National savings plummeted by Nu 10bn in 2020

National savings plummeted by Nu 10bn in 2020

This is a growth of -20.99% in 2020 compared to 2019

The country’s economy witnessed a Gross National Savings (GNI) of Nu 40bn in 2019 against Nu 29.7bn last year, which is a drop of Nu 10bn.

Of the total national savings, government savings was -Nu 23bn. Private savings (Households, Private and Public Corporations) was Nu 29.7bn. This is a growth of -20.99 % in 2020 from the previous year. 

Gross National Savings is derived by deducting final consumption expenditure from gross national disposable income and consists of savings such as personal, business and government.

Basically, it looks at the difference between the nation’s income and consumption and is an indicator of a nation’s financial health, as investments are generated through savings.

However, the national accounts statistics compiled by the National Statistics Bureau (NSB) stated that the increased Government Final Consumption Expenditure (GFCE), record drop in economic performance, and the decline in the inflow of primary and secondary income from the Rest of the World resulted in the fall of the national savings.

With the drop in national savings in 2020, like in the past years, the GNI failed to meet the investment requirements of the economy.

The nominal investment in 2020 was estimated at Nu 58bn (Nu 42bn in 2019) as against the GNI of Nu 29.7bn.

In real terms, investment recorded a drop of -14.27% in 2020 as against the negative growth of -16.51% in 2019; however, the fall in investment has improved by 2.24% as compared to the previous year.

The drop in both investment and national savings in the economy has led to the fall in the Saving-Investment (SI) ratio to 0.51 in 2020, as compared to 0.59 in 2019, which means the national saving in 2020 was able to finance only 51% of the domestic investment as against only 59% in 2019.

The SI ratio is obtained by dividing the total saving over the cost. For example, if you have to make an investment of Nu 1,000 for the savings of Nu 2,500 over five years, the SI ratio is 2.5 (from US$2,500/US$1,000), or 25%.

The national accounts statistics also revealed that the final consumption expenditure recorded a growth of 12.16% in 2018 compared to a growth of 4.96% in 2017, an increase of Nu 129bn.

The Final Consumption Expenditure (FCE) recorded a drop of -5.25% in 2020 as compared to a growth of 8.21% in 2019, down by 13.46 percentage points, an increase by Nu 142bn.

Its share of GDP in 2019 was recorded at 82.91%.

The private final consumption expenditure of households and NPISHs accounted for 74.78% of the final consumption expenditure in 2020. The private final consumption expenditure growth dropped to -7.95% as compared to a growth of 7.49% in 2019, this was a drop of 15.43% from the previous year.

In current prices terms, the private final consumption expenditure was estimated at Nu 10.6bn in 2020 and its share stood at 62% of the GDP, the share increased by 3.89% during the year.

The Government Final Consumption Expenditure (GFCE) accounted for 25.22% of the total final consumption expenditure. This represents an increase in share by 1.31% as compared to the share of 23.91% of the preceding year.

At current prices, GFCE was valued at around Nu 36bn in 2020. The share of the GFCE to GDP was estimated at 20.91% in 2020 and it was an increase of 2.65% from 18.26% in 2019.

The GFCE observed growth of 4.10% last year as compared to 10.80% growth in 2019, a decrease of 6.70%.

Kinley Yonten from Thimphu