Inadequate domestic savings

Uninvested community savings
Low level of domestic resource mobilization
Insufficient national assets
Spendthrift economies

Nature

It is generally agreed that the pace of economic development is associated with the growth of savings. This is because an act of saving makes possible the release of productive resources from consumption which may then be utilized to add to the stock of productive capital, thereby promoting the expansion of output.

It is estimated that a rate of domestic savings of at least 15% of gross income would be a necessary condition for self-sustained growth in the developing countries. Many countries are unable to achieve this.

Background

The significance of inadequate domestic savings emerged prominently in the post-World War II era, as economists observed persistent capital shortages hindering development in newly independent nations. By the 1970s, international organizations such as the World Bank began systematically tracking savings rates, linking them to economic growth and vulnerability to external shocks. Subsequent global financial crises further underscored the risks posed by insufficient domestic savings, prompting renewed policy focus and comparative research across diverse economies.

Incidence

In 1990 it was estimated that the global pool of savings had decreased markedly. The very high Japanese savings rate that helped finance growth in the 1980s was slowly shrinking and other countries were seeing a decline in savings as well. The savings rate in virtually every country, other than the USA, was lower than in 1985.

In the USA, the savings rate was at a historic low point in 1990. Net savings had fallen from more than 7% of the economy in the 1960s to about 3% in the 1980s. On average 4.2% of disposable personal income was allocated to saving in 1993 compared with 8.6% in 1973.

In most developing countries, total investment exceeds national savings; and the gap is filled by the net inflow of financial resources from abroad, on which the countries are therefore dependent.

Claim

Inadequate domestic savings is a critical problem that threatens economic stability and future growth. Without sufficient savings, nations cannot fund essential investments, reduce reliance on foreign debt, or cushion against financial crises. This shortfall stifles innovation, limits job creation, and perpetuates poverty. Ignoring this issue undermines long-term prosperity and leaves economies dangerously vulnerable. Addressing inadequate domestic savings must be a top priority for policymakers and citizens alike—our future depends on it.

Counter-claim

The concern over inadequate domestic savings is vastly overstated. In today’s globalized economy, nations can access international capital markets with ease, making domestic savings less critical than ever. Economic growth is driven by innovation, investment, and trade—not by hoarding money at home. Obsessing over domestic savings distracts from more pressing issues like education, infrastructure, and governance. It’s time to stop exaggerating this so-called problem and focus on what truly matters for development.