National savings increase slightly with economic recovery

Capital markets

National savings increase slightly with economic recovery


A trader at Muthurwa market counting money after the day’s sale on Wednesday October 28, 2020. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The International Monetary Fund (IMF) predicts that the savings rate will continue to improve gradually over the next six years, reaching 13.2% in 2026.
  • The IMF predicts that government savings will drop from the currently negative 2.9% to 6% by 2026.

Kenya’s gross national savings are forecast to increase slightly to 8.2% of gross domestic product (GDP) by the end of 2021, from 7.9% the previous year, when job losses and the high cost of life has caused people to eat away at their savings.

The International Monetary Fund (IMF) predicts that the savings rate will continue to improve gradually over the next six years, reaching 13.2% in 2026.

The increase will be supported by the gradual recovery of the economy – and therefore of employment – and by an increase in government savings under the IMF program which aims to reduce budgetary expenditure in an effort to reorganization of state finances.

The IMF predicts that government savings will drop from the currently negative 2.9% to 6% by 2026.

At the same time, personal savings are expected to drop from 10.8% in 2020 to 11.5% in 2021 before falling back to 7.1% by 2026.

The low savings rate is seen as a reflection of lower disposable incomes, higher inflationary pressures and taxation, making it difficult for Kenyans to put money aside for the future.

The latest data from the Kenya National Bureau of Statistics (KNBS) shows that only 79,909 or 2.9% of the 2.7 million formal workers earn more than Sh 100,000, which is a drop from 84,870 at the end of 2019. due to the impact of Covid-19 on works.

The low savings rate also held back savings products, with banks’ deposit rate falling to 2.55% in May, the lowest since August 2016, when it stood at 1.68%.

Low returns on savings also act as a catalyst for people to save less and cash out their savings and choose to keep their money in assets with higher returns.

The lack of alternatives to the culture of bank deposits also hurts savings capacity, where people are unaware of higher yielding options such as investment funds and fixed income.

In 2017, the government introduced the M-Akiba mobile bond as an alternative savings option to encourage more Kenyans to save money for rainy days.

The retail bond paid a 10% coupon with a minimum subscription amount of 3,000 shillings (normal bonds start at 50,000 shillings) and was tax free, in line with other infrastructure bonds.

The government raised 1 billion shillings through the offers, which attracted 582,572 investors.

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