Low domestic savings hamper development

Finance and Economic Development Minister Patrick Chinamasa and Switzerland Ambassador to Zimbabwe Mrs Ruth Huber (right) exchange signed documents of an agreement on international co-operation in Harare yesterday. The agreement will see Switzerland providing at least $10 million per year to fund various developmental projects in Zimbabwe in the next five years. — (Picture by Innocent Makawa)

Business Reporter—
ZIMBABWE’S domestic savings ratio is around -11 percent of the gross domestic product and the country is relying on “inadequate” foreign savings for infrastructure development, a senior Government official said yesterday. Officially opening the handover ceremony of residential stands to beneficiaries of the New Marimba Park Housing Project, developed by theIDBZ yesterday, Finance and Economic Development Minister Patrick Chinamasa

said there was need to mobilise domestic resources for sustainable economic recovery and growth. Ideally, developing countries must strive to achieve savings, which are above 25 percent of gross domestic product.

While research has shown that high long term savings is one of the major drivers of economic growth in the developing nations, Zimbabwe’s saving ratio has been negative since 2011, making it one of the countries with worst savings rates in the region.

Zimbabwe’s savings ratio to the GDP has been negative at -3,5 percent in 2011, -2 percent in 2012, -4,7 percent in 2013, -4,2 percent in 2014 and -1,5 percent in 2015.

This means the economic agents are spending beyond the gross national income. In the Southern African Development Community region, the average savings ratio to GDP is 10 percent.

South Africa, Malawi, Mozambique ratios are at 15 percent while Tanzania, Zambia, Botswana are at 20 percent. Minister Chinamasa said Zimbabwe’s financial markets could not meaningfully develop when long term savings are low.

“We can’t fully develop our financial markets when savings levels are low,” said Minister Chinamasa. “There are no meaningful long term savings to talk about in Zimbabwe. Our domestic savings are about -11 percent of the gross domestic product.

“The international best practice is that we should be around 25 percent of the GDP and there are countries with over 40 percent and above. “Domestic resources should act as magnet of foreign resources instead of the other way round. We need to mobilise vast domestic resources.”

Analysts say the country’s low savings is mainly due to low incomes, which were leaving many people with little to save. High levels of formal unemployment and retrenchments resulting from company closures have also affected long term savings. The tenure of savings are too short and can’t meet credit demand for productive sectors.

Economic analysts says the short term deposits accounts for the bulk of total deposit and most of them are transitory in nature. Such deposits were adequate to support productive sectors of the economy and infrastructure development.