Bam speak on savings rate
The Bankers Association of Malawi (BAM) says Malawi is yet to each to the levels where it could have desired savings rate as the country is yet to embrace production.
In an interview with Business News on Tuesday, BAM president Paul Guta said it is a producing economy that sees progressive saving rates unlike nations like Malawi which does not produce.
He said: “The question is, what do we produce? As a country we don’t produce enough. We need to change our focus and become a producing economy and grow the economy and that is how we begin to improve the saving culture. As we stand, we are not yet there,” he said.
Over the years, despite the financial reforms (like interest rate liberalisation), savings rates have continued to dwindle inconsistently (at five percent of gross domestic product [GDP] in 1990, -3 percent in 1993, 10 percent in 1994, – 4 percent in 1996 and -2 percent of GDP in 1999).
At 2.9 percent, Malawi’s national savings rate is below the recommended average of 12 percent, which negatively affects economic development.
Conventional wisdom could tell that the higher the savings rate the country registers should naturally result in the rapid growth of GDP. When household savings are deposited in the commercial banks they contribute to private savings and become available in the national accounts.
As at March 2018, Reserve Bank of Malawi (RBM) statistics showed that the country’s average savings rate had gone up by an average of 8.4 percent from an average of 5.8 percent recorded in December 2017, before the policy rate was reduced from 18 percent to 16 percent.
Catholic University dean of social sciences Gilbert Kachamba observed that a rapid rise in savings may lead to a fall in consumer spending.
“On the other hand if these savings are for a short term then it will not be a good thing because a rapid rise in savings may lead to a fall in consumer spending which can lead to a fall in aggregate demand; hence, recession, we need to be extra careful,” he said.
Investment portfolio firm, Alliance Capital Limited said though individual savings are not considerable enough for investment, it is important that the economy gets reorganised to shore resources from all avenues to improve the country’s rate of savings at 2.9 percent as of 2017.
Savings in Malawi are influenced by factors like income, liabilities, dependence ratio, location and other demographic factors [age, marital status, extra with the crucial determinant of savings remaining the level of income that economic agents have.
