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Study Highlights Importance of Raising Savings Rate in Saudi Arabia to Support Economic Growth

The study issued by the KPMG consulting company highlighted the link between household savings’ rate and the state’s economic growth. (AFP)
The study issued by the KPMG consulting company highlighted the link between household savings’ rate and the state’s economic growth. (AFP)
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Study Highlights Importance of Raising Savings Rate in Saudi Arabia to Support Economic Growth

The study issued by the KPMG consulting company highlighted the link between household savings’ rate and the state’s economic growth. (AFP)
The study issued by the KPMG consulting company highlighted the link between household savings’ rate and the state’s economic growth. (AFP)

An economic study called for the need to raise the savings rate in Saudi Arabia to support economic growth, pointing to the importance of promoting a culture of savings through behavioral experiences and the establishment of a supervisory body to monitor progress in implementing savings performance.

The study issued by the KPMG consulting company on “Analysis of Household Saving in the Kingdom of Saudi Arabia” highlighted the link between household savings’ rate and the state’s economic growth, indicating the need to improve the existing rate to the global level of 10%, which is recognized as the lowest level to guarantee long-term financial stability.

The report showed how some countries, by adopting innovative solutions and policies, have instilled a savings mindset among their citizens.

“Household savings and investments are two vital cogs in the proper functioning of an economy. An acceptable rate of economic growth typically requires an adequate rate of investment and therefore, a satisfactory supply of savings,” said Abdullah Al Fozan, Chairman of KPMG in Saudi Arabia.

He continued: “Due to the key role household savings play in the economic development of a country, Saudi Arabia, as part of the Saudi Vision 2030 programs, launched the Financial Sector Development program (FSDP).”

He explained in the report that one of the key objectives of FSDP was to “develop a diversified financial sector to support the development of the national economy and stimulate savings.”

Al Fozan underlined that the unavailability of an adequate number of savings products in the market and a low level of financial literacy compared to other countries such as Australia and Germany, encompass some of the factors behind Saudi Arabia’s low household savings rate.

“The country’s household savings rate, as of 2018, is significantly low compared with that of other G20 countries including Germany (11 percent), the US (8 percent) and Mexico (10.8 percent),” he remarked.

According to the study, one of the major objectives of FSDP is to “promote and enable financial planning by driving the expansion of savings products available in the market, strengthening the savings ecosystem, and enhancing financial literacy.”

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ECB's Lagarde Renews Integration Call as Trade War Looms

FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
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ECB's Lagarde Renews Integration Call as Trade War Looms

FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo

European Central Bank President Christine Lagarde renewed her call for economic integration across Europe on Friday, arguing that intensifying global trade tensions and a growing technology gap with the United States create fresh urgency for action.
US President-elect Donald Trump has promised to impose tariffs on most if not all imports and said Europe would pay a heavy price for having run a large trade surplus with the US for decades.
"The geopolitical environment has also become less favorable, with growing threats to free trade from all corners of the world," Lagarde said in a speech, without directly referring to Trump.
"The urgency to integrate our capital markets has risen."
While Europe has made some progress, EU members tend to water down most proposals to protect vested national interests to the detriment of the bloc as a whole, Reuters quoted Lagarde as saying.
But this is taking hundreds of billions if not trillions of euros out of the economy as households are holding 11.5 trillion euros in cash and deposits, and much of this is not making its way to the firms that need the funding.
"If EU households were to align their deposit-to-financial assets ratio with that of US households, a stock of up to 8 trillion euros could be redirected into long-term, market-based investments – or a flow of around 350 billion euros annually," Lagarde said.
When the cash actually enters the capital market, it often stays within national borders or leaves for the US in hope of better returns, Lagarde added.
Europe therefore needs to reduce the cost of investing in capital markets and must make the regulatory regime easier for cash to flow to places where it is needed the most.
A solution might be to create an EU-wide regulatory regime on top of the 27 national rules and certain issuers could then opt into this framework.
"To bypass the cumbersome process of regulatory harmonization, we could envisage a 28th regime for issuers of securities," Lagarde said. "They would benefit from a unified corporate and securities law, facilitating cross-border placement, holding and settlement."
Still, that would not solve the problem that few innovative companies set up shop in Europe, partly due to the lack of funding. So Europe must make it easier for investment to flow into venture capital and for banks to fund startups, she said.