this affects the country’s gross domestic product (GDP)—the broadest measure of a country’s economic activity.

    Latest figures from the World Bank show that the country’s gross domestic savings, which consists savings of households, private and public sector, is at 9.5 percent, which is way below the regional neighbours and worldwide recommended average of 12 percent.

    For instance, Zambia’s gross domestic savings is at 30.3 percent, Tanzania at 22.9 percent, Mozambique at 10.3 percent and South Africa at 16.8 percent.

    The last time the country registered a higher national savings rate was in 1998 at 10.1 percent, according to the National Statistical Office (NSO). In the same year, the real GDP was recorded

    at K54.7 billion. National savings are a measure of a country’s wealth and how much its citizens, households and companies are mobilising savings. It is mostly a good indicator of the country’s economic performance because saving ideally equals to investment.

    In an interview, University of Malawi’s Chancellor College economics professor Ben Kaluwa said at 9.5 percent, Malawi’s national savings rate are below the recommended average of 12 percent, which negatively affects economic development.

    He said: “This is related to poverty prevalence which is high in Malawi. Poor people cannot save because they need to spend quite a bit of their income on necessities. A rule of thumb established long time ago is that nations need to save about 12 percent of their income if we need to get out of poverty.

    “If your income is low, there is no way anybody can expect you to save because you need to save on necessities. This means you can’t invest in long-term infrastructure, which is important for economic development. This is not possible with a low savings rate,” he said.

    Catholic University head of economics department Gilbert Kachamba said while it is a habit of most Malawians not to save, low income has also been the main factor.

    “Again, low income is another factor, as a lot of people have incomes that are low such that looking at the cost of living, it will be difficult for them to save,” he said.

    On the part of investors, Kachamba said most are preferring physical assets as they are more secure than financial assets, adding that this is contributing to the low gross domestic savings.

    He said in the long run, this could affect the current account negatively as well as contribute to low investments and GDP.

    Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said the low savings rate has been because the economy has not been performing well.

    “High inflation rates, low GDP growth and growing government debt affects monetary growth.

    “These factors affect domestic savings. That is the reason why the authorities are working very hard to stabilise the macroeconomic framework, reduce inflation and stimulate economic growth,” he said. n

    Original Article


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