Capital Markets

National savings marginally rise as economy recovers

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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) projects the savings rate will continue to gradually improve over the next six years to hit 13.2 percent in 2026.
  • IMF sees government savings improving from the current negative 2.9 percent to a positive six percent by 2026.

Kenya’s gross national savings are projected to rise marginally to 8.2 percent of Gross Domestic Product (GDP) as of end of 2021 from the low of 7.9 percent the previous year, when job losses and high cost of living caused people to eat into savings.

The International Monetary Fund (IMF) projects the savings rate will continue to gradually improve over the next six years to hit 13.2 percent in 2026.

The increase will be supported by the gradual recovery of the economy—and therefore jobs—and by higher savings by the government under the IMF programme that aims to cut fiscal spending in a push for consolidation of state finances.

IMF sees government savings improving from the current negative 2.9 percent to a positive six percent by 2026.

Meanwhile, savings by private citizens are expected to rise from 10.8 percent in 2020 to 11.5 percent in 2021 before falling to 7.1 percent 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 set aside money for the future.

Latest Kenya National Bureau of Statistics (KNBS) data shows that only 79,909 or 2.9 percent of the 2.7 million formal workers earn more than Sh100,000, which was a decline from 84,870 at the end of 2019 as a result of Covid-19 impact on jobs.

The low savings rate has also dampened savings products with banks deposit rate falling to 2.55 percent in May, the lowest since August 2016 when it stood at 1.68 percent.

The low returns on savings also act as a catalyst for people to save less and cash out on their savings and opt to hold their cash in assets with better returns.

A lack of alternatives to the bank deposit culture also hurts the ability to save, where people are not aware of better yielding options such as investment funds and fixed income securities.

The government in 2017 introduced the M-Akiba mobile bond as an alternative savings option to encourage more Kenyans to set aside money for a rainy day.

The retail bond paid a coupon of 10 percent with a minimum subscription amount of Sh3,000—normal bonds start at Sh50,000—and was tax-free status in line with other infrastructure bonds.

The government raised Sh1 billion from the offers, which attracted 582,572 investors.

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