World Bank chief economist Kaushik Basu, who took up the position in October, urged South Africa on Tuesday to prioritise policies that encouraged higher savings and investment levels, which he argued were key to creating the platform for higher rates of economic growth.
Having worked as chief economic adviser to the government of India immediately prior to the appointment, Basu stressed that, while he was ill-equipped to provide specific policy suggestions, experience from other emerging economies showed that increased savings and investments had stimulated higher growth levels.
“Yes, you will still have short-term slumps in growth, but the growth rate can be pushed up a lot [through higher savings and investment rates].”
Speaking at a function organised by the Wits Business School, he said the experience of India is this area was “stark”.
“India used to be a low-saving country. Then, in two-steps, in the late 1970s and 2001 and 2002, India’s savings rate and investment rate just jumped up. And now, India saves and invests like other East Asian countries and the growth moved almost in step with that,” he said, while acknowledging that India was currently concerned with its recent fall-off in growth rates.
“So, I think South Africa ought to pay a lot of attention in stepping up on this.”
In the 2013 Budget Review, the National Treasury lamented the fact that domestic savings rates remained low, which was resulting in a significant gap between investment and savings.
It also noted that South Africa would need to attract cumulative inflows of global savings of R703-billion over the coming three years to finance the current account deficit, which would require improvements in both investor confidence and the investment climate.
In the longer-term, the National Treasury said structural improvements in the current account would require a significant increase in the domestic savings rate and decreased reliance on foreign savings.
However, Basu praised Finance Minister Pravin Gordhan’s continued focus on growth in the recent Budget, arguing that it was important for emerging economies to continue to emphasise inclusive growth during what was likely to be a period of relatively slow global growth, possibly until 2015.
“For emerging economies, where there’s a lot of poverty . . . there is a moral urgency of a kind that industrialised countries don’t have,” he said, arguing that emerging countries, thus, had to think of ways to sustain even modest growth levels.
Gordhan lowered his growth outlook for 2013 to 2.7%, while forecasting 3.5% and 3.8% for 2014 and 2015 respectively.
Basu also argued that the World Bank was unfazed by the prospects of the emergence of a new development bank funded and managed by the Brics bloc, comprising Brazil, Russian, India, China and South Africa.
He said the “lending space” had increase materially since the late 1940s, when that space had been dominated by the World Bank and the International Monetary Fund. There was, therefore, room for a number of multilateral lenders, particularly in supporting infrastructure projects.
But he also stressed that the World Bank was a “changing institution” and that it would be focusing on scaling up its activities in the area of infrastructure development.
“There is an awareness in the World Bank that there is greater need for infrastructural money in emerging economies and we are looking at ways in which we can attend to this.”
It was anticipated that the so-called ‘Brics Bank’ would emerge as a key theme of the fifth annual Brics Summit, which would take place in Durban at the end of March.
Should such a bank emerge the idea would be for it to mobilise domestic savings and cofund infrastructure in developing regions.
Gordhan noted in his recent Budget address that, collectively, Brics countries held reserves totalling $4.5-trillion.