Malaysia’s Household Savings Rate

The question of the household savings rate has come up a few times in the last few weeks, so I thought I might as well set out the data and evidence for it.

At this stage, I have a confession to make. I was under the impression that gross savings excluded net changes in pension assets (contributions less withdrawals from EPF, KWAP, LTAT and the like), but a closer reading of the accounts and the SNA2008 manual showed that this is already captured under the income accounts. For that I have to apologise to everyone whom I told that the household savings rate would be substantially higher if the net pension contributions were taken into account. In fact, the opposite is true and the difference is quite significant, as I’ll demonstrate in a bit.

With that, here’s the results:

As a percentage of GDP, the household savings rate averaged about 0.8% between 2006 and 2013. As a percentage of adjusted disposable income, the average was just 1.6%.

By any standard, those are pretty terrible numbers. By contrast, the US household savings rate, which has generally been acknowledged as being very poor and contributed to the fragility of the US economy leading up to the Great Financial Crisis, averaged 5.2% of disposable income over the same period. Bear in mind also that Malaysia’s numbers are after taking into account mandatory pension contributions. Take those contributions out, and the situation becomes really dire:

The savings rate turns negative for all years, and sharply so as a percentage of adjusted disposable income, averaging –2.8% of GDP and –5.8% of adjusted disposable income. By contrast, Malaysian government savings averaged 1.8% as a percentage of GDP, and 17.5% of disposable income.

Lastly, household borrowing:

Household net borrowing averaged 2.5% of GDP, and 5.1% of adjusted disposable income. Again, as contrast, US households were net lenders (not borrowers) to the tune of an average 4.7% of GDP and 6.2% of disposable income between 2006-2013.

Note however, that net lending/borrowing under the capital accounts are conceptually different from lending and borrowing in the conventional sense. This is about sources and uses of funds, not how much you borrowed from the bank. Also, all “borrowing”, or lending for that matter, is used to fund capital formation i.e. investment. The capital account has to balance between institutional sectors (government, corporations and households), as well as against the external sector (the rest of the world). Thus the country as a whole could be a net “lender” even if one or more of the domestic sectors are net “borrowers”.

Nevertheless, if there’s something that keeps me up at night, it’s the depressing state of Malaysia’s household savings rate.

Technical Notes:

All the following data are derived from the DOS Distribution and Use of Income and Capital accounts reports for the years 2006-2013. These are free to download, but you’ll have to register on the website first. US data is from the Federal Reserve Bank of St Louis’ FRED database (series codes: HHNONLA027N, A067RC1A027NBEA, GDPA, and PSAVERT).

First, the distribution of income accounts for the household sector (RM millions):

Distribution of Income Account	Adjusted Disposable income	Change in net equity In pension funds	Final Consumption Expenditure	Gross Savings
2006	260,406	24,395	280,725	4,076
2007	300,961	23,542	319,517	4,986
2008	357,710	29,255	381,227	5,739
2009	367,759	24,420	387,018	5,161
2010	406,607	29,168	428,379	7,396
2011	459,078	29,781	480,865	7,930
2012	502,828	30,521	525,742	7,608
2013	543,681	38,178	574,229	7,629

Adjusted disposable income includes all current income such as wages, employer pension contributions, subsidies, property income, dividends and interest, plus social transfers and less taxes. Gross savings is equal to disposable income plus change in net equity less consumption.

Next we have the capital accounts (RM millions):

Capital account	Gross Savings	Other resources	Gross Fixed Capital Formation	Other uses	Net Lending
2006	4,076	136	19,967	(658)	(15,096)
2007	4,986	245	22,944	(860)	(16,852)
2008	5,739	229	22,936	44	(17,012)
2009	5,161	99	24,275	(1,307)	(17,708)
2010	7,396	394	27,746	(369)	(19,588)
2011	7,930	169	30,504	-	(22,405)
2012	7,608	297	32,154	(56)	(24,192)
2013	7,629	99	35,217	584	(28,073)

Other resources are primarily from capital transfers and capital gains (changes in asset values), while other uses are primarily net acquisitions of land. Net lending/(borrowing) is the difference between resources (savings plus other resources) less uses (investment plus other uses).

The GDP data in the distribution accounts are slightly different from the published national accounts (probably because the former include the latest revisions), so I’m including them here for reference:

RM millions	NGDP
2006	574,656
2007	642,204
2008	742,470
2009	712,776
2010	825,416
2011	911,733
2012	971,252
2013	1,018,821