Free Access | 2024-04-12

Nature and Determinants ofDomestic Savings in Uganda

Authors/Editors: Dr. Marios Obwona ,  John Ddumba Ssentamu

Abstract:

Adequate saving is an essential precondition for sustained economic growth. A higher rate of savings means less consumption now in return for increased wealth and future consumption. The increased Wealth will reflect reduced foreign liabilities; and where concerns about foreign indebtedness are constraining economic growth, increased domestic savings will mean more domestic investment. An open economy like that of Uganda can attract foreign savings to help finance growth, but risk and other considerations limit the extent to which domestic investment can proceed independently of domestic savings. The close correlation between levels of investmentand rates ofdomestic saving across countries provides evidence of imperfect substitutability between domestic and foreign savings (see, for example, Dooley et al., 1987; Hartley, 1986). Although there is lack ofaccurate accurate data on private savings, the private saving ratio in the lasttwo years have improved. This is most likely due to the transfer of private capital into the economy and the increased receipts from coffee. The reduction of inflation rates and appropriate financial policies have greatly improved the savings climate, although the still weak financial sector limits the extent to which savings can be mobilized by the financial sector. This development has been assisted by improvement in public sector savings. In 1991/92, public sector saving/GDP ratio was minus 5.3 %, improving to minus 0.8%in 1993/94 to plus O.7% of GDP for 1994/95 (Background to the Budget 1995/96, Ministry ofFinance and Economic Planning). The positive savings in 1994/95 reflect some of the benefits of the reforms in the fiscal area and the prudent management of the budget.