The determinants of private saving and public enterprise savings in Tanzania

The significance of domestic savings for Tanzania's economic stability and growth has been persistently emphasized in the country's short and medium term development programs. Despite such emphasis, the country's domestic savings have nevertheless remained low. This study addresses such persistent phenomenon of the paucity of domestic savings in Tanzania by analyzing the factors which an the one hand have underlined household savings (including those of their corporate extensions), and those which on the other hand have underlined public enterprise savings. Having considered the savings of the aforementioned entities, the study proceeds to examine the extent to which governmental policy responses have influenced the saving behaviour of the above entities. The analytical framework used has in the case of household savings, involved a life cycle approach which has been extended to, incorporate the Brainard-Tobin portfolio savings model. In the case of public enterprise savings, the` analytical framework used has drown from the models of corporate financial policy, economic efficiency evaluation, as well as from the model of the principal-agency problem. Regarding the analysis of the extent to which governmental policy responses have influence savings by the above entities, the analytical framework used has drawn from the Keynes-Hicksian macroeconomics framework, the models of inflation and-the output-inflation trade-off, the models of interest rate determination, as well as the models of social insurance. The estimation of the significance of the explanatory factors so identified has involved use of simulation as well as econometric techniques. The results of the analysis carried out have evidenced a high rate of time preference on the part of households in the country, which in combination with the disserving impact of the country's population structure which is dominated by younger age groups, have significantly accounted for the country's low savings. This has an implication that policy responses aimed at influencing returns on savings need to take into account such evidenced intertemporal preference which is more in favour of current consumption to future consumption. There is also a need to ensure that the implication of policy for the redistribution of reap resources enables the productivity of the economically active population to more than offset their dissaving on account of the younger age groups. The results have also evidenced that the households, saving in interest earning financial savings has been significantly affected by the negative real interest rate policy adopted by the monetary authority. Using simulation, it has been shown that a combination of positive real interest rates with other incentives to influence the households' intertemporal preferences can lead to increased household savings. However, the results have also shown that the households' saving in interest earning financial savings has been significantly affected by the households' saving portfolio preference in favour of cash and physical assets. The results have indicated such portfolio saving preference to have significantly attributed to the returns on cash (in particular returns on the parallel market activity financed by such cash holdings), returns on physical assets, and to capital risk uncertainty. It should also be mentioned that the above portfolio determinants have also limited the success of the country's financial institutions in making increased household saving in interest earning financial assets a reality. Furthermore, the results have evidenced the extent to which the distortive impact of inflation on producer prices, and the crowding-out of credit to agricultural production (which in the country is predominantly smallholder household based} have significantly affected the households' incomes, hence their ability to save. However, the evidenced fact that household consumption has also been highly influenced by the households' current income raises a question on how much of the households increased ability to save will actually translate into the households increased savings. In this regard the results have further demonstrated a case for the institutionalisation of a system of liquidity constraints on consumption so that households in the country may not totally assume a net borrower position. Lastly, the results evidence the extent to which economic inefficiency on the part of public enterprises, as well as of ,the enterprises' tendency to substitute government budget transfers fortheir own savings have negatively and significantly affected the public enterprises' savings. The results are in a more detail presented in Chapters 3,6,7, as well as in our conclusion in Chapter 8.