Home | Feature | MAKE HOUSEHOLDS A PRIORITY

MAKE HOUSEHOLDS A PRIORITY

11/04/2018 00:49:00 By Thabiso Dlamini

Font size:

SAVINGS are a key component of capital formation in any economy. Likewise, capital formation is necessary to stimulate long-term economic growth.

Governments that adopt well-crafted saving policies stand to win in the long-run. This is because savings contribute to wealth creating and hence positions a country’s economy for prosperity through its citizens’ personal solvency and financial independence, as well as through the investments that the citizens’ savings fund.

If more households are able to save and invest their money, their investments can actually create more jobs or ensure that more people find jobs in the economy. In the long-run more people benefit as they gain financial freedom while government benefits as the tax base and size of the economy increases.

For instance, national savings funds like the Swaziland National Provident Fund (SNPF) and the Public Service Pension Fund (PSPF) would have more people contributing to the funds thus generating more wealth to invest in the economy of Swaziland. Imagine just how many more Dlanubeka, Sibekelo, The New Mall Building, Hilton and Happy Valley Hotels, and MTNs and Swazi Mobile companies could be funded by these funds if more savings could be made by households in Swaziland? Savings are a store of wealth. A traditional bank account is probably familiar to most people but there are many types of savings such as stocks, bonds, retained business profits, and any income that is invested rather than consumed.

It is not a coincidence that these private and public sector savings funds have managed to play a central role in the various investments that we have all witnessed in Swaziland: it has simply been through household savings! Just to emphasise the importance of household savings in creating a viable and vibrant economy, in the USA, the retirement saving system alone, mainly based on workplace payroll deductions is responsible for creating the world’s deepest and most liquid capital markets. Swaziland certainly needs more active and diverse capital markets and making sure that households have more disposable income to save would be the starting point.

Raising Swaziland’s household savings should be a policy imperative because of the benefits to both Swazis and the Swazi economy. If government could focus on raising household savings, it could enhance Swaziland’s ability to finance its future, stimulate higher growth rates, and contribute billions of Emalangeni in added Swazi output which would translate to higher living standards for the wider population.

It seems government is increasingly forgetting that everything it does, all the money it collects and spends is inherently about households. Gouging more from households in the form of increased taxes and user-fees for largely inefficient government services does nothing for creating wealth to finance the country’s development aspirations.

Instead government’s financial prudence and action that fosters household savings actually contributes to building long-term prosperity without having a negative impact on current households’ welfare. When government becomes so fixated on squeezing households to fund its programmes and capital projects it takes away the ability for low and middle income households to accumulate assets that can allow them to survive financial crises and sustain a comfortable living into retirement.

In fact, when households are unable to accumulate wealth, they face difficulties in investing in a home, car, education, and even extreme difficulty in starting a business that could improve their economic condition. A 2016 report from the Central Bank of Swaziland indicates that despite holding a high portion of bank credit, households also hold a significant and increasing level of credit from banks and non-bank financial institutions. It reveals that non-banks’ credit to households has grown from 45.8 per cent in 2014 to 51 per cent in 2016 accelerating household indebtedness from 128 per cent in 2015 to 156 per cent in 2016.
Fast-forward to December 2017 and January 2018, housing finance fell by 8.1 per cent to close at E2.9 billion while motor vehicle loans declined by a lesser rate of 2.9 per cent to reach E1.3 billion.

In contrast, unsecured loans reflected a month-on-month growth of 8.6 per cent to settle at E1.8 billion. In short, these figures indicate that it is becoming a real struggle to invest in long-term assets like houses while more households are being pushed to take unsecured loans to finance their month-to-month financial shortfalls.

With the many direct and indirect taxes to hit households starting in 2018, more households will be pushed into indebtedness. Government can in turn forget about any real economy growth and prosperity going forward. In the absence of household savings that can improve ownership of a home, business, etc, the larger Swazi society may end up paying more in crime related costs and even higher taxes to sustain government programmes due to a shrinking economy.

The lesson here is this: increasing taxes and government user fees to raise more money for government’s wallet is just a coping out strategy that will create more economic woes than economic prosperity. If government could just remember that its most important stakeholder is the household, and make sure that households are taken care of by having more money in their pockets with more room to spend and save, then perhaps our economy could actually turn for the better.