Economists have said the 2.6 percent rise in the average savings rate will help spur the country’s savings rate, which stands at a paltry 2.9 percent.
Reserve Bank of Malawi (RBM) statistics indicate that the country’s average savings rate has soared to 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.
At 2.9 percent, Malawi’s national savings rate is below the recommended average of 12 percent, which negatively affects economic development.
Economists argue that a higher savings rate a country registers naturally results in the rapid growth of gross domestic product (GDP.)
When household savings are deposited in the commercial banks, they contribute to private savings and become available in the national accounts.
Despite interest rate liberalisation, savings rates have continued to tumble as follows; five percent of GDP in 1990, -3 percent in 1993, 10 percent in 1994, -4 percent in 1996 and -2 percent in 1999.
In an interview yesterday, Catholic University dean of social sciences Gilbert Kachamba said while the reduction in the policy rate is leading to more savings, a rapid rise in savings may lead to a fall in consumer spending which can lead to a fall in aggregate demand; hence, a recession.
“This can be used as a sign of economic growth. With this happening, we expect to see the investment levels rising too and in return, unemployment rates must fall,” he said.
Economics Association of Malawi (Ecama) executive director Maleka Thula said while there is a deliberate move by the banks to promote deposits, the outturn will lead to an improved savings culture among Malawians.
“This outturn is a good stance taken by banks as it is going to promote a culture of savings as at 7.8 percent inflation rate, savers will realise a positive real interest rate with deposit rate at 8.4 percent.
“But the expectation was that the decline in commercial bank lending rates arising from a downward revision in policy rate should have been followed by a drop in savings rate. However, banks must have increased their savings or deposit rates to mobilise more deposits,” he said.
But Alliance Capital Limited said although individual savings are not high enough for investment, it is important that the economy gets reorganised to woo resources from all avenues to improve the country’s rate of savings.
In an earlier interview, Reserve Bank of Malawi (RBM) spokesperson Mbane Ngwira said that low rate of savings rate has been a result of the economy not performing well.
Economists say savings rate in the country is influenced by factors such as income, liabilities, dependence ratio, location and other demographic factors.