Savings are astonishingly low

Turkey’s savings rate is low in comparison to not only the BRICs but also developing and upper-middle income countries.

I previously compared the savings rates of Turkey, the BRICs (Brazil, Russia, India and China) and South Korea. It was not a pleasant picture for Turkey. The upper rows of the Table 1 below compares Turkey’s savings rate with that of developing countries. I used the data and the categorization of the IMF. Lower rows show Turkey’s performance compared to “upper-middle income countries” as categorized by the World Bank on the basis of GDP per capita. I ranked the countries by their GDP per capita in 2012 and excluded small countries off the list. I gave the observations for three sub-periods: 1990-2001, 2002-07 during which Turkey attained high growth rates, and 2008-12 which likened the first period in terms of growth performance. Figures tell the story, need I say more? Turkey’s savings rate is low in comparison to not only the BRICs but also developing and upper-middle income countries. Besides the rates have been in decline lately.

There is a common argument raised regarding the low savings rate: the savings rate figures are not directly calculated but obtained by subtracting consumption from income. Some economists argue that expenditures on durable goods such as automobiles or refrigerators should be counted as savings. If calculated like this, they claim, Turkey’s saving rate is not remarkably low.

I am dismissing the change in the ranking when the figures for other countries are also adjusted accordingly, upon the assumption that such change, if any, will not be significant. It is important to decide why you need to know the savings rate. There is a close and positive relationship between the level of investments as one of the key determinants of growth, and domestic savings rate. The consumption on durables, whether counted as savings or not, do not enter the financial system or extended as loans. So, this amount is not used for investments. From the perspective of investment and growth, then, the savings rates we should take into account are the ones quoted below. And as I said before, Turkey’s performance on that account is not promising. The government has changed the individual pension system effective from the beginning of this year, mainly to overcome the low-savings challenge. We need time to decide to what extent the new system will be a remedy to the problem.

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