By N.L.R. Johnson,
Freelance Writer
JAMAICA HAS the lowest private savings rate in the English speaking Caribbean and the highest consumption rate.
Data compiled by Wednesday Business obtained from the Barbados Central Bank, Trinidad and Tobago, Guyana, Bahamas, and from the Bank of Jamaica and the Statistical Institute of Jamaica, show that private savings in Jamaica lag far behind its other Caribbean counterparts.
Private savings in the commercial banks in Jamaica increased by 57.3 per cent or in monetary terms, from $94.1 billion in 1996 to $148 billion at the end of 2000.
Over the same period it increased from TT$89 billion to TT$198 billion or an increase of 122.5 per cent. In Barbados private savings increased over the same period from Bd$72.8 billion to Bd$178.8 billion or an increase of 145.6 per cent. In Guyana, savings grew by 125 per cent from G$40 billion to G$90 billion. While in the Bahamas, savings increased from Bah$38.9 billion to Bah$92 billion or by 136.5 per cent.
In other Caribbean islands with available data, their savings over the period in review, grew between 66 and 87 per cent.
Savings in merchant banks in Jamaica have shown a decline, decreasing from $6.8 billion in 1996 to $3.7 billion last year, or by 83.8 per cent. Whereas in Trinidad & Tobago over the same period private savings grew by 97 per cent; in Barbados by 88 percent; in Guyana by 68.7 per cent, and in The Bahamas by 58.5 per cent, and in other Caribbean islands at an average of 45.6 per cent.
In the local building society, savings grew by 9 per cent between 1996 and last year, or from $28.8 billion to $34.3 billion. Over the same period, savings in the building societies in Trinidad & Tobago, Barbados, Guyana grew by 165 per cent, 82.5 percent, and 63.3 per cent, respectively.
Savings in the local credit union movement grew from $4.7 billion in 1996 to $11.3 billion last year, or by 140.4 per cent. When compared with credit unions in the other Caribbean islands, Jamaica still fell behind, but not as bad as in the other areas. Savings in the credit union movement in Trinidad & Tobago, Barbados, and Guyana, over the same period, show growth of 135 per cent, 167 per cent, and 89 per cent, respectively.
Effects on private savings
Perhaps the major impact of government fiscal policy upon capacity output is through its effect on domestic saving and on capital formation. Since labour is more productive if it is combined with larger capital stock, capital formation raises productivity. The larger is the share of income which is saved and invested, the higher will the future level of income be. By influencing this share, government's fiscal policy has an important impact upon economic growth, that is, the future level of per capita income. Based on the figures from the other Caribbean countries, they indicate clearly the negative impact that the fiscal policy of the Jamaican government has had on domestic savings, and on per capita income.
Savings are essential in any economy, and it should be the responsibility of government to encourage as much savings as possible. Savings mobilisation can lead to a more equitable distribution of income by giving the poor access to financial assets with returns that are higher, after considering transaction costs, than those available from savings held in the form of tangible assets such as livestock or jewellery or in cash. For this to occur, attractive interest rates and relatively low transaction costs are required, similar to what is being done in Trinidad & Tobago, Barbados and Guyana.
Savings mobilisation improves resource allocation by drawing funds away from less attractive investment opportunities and allocating them to more productive investments. In other Caribbean countries, lending rates are often artificially low under government credit programmes, as well as in the formal financial institutions. Although in some instances, artificially low rates deter lenders from mobilising savings, it also encourage savers to save more based on financial flows that are generated through collective mobilisation of savings.
Jamaica financial institutions need to offer more attractive rates on savings and base lending rates on intermediary costs to promote efficient investment. Intermediaries will become more perceptive allocators, because greater interaction with clients give them information on investment opportunities and credit risks.
Savings mobilisation contributes to good credit and to good financial intermediation. Jamaica has a far way to go in terms of increasing private savings.
