ECONOMIES GROW when citizens defer present consumption and generate investment capital through savings. Figures from the Statistical Institute on net national savings are indicating a decline over the last few years. At current dollar value, net national savings for 2001 stand at the same paltry level as 1997, about $42 billion, with periods of decline in between.
One of the biggest deterrents to savings is inflation. When the spending power of money is decreasing, which is what inflation is, people have an incentive to spend today rather than tomorrow. The Government boasts of taming inflation and holding it down to single digits. Clearly there must be other factors at work pushing immediate spending and negatively influencing savings.
Other STATIN data are showing significant decrease in loans to the productive sector and massive increases in consumer loans and loans to Government. Bearing in mind the progressive decline in the value of the dollar, loans to the agricultural sector, for example, have increased by a mere 32 per cent between 1992 and 2001, while Government borrowing has jumped by 1,165 per cent and consumer borrowing by just under 550 per cent!
The IMF has pointed out in its World Economic Outlook, 2000, that countries with high GDP growth share the common characteristic of high savings rates which, on average, are nearly double those of low-growth countries. These countries have higher investment rates, more efficient investment and a higher proportion of investment financed by domestic savings.
Apparently countries do not increase prosperity by excessive reliance on external borrowings. Even if such financing is available, the same internal factors which obstruct domestic savings are obstructing investment. Without Government and consumer uptakes, deposit taking institutions would likely burst from excessive liquidity. Production is just not on, and the availability of money is clearly not the biggest problem,
Finance Minister, Dr. Omar Davies, has been stressing the need to save more. The Government in the fourth term, he says, will have to increase incentives to save, invest and allocate capital and labour in the most efficient manner. One would have thought that these would be among the highest priorities of a first term.
In many ways, the entire Jamaican economy is behaving with the rationality of the ghetto economy, with which the Finance Minister is intimately familiar in South St. Andrew. The uncertainties and perils of today and tomorrow drive consumption now and kill savings and investments, as well as push capital and skills out of the economy. Incentives will have to cover very much more than economic parameters like interest rates and tax breaks. Controlling inflation did not do it. Security of person and property and predictable rules are high on the list of new incentives.
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