ZIMBABWE’S national savings now stand at 10% of gross domestic product (GDP) instead of the ideal 25%, as the country’s galloping inflation continues to wreak havoc on the economy.
The high inflation, which increased by 51,2 percentage points to 411% a fortnight ago, has not only depleted the nation’s savings but has also killed a spirit of saving among ordinary Zimbabweans.
The Minister of Finance, Herbert Murerwa, who has been trying to promote a culture of saving, has admitted that national savings of 10% of GDP are way too low.
In his 2005 national budget statement, Murerwa said high domestic savings were a prerequisite for investment and sustained economic growth.
“Regrettably, overall savings in Zimbabwe have remained low and are estimated to be about -1,7% of GDP in 2004,” he said.
He added that this has denied the economy resources for productive investment at a time when both the public and private sectors require higher levels of investment.
“Consequently, investment has remained low at levels of about 5% of GDP,” he said.
Zimbabwe has not received significant external investment over the past five years due to poor governance and lack of the rule of law. Investors have shied away from Zimbabwe because of its unstable political and economic conditions. Instead, major investors in the country like BHP and Lonrho have closed down operations and several others have relocated to neighbouring countries that offer better prospects.
Before investing in a country, investors consider the level of savings to determine whether the target market can afford to buy their product.
Currently investors are shying away from Zimbabwe because a majority of its population do not have enough disposable income.
Zimbabwe’s GDP per capita is about US$300. Economic analyst John Robertson said that savings are declining because it no longer makes sense to save money in a market where the inflation rate is triple digit. “Savers are getting negative return on their money because of galloping inflation which government has failed to tame,” Robertson said.
Workers can no longer afford to save from paltry incomes which they live on.
While inflation is hovering above 400%, banks like the POSB and the Central African Building Society (CABS) offer interest on savings accounts of only 11% and 7% respectively.
Robertson said the decline in savings would make it increasingly difficult for government to fund budget deficits and will have a negative impact on both domestic investment and foreign direct investment.
The country’s working population can no longer afford the benchmark of US$1 a day – equivalent to about $60 000 on the official market and approximately $100 000 on the parallel market.
According to the Consumer Council of Zimbabwe, a basket of goods for a family of six last month cost $11,9 million from $9,6 million in September.A majority of workers in Zimbabwe earn far less than that a month.Reserve Bank of Zimbabwe governor Gideon Gono has been forced to revise his inflation forecasts for year-end from between 20-35% earlier this year to between 35-50% and later to 50-80% before recently climbing down again to settle for 280-300%.