The number of Ugandans that save has dropped from 3.07 million to 2.77 million, due to among others, impact of Covid-19. PHOTO | FILE
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Only 16.3 percent of Ugandans save - BoU
What you need to know:
- The low savings culture has also exposed the banking sector to expensive credit that comes with a number of challenges among them high interest rates and high averseness towards some sectors such as agriculture that are classified as risky.
- During World Savings Day, Ms Goretti Masadde, the Uganda Institute of Banking and Financial Services chief executive officer, said they had conducted dipstick surveys and financial institutions, which reveal a low saving among Ugandans, and particularly the bankers.
Only 16.3 percent of working Ugandans save, according to Bank of Uganda.
According to the Bank of Uganda annual report for the period ended June 2021, the number of Ugandans who save declined from 18.1 per cent in 2019 to 16.3 percent.
The reduction was mainly driven by a decline in economic performance, which affected key sectors of the economy, thus leading to a weak external demand position reflected by a negative contribution from net exports and negative growth in private investments.
Uganda, according to the National Household Survey, has a working population of about 17 million people between the age of 14 and 64 years.
This therefore means that during the period ended June 2021, the number of savers dropped from 3.07 million to 2.77 million, due to among others impact of Covid-19, which has had an adverse effect on household incomes.
Government, through Bank of Uganda, has in the last 10 years engaged in a number of saving campaigns as a way of encouraging an increase in investment capital.
However, saving remains low resulting into low investment and high cost of credit.
While officiating at the World Savings Day in Kampala last week, Finance Minister Matia Kasaija, said income earners must take the forefront in promoting Uganda’s savings culture, saving at least 10 percent of their annual income.
This, he said, would not only improve investment but also create an avenue through which government can raise sufficient funds for public expenditure without borrowing.
“The culture to save among ourselves is not well entrenched. This is the reason why we have a low level of savings in the country. If every Ugandan was able to save 10 percent of their income, government would mobilise enough funds locally without resorting to borrowing,” he said.
Savings are mostly beneficial to the banking system in terms of on-warding lending and reducing the cost of credit, which largely feeds into interest rates.
Savings are also important in investment in long term projects such as housing and business as well as covering contingencies such as medical emergencies.
A rise in aggregate savings would also yield larger investments associated with higher gross domestic product growth thus energising economic performance in the longer term.
The World Savings Day seeks to create awareness of the importance of savings both for modern economies and individuals. Ugandans, according to the World Bank, largely save through mandatory saving schemes such as pension systems, among which include National Social Security Fund, Public Service Pension Scheme and occupational voluntary savings, which cover less than 5 per cent of the formal workforce in the country.
According to a Finscope survey, 90 percent of Ugandans who voluntarily save, save in a secret place, while 27 percent save in informal groups. 22 percent save with formal financial institutions while 4 percent save with Saccos and microfinance institutions.
Mandatory saving schemes , the Word Bank says, are largely limited to urban workers and do not extend to the majority of citizens, including those employed in agricultural, self-employment and those employed in the informal sector.
