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Subject: Re: Price protest! by Unitech Students

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Date Posted: Thu, Sep 18 2008, 08:47:07pm
In reply to: Peles-Economist 's message, "Re: Price protest! by Unitech Students" on Thu, Sep 18 2008, 11:52:53am

Peles economist;

Specifically, in regard to your enquiry to huge saving and investment gap.

Let me say the following:

(1) saving = investment in most cases. saving, in more case propel investment. for instance, saving is used to finance investment thus the relationship.

(2) saving is either voluntary and involutary. when the interest on saving is higher (by commercial banks), there is increased savings. thus, this follows the relationship in point (1) with investment.
(2)(a) voluntary saving are predominantly determined by the interest on the saving. bank would increase saving if interest is comparatively higher.
(2)(b) involuntary saving are such programmes as the posf for the public servants and nasfund for the private sector. these programmes encourage citizens to save more of their income. i note that saving through such has increased dramatically and is exemplified in the finanical perofrmances of these two institutions annually.

(3)there can be increased saving but the interest rate on financial credits be low to induce investment in the country. if the interest rates are very high, the investment induced by the savings will be low. when one borrow K10.00 and the interest is 50%, it is not worth but when it is lower its worth undertaking the investment.

have not seen the current interest rate for commercial banks but the kina facility rate should give a general guide.

(4) if saving is higher and interest rate is lower and investment is very low then, the problem is with other economic structures not facilitating greater investment. some of the structural issues such as poor transportation, power, water supply and hingering regulatory regimes. the government needs to eradicate these structural impediments to ensure increased investment.

(5) my obeservation is that saving should be higher though interest (deposit interest rates) must be lower because excess liquidity but the interest rates should be lower because the commercial banks want to inject the excess liquidity in the system to the nvestors in real sector. however, investment is not responding accordingly because these structural impediments are hindering investment in the country. (foreign direct investment is included in discussion).

(6) due to such scenario there would be increased in capital outflow which the central bank needs to check and monitor. this would have adverse impact on the economy.

thank you for the enquiry and if not satisfactory please, inform.



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