Savings and underspending: strange bedfellows

Ej Lopez

Ej Lopez

When I was much younger my parents, particularly my mother, would always remind me of the importance and virtue of saving. She would always inculcate in our minds that we should always look forward to a bright future that could only be reached if we save. Coming from a below-average income family, sometimes barely able to make both ends meet, no matter how meager our allowances were, we did try to manage our cash to be able to make some savings.

This situation, if taken collectively, would comprise the savings of a nation. The essence of savings to a country cannot be undermined because it is tantamount to the amount of investment. Investment is the lifeblood of the nation’s economic existence. Imagine a country without savings; it is a miserable situation because it cannot operate its economy since there is nothing to borrow, hence nothing to invest; a result of a lack of savings. This is contributory to a situation where the nation is deep in debt because of a dearth in the country’s savings. If a country lacks savings, ultimately it leads to lack of investment, which may result in the bigger problem of a recession. But no matter what the situation may be, a country needs to operate as an enterprise to assume a semblance of normalcy in its economic structure, and as such the country needs to borrow to augment the lack of local investment.

This kind of problem will persist unless radical action from the government will ensue. But as it is, the government lately has been misdirected in its economic actions and decisions, so to speak. Instead of promoting employment opportunities, it has done the opposite thing: underspend. Perhaps the government leadership, in its desire to show that it has been prudent in managing government finances, has decided to be thrifty but in doing so its actions did the economy more harm than good. It should be underscored that to underspend is not to save.

Economics 101 defines savings as any amount of money in excess of your personal disposable income. But to save prior to satisfying all your personal needs is tantamount to underspending which, for all intents and purposes, is bad for the economy. Though savings is an essential component of economic growth, it is a leakage in the flow of economic activity; meaning it temporarily deprives the economy of an income that it should have created the moment it is put in banks or your vaults. What has been left of your income has been arbitrarily reduced because of savings. Therefore, the amount of money you saved is the amount of money that is deprived of the economy in terms of income which is dependent on its velocity.

It is quite irrational, so to speak, that the government has been banking on a government surplus of at least P30 billion, representing the amount of budget surplus as of August this year, considering that the Gross Domestic Product (GDP) growth rate in 2014 has slowed to 5.3 percent—lower than the second quarter’s 6.4 percent gain and the 7 percent growth in the same period in 2013. Reports said the third-quarter Philippine GDP growth was at its slowest pace since 2011. No matter how a sensible economist would decipher it, a surplus should not be considered as savings. This amount of budgetary surplus should not be misappropriated for purposes other than to what it was created for.

To think of other uses for such a surplus would create suspicions in the minds of the people especially at this time of the year when all interested parties are busy utilizing all their resources to assure endorsement and election for the national elections in 2016.

Underspending, although is not entirely bad for the economy because it shows consummation of projects supposedly undertaken, creates a lag in economic development. It should be borne in mind that some of these projects may have not materialized or have not yet finished even beyond the budget year, resulting in an excess amount in the budget. Other expenditures would have been held in abeyance for some reasons, resulting in a slowdown in local growth. Imagine the amount of income that would have been created had the P30 billion budget been expended for its purpose; the number of jobs it would have generated would help ease poverty incidence; the amount of investment it would have realized and the amount of economic opportunities it would have made had all these so called “surpluses” been used according to their proper purposes.

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