A study of fiscal and monetary policies used to enhance savings mobilization for investment purpose.

A study of fiscal and monetary policies used to enhance savings mobilization for investment purpose.

CHAPTER ONE

INTRODUCTION

Background of the Study 

An economy, whether growing or developed, seeks to attain specific goals such as GDP growth, lower inflation and unemployment rates, a favourable balance of payments, and long-term socioeconomic development. Capital accumulation is essential for every economy’s output growth, and it necessitates investment as well as an equal quantity of saving.

Two of the most critical concerns in development economics, particularly for developing countries, are how to encourage investment and improve the level of savings to fund higher investment.

To attain their aims, many less developed countries’ governments have made it a point of duty to secure proper mobilisation of domestic finances by manipulating both fiscal and monetary policy.

For many countries, financial sector and balance-of-payments liberalisations have increased access to foreign capital to fund domestic investment. However, many developing economies, due to their high degree of external debt, are unable to profit from foreign capital sources.

For men, domestic savings remain the primary source of finances for development and economic progress. However, due to low per capita income in developing nations, there has long been a view that impoverished people are too poor to save, and most financial institutions continue to ignore this group of customers.

Poor people’s savings can be a significant source of savings, and it’s important to tap into them. However, in the mobilisation of savings, characteristics such as income level, interest rates, economic growth rate, inflation rate, fiscal balance, external debt, and others have emerged as crucial factors.

If developing economies are to foster savings for the financing of investment, the determinants must be clearly defined. Until recently, financial progress was thought to increase the savings rate.

It includes the removal of loan ceilings, interest rate liberalisation, easier access for international financial institutions, stronger prudential standards and oversight, and the growth of capital markets.

Loayza and Shankar (2000) discover that financial progress has caused the private sector to expand the durable goods component of its assets.

The influence of financial development on saving rates can be divided into two categories: direct short-run impact, which is usually negative, and indirect long-run impact, which is normally beneficial (Loayza et al, 2000).

However, whether increasing financial development increases the overall willingness to save is determined by the degree of substitution between financial savings and other goods in the household’s asset portfolio.

As a result, the predicted signals of this relationship in the private savings function are uncertain (Athukora and Sen, 2004).

This study seeks to examine the effects of fiscal and monetary policy on saving mobilization in Nigeria. It also aims to determine the influence of other macroeconomic variables on domestic and mobilisation as a means of achieving economic growth and development.