South Africa Post-Election Economic (Policy) Outlook (2024)

South Africa is stuck in a low growth trap. South Africa’s economic performance has deteriorated significantly in recent years. Not only has economic growth decelerated tangibly. But economic growth compares very poorly to South Africa’s regional peers. As a consequence, socio-economic indicators have deteriorated sharply, particularly since the pandemic, even though per capita income began to stagnate before. Low economic growth has sharply curtailed the government’s ability to support economic growth through fiscal means, not least because government debt has continued to increase and put downward pressure on sovereign credit quality. A lack of investment and deteriorating infrastructure have added to economic woes, including power shortages, which have added to socio-economic dissatisfaction and weighed on the economic growth outlook. Unemployment, historically very high, has increased further. Income inequality is (among) the highest in the world.

> Per capita income began to stagnate and decline even before the COVID-19 pandemic due to slowing economic growth.

> Unemployment rates has increased form 25% in the 2010s to 34% today. Youth unemployment currently exceeds 50%.

> South Africa continues to suffer high crime rates. It has the third-highest murder rate in the world with 42 intentional homicides per 100,000 people.

> Corruption is high and has increased. Transparency International ranks South Africa 83rd out of a 180-off countries in terms of corruption (higher the rank, the worse the corruption).

> South Africa is one of the world’s most unequal countries with a Gini coefficient of 0.63. (A Gini index of 1 expresses maximum inequality.) Income inequality is significantly higher than the emerging economy average.

> All three major international rating agencies, S&P, Moody’s and Fitch, assign a long-term foreign-currency rating of BB- (or its equivalent) to the South African sovereign.

South Africa’s economic challenges are not going to go away. With an economic growth rate of 1-2% and effectively stagnating per incomes, growth-enhancing economic reform is more important than ever. However, in the short, there are simply no funds available to meaningfully tackle South Africa’s economic and socio-economic challenges. In the medium term, this will increase the risk of broader economic and financial instability. Economically, fiscal space is restricted due to already high government debt and a large underlying fiscal deficit. The government also faces significant contingent liabilities in the form of bailouts of companies operating in the critical infrastructure sector, which will further add to the government debt burden. Meanwhile, relatively high inflation will continue to erode real incomes, particularly of poorer socio-economic groups due to their inability to hedge against. This will further erode the political willingness to pursue a forceful fiscal adjustment or costly reform. South Africa is stuck in a low-level economic equilibrium. 

> The IMF projects medium-term real GDP growth of 1.4%, a very low level by emerging standards and insufficient to address socio-economic problems. By comparison, real GDP growth in sub-Saharan Africa is projected to average 4-5% in the next few years. Economic growth barely keeps up with population growth, which will translate into stagnating per capita incomes.

> Low growth will also put significant pressure on fiscal account, constraining the government’s ability to support investment or significantly increase social expenditure to address failing infrastructure and socio-economic grievances. Government debt has increased from around 50% of GDP in 2018 to more than 70% last year and reach 85% of GDP by 2028. This projection does not take into account additional contingent liabilities, such as the government’s bailout of Eskom, which cost the government 3% of GDP.

> Energy production and weakening infrastructure will remain a challenge, fuel public discontent and weigh on economic growth. Rolling blackouts have become more likely and fixing the problem will take time.

Despite a downbeat economic outlook and deteriorating fundamentals, South Africa’s economy does benefit from important risk mitigating features, which a broader economic or financial instability unlikely, at least in the near to medium term. First, even though government debt is high and increasing, external debt and foreign-currency-denominated debt as share of total debt is low. This limits South Africa’s vulnerability to exchange rate shocks or a foreign investor strike. Second, government debt is high, but its maturity structure limits liquidity risks, not least because much of the debt is held by domestic banks and investment companies. Third, a floating exchange rate and limited foreign-currency mismatches allow the economy to absorb a precipitous decline in capital inflows without sustaining broader financial damage, as a weaker exchange rate then boosts export and foreign-currency revenues. Fourth, a relatively independent central helps maintain investor confidence, fiscal challenges notwithstanding. Fifth, thanks to a floating exchange rate, current account deficits are generally manageable, limiting the build-up of foreign debt. 

> The structure of government remains solid due to local currency denomination and ability to issue long-term debt. However, with government debt projected to increase in the medium term, credit quality will deteriorate and the risk of financial distress will increase, if only gradually.

> South Africa has had a floating exchange rate regime for many decades, affording it to absorb balance-of-payments shocks through currency depreciation rather than the sale of foreign-exchange reserves.

> The bank system remains well-capitalized, well-managed and solid liquidity. Larger, systemically important banks are financially stronger than smaller banks. However, banks’ holdings of government has increased, which in turn has increased the banking sector’s vulnerability in case of severe sovereign distress.

> An independent central bank committed to an inflation target of has translated into relative policy credibility. Thanks to an independent central bank, inflation should remain under control and fall toward the target of 3-6%, barring a major exchange rate shock. 

The next ANC(-led) government will find it politically difficult to implement the reforms necessary to revive economic growth in the face of a weakened political position and continued high levels of socio-economic dissatisfaction, which complicate structural reform and macroeconomic adjustment. According to opinion poll, the ANC will fail to win a majority of seats in the lower house. This will make it politically harder to push though politically costly, forward-looking economic reforms. To the extent that the ANC requires support from other parties, necessary compromises will dilute policy measures and reforms. Moreover, unless the government commits to reforms right after the elections, the likelihood of forward-looking reform will diminish. A more fragmented parliamentary base would make painful economic reform more difficult to implement. Absent a major financial crisis, which remains unlikely in the near term, a major reform push is unlikely. However, should financial conditions deteriorate significantly, which is not likely in the next 2-3 years, the government would likely do what it takes to restore stability, even though it would be unlikely to address the structural factors that hold back economic growth and increase government debt, such as a failing infrastructure, insufficient investment and increasing corruption. This, after all, would require an even greater macroeconomic adjustment and will encounter strong socio-economic opposition, including unions.

> Polls suggest that the ANC will lose seats and may lose its parliamentary majority altogether. The ANC has continuously controlled both house of parliament since the end of apartheid. The ANC failed to receive a majority of votes in 2021 local elections. Polls point to the ANC’s waning popularity with support dropping from 55-60% in 2019 to less than 40% most recently. In the last general elections, the ruling ANC won 230 out of 400 seats.

> A hung parliament, minority government or coalition government are not conducive to a strategic policy of economic reform that South Africa requires to escape from the low-growth trap. While a new ANC-led government is unlikely to adopt outright populist, destabilizing policies, a likely failure to address structural and macroeconomic challenges points toward continued erosion of economic fundamentals and worsening of socio-economic conditions in the next few years, even if the risk of severe financial distress will remain manageable.

On Trade, a Return of Trump Would Spell Trouble for EU (2024)

If Donald Trump wins the US presidential election in November, Europeans should once again brace for major transatlantic tensions on trade. An EU policy of strength would be the right response.

Under former President Donald Trump, the United States pursued an aggressive, unilateral trade policy between 2017 and 2021 that was characterized by protectionist threats and measures, was based on the exploitation of bilateral economic and security dependencies and was mostly aimed at gaining trade concessions. At the global level, it terminated negotiations to establish a Trans-Pacific Partnership and effectively suspended the dispute settlement procedure of the World Trade Organization (WTO). These measures were intended not only to reduce curbs on America's trade policy power but also to protect US industry. The Trump administration introduced punitive tariffs on imports of goods including washing machines, solar panels, steel, and aluminum.

Threats led to the partial reform of the US free trade agreements with Korea (KORUS), Canada and Mexico (NAFTA, later USMCA) as well as the conclusion of a “mini-trade agreement” with Japan (USJTA). The Trump administration also sparked a trade conflict with China, forcing Beijing to make economic and trade policy concessions. Similarly, the threat of US punitive tariffs on European car imports prompted the EU to agree to negotiations on a possible bilateral trade agreement. In addition, the Trump administration tightened its export control policy, especially towards China. However, that was mainly linked to national security interests.

Political incentives to pursue a protectionist trade policy and adhere to a protectionist narrative remain significant. A free trade policy lacks sufficient domestic political support. Although opinion polls suggest that a majority of Americans regards free trade as economically beneficial, it also support protectionist measures as long as they are seen as safeguarding American jobs – however intellectually contradictory such a view may be (Chicago Council on Global Affairs). Of greater importance is the fact that the outcome of the presidential election will strongly depend on whether the candidates can prevail in swing states. As many of them have experienced significant economic dislocation in recent decades, including de-industrialization, protectionist narratives and policies enjoy broad support in swing states.

Not surprisingly, consensus for free trade policies has long since evaporated in the United States, which gives both the incumbent, President Joe Biden, and his likely challenger incentives to advocate protectionist measures. In this sense, there are parallels between Trump’s “America First” policy and Biden's premise of a “Foreign Policy for the Middle Class.”

Of course, one shouldn’t attach too much weight to statements made by presidential candidates given that they are often aimed at mobilizing their party base. The trade policy a US president eventually pursues is also influenced by advisors and the so-called “adults in the room,” technocrats who tend to be more moderate. That said, Trump’s trade policy 1.0 has proven that the executive branch has far-reaching leeway when it comes to protectionist policies. It would therefore be a mistake to dismiss Trump's trade policy statements as mere campaign rhetoric.

Outlines of a Trump Trade Policy

The conceptual outlines of a “Trump 2” trade policy are gradually becoming discernible. A second Trump administration would introduce a “universal baseline tariff” of 10 percent on all imports and a tariff of 60 percent on imports from China. This is reminiscent of former President Richard Nixon’s decision in 1971 to impose an additional 10 percent tariff on America's trading partners to force them to renegotiate international exchange rates.

The details are still unclear, but the basic idea of leveraging America’s trade power to win concessions is largely in line with Trump's previous trade policy. Under a second Trump administration, existing transatlantic trade conflicts (Airbus-Boeing subsidy dispute, steel and aluminum tariffs, and European digital taxes) would also likely intensify.

In addition, Trump’s team appears to be considering an even tougher policy toward China. The planned suspension of the “most favored nation” status for China would allow the US to impose far-reaching protectionist measures on Beijing. In this context, a complete ban on certain Chinese imports such as steel and pharmaceutical products is also being contemplated, to be implemented over a period of four years.

Meanwhile, Trump has been voicing strong criticism of the Biden administration’s Inflation Reduction Act (IRA). The extent to which a second Trump administration would be willing and able to partially or completely repeal the law is uncertain. But it would probably attempt to de facto repeal parts of the IRA through administrative and regulatory measures. Scrapping the law could help to reduce transatlantic tensions and the subsidy dispute linked to it. However, that would be little consolation at best if European goods become subject to a 10 percent tariff.

Trade policy under the first Trump administration showed a tendency to exploit economic and security dependencies to strengthen America’s bargaining position. However, it also showed a certain willingness to withdraw protectionist threats, albeit not in all cases (China), if a trading partner was prepared to make more or less major concessions (KORUS, NAFTA, EU). In some cases, the Trump administration even accepted exceptions without any quid pro quo on trade (for example on the issue of tariffs on Australian steel imports).

The European Union’s export dependency on the US is greater than vice versa. In 2022, EU exports to the US amounted to 2.8 percent of European GDP, while US exports to Europe amounted to only 1.4 percent of US GDP. In theory, this creates an asymmetric interdependence in favor of the US. But in practice, the average tariffs of around 3 percent in bilateral trade are among the lowest in the world, making the potentially high costs of a trade conflict difficult to justify.

Of course, this doesn’t mean that a second Trump administration wouldn’t try to push the EU to make trade policy concessions by threatening higher tariffs, as the first Trump administration did in 2018 when the threat of higher tariffs on European car imports was initially intended to force the EU to open its agricultural market to American exports.

An EU Trade Policy of Strength

The European Union should therefore pursue a trade-focused deterrence policy aimed at preventing a second Trump administration from adopting protectionist measures directed against Europe. In anticipation of possible US measures, the EU should signal unequivocally, even before potential Trump’s potential inauguration, that it is prepared to take prompt countermeasures and accept the costs of a trade conflict with the US. Brussels should also make it clear to American policymakers that the EU has newly created trade policy instruments at its disposal, such as the Anti-Coercion Instrument which provides a more effective and credible trade deterrence and defense.

At the same time, such a geo-economic deterrence policy should be accompanied by a willingness to negotiate, not least to give a second Trump administration the opportunity for a face-saving compromise that can be sold domestically as a success. As was the case during the first Trump administration, the EU should focus on offering a further liberalization of transatlantic trade relations in its negotiations with the US. A combination of toughness and flexibility might help to avoid a trade conflict that would be economically costly for both sides.

Could a second Trump administration exploit security dependencies? Donald Trump’s pre-election campaign threat not to defend NATO members that do not meet the 2 percent defense spending target seems to make the exploitation of security dependencies a real possibility. Seoul was threatened with the withdrawal of American troops during the renegotiation of the Korea-US free trade agreement. (Game theorists call this “cheap talk,” as opposed to “costly signaling”). Nevertheless, there are good reasons to doubt whether such a threat to the EU would be truly credible.

Of course, a Trump administration could initially implement smaller steps without immediately withdrawing from the NATO alliance. The provision of further aid to Ukraine could be made conditional on trade concessions, and this could weaken the EU's bargaining position. But trade negotiations last many months and even years so a reduction in security assistance, which could lead to the destabilization of Eastern Europe, would not be particularly well suited to gaining concessions on beef imports, for example.

Such threats would also be widely seen as disproportionate and would lack credibility. And even a President Donald Trump would hesitate to risk the destabilization of Eastern Europe’s security for the sake of lower EU agricultural tariffs. If, on the other hand, a second Trump administration were to categorically rule out further aid for Ukraine and other security support, the associated bargaining potential and negotiating advantage for the US would also disappear.

But even if a second Trump administration were to explicitly link security policy support to trade concessions, an EU trade policy that is both strong and conciliatory would still be the best strategy to counter a more aggressive and unilateral US trade policy. This also applies if the EU were ultimately forced to make greater trade policy concessions than in a scenario in which the United States did not play on Europe’s security policy dependency.

See also: https://ip-quarterly.com/en/user/26900/markus-jaeger

Are Chinese Economic Policymakers Playing Whack-a-Mole? (2024)

Worried about macro-financial risks, Chinese economic policymakers have been seeking to rein in unsustainable investment in infrastructure and the real estate sector, but such an approach tackles primarily the symptoms rather than the underlying cause, as a sustainable solution to the so-called excess savings problem requires broad reform aimed at reducing savings or creating more profitable investment opportunities. The underlying cause of increased financial risks appears to be a very high savings rate in the context of a declining profitability of investment. At the very least, it is the structure of Chinese investment, concentrated in infrastructure and housing, that is generating declining and increasingly negative financial returns. A declining profitability of investment is to be expected as China approaches the technological frontier and the marginal productivity of capital declines and highly profitable investment projects become scarcer. The recurring misallocation of capital or overinvestment forces policymakers to rein in investment, most notably investment by local governments in infrastructure and, more recently, by real estate developers in housing. These policies aim to limit economically unproductive and financially loss-making investments that do support sustainable growth and increase financial instability risks. This is very challenging given the financial interrelationship between housing, banks, local governments and the central government and given the high levels of debt that have hitherto accumulated.

> Real estate sector related activities account are estimated to account for 30% of GDP. This much higher than in advanced economies, where the equivalent ratio is 10-20% of GDP. Shifting around 10% of GDP from one sector to another or others necessarily creates a significant economic drag if it is done precipitously and not strongly supported by massive, flanking macroeconomic measures.

> Total social financing, or total debt outstanding, particularly for an emerging economy, if less so for an economy with a high savings rate. Debt has doubled in the past 15 years, increasing from 150% of GDP in 2009 to 300% of GDP today. This extraordinarily rapid increase and high levels of debt raises concerns about creditworthiness and financial stability risk. Declining economic growth and low inflation, alone deflation risk being exacerbating credit and financial risks because they make it harder to service the debt.

> China’s economic growth has decelerated from more than 10% in 2009 to around 5% in 2023. The IMF projects a further deceleration to less than 4% in the next few years. The incremental capital-output ratio, which measures the amount of capital required to generate one unit of economic output, has halved. This suggests that the efficiency of investment has declined dramatically. Investment is too high, or investment opportunities are too limited.

To avoid the so-called middle income trap, Chinese policymakers have been facing a difficult balancing act in terms of shifting investment and the economy away from unsustainable infrastructure and real estate sector investment while limiting macro-financial risks and sustaining robust economic growth. China appears to be facing the so-called middle income trap where the old high-growth model becomes unviable as a country approaches middle-income levels and a sudden, substantial downward shift in economic growth takes places, often in the context of a broader economic or financial crisis. The middle income trap is a frequently observer empirical reality, but not a theoretical inevitability, provided policymakers pursue a forward-looking policy aimed at reforming the economic growth model and managing macro-economic and macro-financial risks properly. A policy aimed at structural, productivity-growth-enhancing reform allows for more profitable investment opportunities and a more economically productive allocation of China’s large savings. If flanked by prudent financial policies aimed at maintaining financial stability, such as ensuring adequate bank capitalization and other prudential policies as well as by supportive macroeconomic policies to limit the negative economic effects of macro rebalancing, macro-financial and macro-economic risks will be manageable. 

Despite significant policy efforts, China has made little progress in reducing excess savings and rebalancing the economy towards more sustainable medium-term growth. As far back as 2008, then-President Hu Jintao called for economic rebalancing. The initial impetus for rebalancing and reform was China’s dependence on exports and export-sector focused investment against the backdrop of the global financial crisis in 2008, which showed how vulnerable China’s export-oriented growth models was in the face of large external shocks. At its height, China’s current account surplus exceeded 10% of GDP, which also lead to trade tensions, particularly with the United States. After implementing a massive infrastructure investment program as a response to the global financial crisis, policymakers’ efforts were forced to focus on controlling the build-up of macro-financial risks related to massive infrastructure investment. The sharp investment-related increase in debt, particularly among local government, led policymakers rein in local and provincial level infrastructure investment through a stricter enforcement of local borrowing, including off-balance sheet structures like local government financing vehicles (LGFV). In 2020, efforts have focused on tackling over-investment in the real estate sectors. Thanks to policies aimed at reining in excessive investment, China has managed to avoid broader financial instability but it has thus far failed to bring about macroeconomic rebalancing. Savings are lower than 15 years ago, but investment has remained virtually unchanged. 

>  In August 2020, China introduced the so-called “three red lines” policy, which imposed ceilings on debt-to-cash, debt-to-assets and debt-to-equity ratio for real estate developers. The policy was meant to reduce excessive debt of real estate developers and, indirectly, rein in excessive investment in the sector by forcing financially to exit. This has led to significant financial distress among developers and a sharp real estate downturn.

> China’s national savings rate fell from more than 50% of GDP in 2009 to 45% of GDP in 2023. But the savings ratio is same as in 2016. At 42% of GDP, the savings rate is virtually unchanged compared to 2009. The difference is accounted for by far smaller current and trade surpluses.

While economic rebalancing has led to a cyclical deceleration of economic growth, policymakers have thus far taken only modest countercyclical macroeconomic measures. The rationale appears to be that the housing market will not shrink forever and significant macroeconomic measures might undermine rebalancing. Policymakers have several options to provide short-term countercyclical support to limit the economic downturn (and the risk of deflation) They can pursue a more expansionary fiscal policy aimed at spurring consumption, a more expansionary monetary policy aimed (primarily) at increasing investment or measures aimed at allowing for a weaker exchange rate to boost exports. Such policies would help counter the cyclical drag from the real estate sector adjustment and, at the margin, reduce savings by increasing consumption and especially household consumptions. China has refrained from resorting to quasi-fiscal and investment-fueled spending comparable to the post-global financial crisis, as this would exacerbate imbalances due to infrastructure-focused growth and as they seem to expect the economy to recover on its own. But the option remains on the table. However, structurally, underlying housing demand will decline sharply 35-50% due to demographic change. This raises the question where savings will go if they are not converted into housing. A possible solution consists of lowering the savings rate by increasing domestic and especially household consumption through broader fiscal reform aimed at raising household incomes, such as providing social security or health care benefits. Another solution consists of implementing productivity-enhancing economic reform that allows for a financially productive conversion of savings into investment, such as pro-market reform.

> Underlying housing demand will decline sharply 35-50% due to demographic change, slowing urbanization and changes in household formation, according to the IMF.

> The PBoC has been cautious with respect to loosening monetary and financial conditions over the past couple of years. The government has refrained from administering a large-scale fiscal stimulus. Instead, the central government has provided limited fiscal support to cash-strapped local governments to counteract the fiscal drag from lower spending. Local government’s reliance on land sales and other real estate sector related activities reduced the amount of money available to support local government spending. The central government is in a position to provide greater support, should it choose to do so, despite relatively high public sector debt.

Despite the growth slowdown and financial stress, macro-financial risks will remain manageable due to the government’s ample ability to intervene in case financial distress threatens to turn systemic. Systemically important national banks’ loans to both real estate developers and mortgages appear manageable. Smaller, regional banks as well as non-bank financial institutions are at greater risk. The slowdown in real estate sector activity is also affecting local government finances, spending and economic growth. Should financial losses accumulate, the central government has a strong enough financial balance and sufficient scope for intervention to preempt local financial distress from turning into a systemic financial crisis. It can also exercise regulatory forbearance. In case of a run on a bank, it can simple take over the bank, write down equity holders and junior creditors, while guaranteeing deposits. Not only are the central government and the central bank able to absorb the losses, if necessary, but they have also wide-ranging discretion about how to distribute financial losses across different creditor classes. The same rationale applies to a large, systemically important banks that already benefit from implicit government backing. 

The government can and will backstop  systemically important financial institutions should they run into financial trouble. If these smaller banks get into trouble, the authorities will step in if they pose broader risks to financial sector stability through recapitalization, forced mergers or an orderly resolution. In case of systemic crisis risk, the authorities can simply bailout the banks creditor, bail out part of the banks’ creditors (like retail depositors). The government or government-owned Chinese banks can help backstop through liquidity guarantees, takeover or financial support and recap and more sustainable model by not reward moral hazard to force private sector to internalize economic and financial risks (losses borne by risk-takers), improving the efficiency of capital allocation and reducing financial and macro-financial risks. Similarly, the bailout and restructuring of local government debt simply leads to a reshuffling of national balance sheet/ assets and liabilities between central government, local, banks, investors households. Ultimately, it is the authorities’ ability to provide financial support and largely determine to what extent to bail out or bail in creditors that allow the government to intervene should destabilizing financial distress emerge. Capital controls and a net international creditor position make it impossible and unnecessary for depositors to move money out of China, further enhancing the government’s ability to deal with macro-financial risks. 

> At more than 100% of GDP, government debt, and especially so-called augmented government, which includes local government’s off-balance sheet liabilities is high. But gross debt does not account for the extensive assets, the public sector holds. The IMF estimates the public sector’s net financial worth may not be negative. Virtually all debt is owed to residents. Capital control prevent destabilizing capital flights.

> China’s international balance sheet is solid. Large foreign-exchange reserves, exceeding $3 trillion, and capital controls and net foreign creditor position make a balance-of-payments or external debt crisis impossible. China's banking sector’s net external assets amounted to $169.6 billion, including net RMB liabilities of $287.3 billion and net foreign currency assets of $456.8 billion. This suggests that the banking sector would benefit from a weaker currency, all other things equal.

> A further deterioration of local government’s financial position and financial viability of LGFVs will sooner or later require a central government bailout or a debt restructuring, including write-downs and assets sales. This will help limit creditor losses, including banks. Government guarantees and regulatory forbearance as well as an ability to provide a government guarantee if necessary sharply curtail the risk of a systemic financial crisis due to local government debt problems. About two thirds of the total LGFV debt is in the form of bank loans. The IMF estimates that 1/3 LGFVs are financially nonviable.

> The bank sector as a whole is characterized by low levels of non-performing loans and overall fair capital adequacy ratios. More importantly, property sector and mortgage loans represent a much smaller share of assets among large banks than smaller banks as well as various non-bank financial institutions.

While the risk of destabilizing, systemic financial crisis is low, the risk of a further economic slowdown in the context of insufficient demand and continued, relatively unproductive over-investment will be substantial, unless policymakers implement productivity-enhancing, market-oriented economic reform. However, it is highly uncertain that policymakers will implement necessary productivity-enhancing reform. In 2013, the government committed to let the market play a “decisive” role more than a decade ago. But the government has made little progress towards greater market-oriented liberalization. The government and SOEs are playing a greater role in capital allocation and government officials play a more important on corporate boards. Private-sector investment remains low, while public-sector investment has increases in the past few years. Greater government intervention is taking placing against the backdrop of intensifying geopolitical competition, international economic fragmentation, technological decoupling as well as adverse demographics. Nevertheless, China has opted for less risky and more sustainable growth, even if it means lower growth. Economic growth is unlikely to exceed 5% unless the government shifts towards a greater market-based allocation of savings flanked by growth-enhancing structural reform and a fiscal policy geared towards reducing the national savings by increasing household incomes and private consumption.