SAVINGS A MACRO PERPESPETCIVE_savings by liuqingyan

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									SAVINGS: A MACRO PERSPECTIVE
          Determinants of savings
 Income
 Social Attitudes
 Financial Institutions for safe deposit keeping
    Banks
    Insurance and Pension funds
    Building Societies
    Other Institutions
 Rate of return versus cost
 Inflation
 Large consumption and investment expenditure
  needs

                                                    2
             South Africa’s Experience
   Rising marginal tax rates
   High rates of inflation over a long time
   Government dissavings
   Low external savings – sanctions
   Periods of negative interest rates
   Skewed income distributions
   Rising marginal propensity to consumer
   Financial liberalistaion
   Credit financed consumer spending
   Low income levels/unemployment
   Culture – community ties as substitute for formal savings
                                                            3
           Long Term Trends

Declining Savings Ratio
Rising Investment Ratio
Increasing dependence on foreign savings
Deteriorating sovereign balance sheet
Not sustainable in the long run
Gross Domestic Savings (% of GDP)




                                    5
Saving vs. Investment (% of GDP)




                                   6
          Who are the savers?



 Corporates

 Households

 Government

                                7
Savings rates (% of GDP)




                           8
How has government been doing?




                                 9
Government dissaving had been eliminated




                                       10
  Reasons for poor government savings
 Government savings = Current income minus
  current expenditure
 Current expenditure too high
     Military expenditure
     Salaries and wages
     Social grants
 Capital expenditure too low
     Lack of long-term vision
     Priority of consolidation
     Capacity constraints

                                          11
  What to do about government savings

 Contain current expenditure: wage bill,
 transfer payments

 Increase capital expenditure: address
 capacity

 Continue with budget surpluses
                                            12
How have households been doing?




                                  13
Household savings rate (% of GDP)




                                    14
Household Saving (% of disposable income)




                                        15
   Reasons for poor household savings

 Savings = f (income, propensity to save)
 Low disposable income growth
   Low  economic/ employment growth
   Rising tax burden




                                         16
Growth in real personal disposable income




                                            17
Personal income tax (% of disposable
              income)




                                       18
   Reasons for poor household savings
 Savings= f (income, propensity to save)
 Low disposable income growth
   – Rising tax burden
   – Low economic/ employment growth

 Low propensity to save
   – Lack of confidence in the future
   – High inflation: “buy before prices rise”
   – Financial deregulation plus asset price
    inflation
                                                19
Household debt (% of disposable income)




                                          20
   What to do about household savings?

 Faster growth in disposable income
 Reduce income taxes, increase consumption
  taxes

 Create a savings culture
     Discipline
     Sacrifice
     Financial independence
     Taking a long-term view
                                              21
How have corporates been doing?




                                  22
Corporate saving (% of GDP)




                              23
              Reasons for poor corporate savings
 Corporates save to reinvest: balance sheet
  optimisation
 Require profitable investment opportunities
     Relatively high cost of capital
     Labour market inflexibility
     Relatively high corporate taxes
   Low economic growth
   High existing market shares
   Lack of export opportunities
   Lack of entrepreneurial vision?
   Lack of confidence in the future?
   Short-termism: share buy-backs, special dividends?

                                                         24
Corporate tax (% of GDP) 2005
     1    Estonia        1,4


     2    Germany        1,8
     11   Brazil         2,3
     22   China          2,9
     25   India          3,2
     28   Ireland        3,4
     37   South Korea    4,1
     43   Australia      5,3
     44   Malaysia       5,3
     50   South Africa   6,4
                                25
     What to do about corporate savings?
 Create profitable business opportunities

 Reduce cost of doing business

 Create positive business environment, e.g. regulation

 Encourage competition

 Reduce corporate taxes

 Provide well designed incentives                        26
Saving,Investment and Growth in South
               Africa

    Percentage         Selected South African ratios
    40                                                                                              8
                                                                                                    7
    35                                                                                              6
                                                                                                    5
    30                                                                                              4
                                                                                                    3
    25                                                                                              2
                                                                                                    1
    20                                                                                              0
    15                                                                                              -1
                                                                                                    -2
    10                                                                                              -3
                                     1988

                                            1990

                                                   1992

                                                          1994

                                                                 1996

                                                                        1998
                              1986




                                                                               2000



                                                                                             2004
                1982
         1980



                       1984




                                                                                      2002
                GFCF to GDP                   Gross saving to GDP                     GDP growth
                                                                                               27
                   SA and the rest of the world

Percentage         Gross national savings, in percent of GDP
40
35
30
25
20
15
10


                                                  1992
                          1986

                                    1988

                                           1990




                                                         1994

                                                                1996
            1982

                   1984




                                                                                            2004
                                                                       1998
     1980




                                                                              2000

                                                                                     2002
                                 South Africa
                                 World
                                 Advanced economies
                                 Other emerging market and developing countries


                                                                                                   28
SA and the rest of the world (cont.)
Percentage         Gross national savings, in percent of GDP
45
40
35
30
25
20
15
10
                                 1988
                          1986



                                        1990

                                                1992

                                                       1994

                                                              1996
            1982

                   1984




                                                                     1998




                                                                                            2004
     1980




                                                                            2000

                                                                                     2002
             South Africa                      Euro region                         Asian NICs
             Developing Asia                   Africa

                                                                                                   29
                   Are we facing a crisis?

• Do savings alone drive growth?
• Is this the only relationship we should worry about?
      – Household vulnerability
• Can we finance the growing current account deficit?

But

• We want higher investment.
• What are the funding options?



                                                         30
                How have we responded?
• Reduced government dissaving
    – Emphasis placed on capital expenditure
• Income tax relief for saving
    – Ambiguous
• Stable macroeconomic framework
    – Higher growth levels
    – Low inflation
• Growth enhancing micro reforms
• BEE
    – Deal with high dependency ratios and underutilisation of resources
• Comprehensive Retirement fund review
• Special initiatives like:
     Retail Bond
     Third tier and dedicated banks legislation
     Post Bank restructuring?


                                                                           31
                                               Government Finances
            %of GDP          General government saving
4

2

0

-2

-4

-6

-8
     1980

            1982

                   1984

                          1986

                                 1988

                                        1990

                                               1992

                                                      1994

                                                             1996

                                                                    1998

                                                                           2000

                                                                                     2002

                                                                                              2004
                                                                                  %of GDP            General government current expenditure
                                                                           34

                                                                           32

                                                                           30

                                                                           28

                                                                           26

                                                                           24

                                                                           22

                                                                           20
                                                                                                                                                                                  32
                                                                                   1980

                                                                                            1982

                                                                                                     1984

                                                                                                            1986

                                                                                                                   1988

                                                                                                                          1990

                                                                                                                                 1992

                                                                                                                                        1994

                                                                                                                                               1996

                                                                                                                                                      1998

                                                                                                                                                             2000

                                                                                                                                                                    2002

                                                                                                                                                                           2004
                         Government Investment

    % of GDP               General government investment
8
7
6
5
4
3
2
1
0
                                              1992
                                1988

                                       1990



                                                     1994

                                                            1996

                                                                   1998




                                                                                        2004
                         1986




                                                                          2000

                                                                                 2002
    1980

           1982

                  1984




                                                                                               33
                Importance of partnership
 Key objectives
   – Access to basic financial services
   – Developmental financial institutions
      • Cooperative banks
      • Dedicated banks
   – Deal with discrimination
   – Promote savings culture
   – Financial Sector Charter




                                            34
              Importance of partnership

 Financial sector charter commitments
   – Reduction in costs to promote access
   – Promoting a transformed, vibrant, and globally competitive
     financial sector
   – Improving control
   – Human resource development
   – Procurement
   – Social investment


                                                                  35
                         Major challenges

 Dichotomous nature of financial sector
   –   Race
   –   Geography
   –   Income levels
   –   Institutionalised (Redlining)
   –   Growth in incomes
   –   Economic performance
   –   Employment
 Change in institutional set up
 Leadership of the private sector
   – Not legislative
   – Will have to be technologically driven
   – Reduction of dependency ratios through empowerment
 Education

                                                          36
              Premise for Government policy

 Savings increase with rising income and profitability
  levels (consumption function)
   – Increase in incomes dependent on growth

 High productivity and competitiveness (+ve)
   – Insufficient reinvestments

 Low participation rates (-ve)
   – Concerned about high unemployment


                                                          37
    Implications of poor domestic savings
 Higher cost of capital
 Low investment
 Increased fiscal costs and reduction in social
  and economic delivery
 Poor growth
 Increased poverty
 Household vulnerability
                                                   38
      Is it Government’s responsibility?
   Fundamentally - YES!
    – Influence cannot be direct

   However, private sector has a role to
    play, it cannot be an observer
   In particular household sector
    – managing consumption patterns

                                            39
        Role of Government in summary
 Reducing Government dissavings
 Improving the quality of the deficit
   – Increasing capital expenditure
   – Better service delivery
   – Potential to undertake countercyclical fiscal policies
 Reducing costs of capital
 Reducing taxes to increase disposable income and
  reinvestable funds
 Enhancing growth
   – Higher investment
   – Increased competitiveness
   – Higher employment (reduce dependency ratio)
                                                              40
              THANK YOU

“To save or to perish: that is the choice!”




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      CONTACT DETAILS

        Mr. Ahmed Jooma
Chief Director: Financial Services
National Treasury of South Africa
         (L)012 315 5706
        (M)082 938 4669
    a.jooma@treasury.gov.za



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