Saving grace

Sunday was World Thrift Day and the message behind its importance is extremely relevant to a country focused on development as Sri Lanka.Around the world, developing countries are facing different dimensions of the same problem. How to fund the growing need for investment?

Many are the plans and strategies that have been composed, especially in Sri Lanka to find a way to fund the much needed infrastructure; but this comes at a cost. Loans from foreign banks, organisations and donor countries often come with strangling strings attached and pose a problem of debt management to the government. Especially in a country like Sri Lanka where the ratio of debt is around 85% of GDP, this can easily spin into a debt trap vortex and result in a serious challenge to macroeconomic management.    

Another option is Foreign Direct Investment (FDI) but as reality has shown in Sri Lanka this avenue takes time. The business community wary of investing and often wait for concrete growth indication on the ground before they commit large scale projects. This is one reason why Sri Lanka’s FDI numbers have remained at 2009 levels. Moreover, given that the global financial crisis is still in a hangover stage in some of the more developed countries, globally the growth momentum has shifted to Asia and inter-regional investment has become more important. That means waiting for billions of dollars or Euros to flow in is impractical.   

These are all obvious points but it still does not answer the critical question. What do we do about it? The answer is simple; save. This is what Thrift Day is all about, encouraging saving to finance investment for economic growth. A simple formula that gets complicated in the implementation. Sri Lanka unlike its development counterparts has a comparatively low savings percentage — around 17% against the 30% seen in most other nations including neighbour India and economic powerhouse China.

People need to understand that the saving is much more than for just personal security, though that is a major concern. It is about protecting their future and by extension the country. With more savings there can be more development. This in turn will put more money in the pockets of the masses and feed into the cycle of creating more savings. The Chinese for example are famous for being avid savers and their solid confidence in the banking system is actively supported by the State that ensures the institutions are rock solid. This was one reason why they managed to survive the global financial crisis intact.

There are several lessons that Sri Lanka can learn from this. We must understand that saving is not just an activity for the middle aged. Young people, especially in their early 20s often work and must learn to make sound investment decisions from a young age. They may want to play the stock market or prefer more stable forms of saving but the point is that they must do so in a way that ties with the larger economic structure of the country. Every penny saved is not just for themselves, but for the future of Sri Lanka — it is for the building of a bridge, giving drinking water to a rural village, constructing a harbour or giving a person the chance to start his own business. The cycle continuously expands and gives birth to more opportunity and equitable growth if properly managed.

People must believe that just like we get a newborn a birth certificate to declare his identity to the world we must also open a bank account for them to have a financial individuality. They must have the chance to grow though new opportunities and ultimately that is what a well-regulated economy pumped with savings will do. So go ahead and celebrate the Thrift Day for the rest of the year and make a difference to everyone.