Why national savings matter to the peso

MANILA, Philippines —  When Filipinos hear the word “savings,” they probably think of money in a bank account, an emergency fund or perhaps coins kept in an alkansya.

Economists have something much bigger in mind.

National savings cover the resources set aside by the entire economy, including households, businesses, financial institutions and the government.

This distinction is important in understanding Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.’s much-discussed remarks about the country’s “consumption culture.”

His point was not simply that individual Filipinos should spend less and save more. He was talking about the savings-investment gap, or the difference between how much the country saves and how much it invests.

Think of a business that wants to spend P100 to expand but has only P80 from its own funds. It would need to obtain the remaining P20 from an outside investor or lender.

The country faces a similar situation. When the Philippines needs more money for factories, equipment, infrastructure and other investments than the economy generates in savings, it must obtain financing from abroad.

“Since investment exceeds savings for the country as a whole, we run a current account deficit. That’s what has been weighing on the peso,” Remolona told The STAR.

The current account measures the country’s transactions with the rest of the world through trade in goods and services, income and transfers. In accounting terms, its balance is equal to the difference between national savings and investment.

“When you do the math, the current account balance is exactly equal to the savings-investment gap,” Remolona said.

Based on BSP data, the current account gap widened by 34.9 percent to $5.66 billion in the first quarter, equivalent to -4.8 percent of gross domestic product, from $4.2 billion or -3.7 percent of GDP a year ago.

That is the broader context behind his remark during an Aug. 27 Senate hearing that Filipinos were “mayabang” and had a “consumption culture.”

The comment was widely interpreted as criticism of ordinary households, many of which already find it difficult to save after paying for basic needs.

Chinabank chief economist Domini Velasquez said it would be more useful to examine the entire economy rather than focus exclusively on families.

“The way I understood the governor’s statement is not ‘lack of savings’ of households but more broadly as national savings,” she said.

“National savings come from households, corporations, financial institutions and government. So it is more useful to look at the issue from the perspective of the overall savings-investment balance, rather than focusing only on household savings.”

This means asking how much households and businesses are saving, but also examining whether the government is spending more than it collects.

Ateneo Center for Economic Research and Development director Ser Percival Peña-Reyes said that the public sector recorded deficits in each year from 2000 to 2025. The private sector posted surpluses in nine of those 26 years, while the country registered a trade surplus only in 2007.

A trade deficit means the country imports more goods and services than it exports. This creates a steady demand for dollars and contributes to long-term pressure on the peso.

Still, Peña-Reyes cautioned that the peso does not move based on the trade deficit alone. In the short term, the currency is also influenced by US interest rates, the strength of the dollar and the movement of foreign capital.

There is another complication. The Philippines remains heavily dependent on household consumption, which accounts for more than 70 percent of gross domestic product, the total value of goods and services produced by the economy.

If everyone abruptly cuts spending to save more, businesses may suffer weaker sales, reduce hiring or postpone expansion. Lower economic activity could then reduce incomes and leave people with even less money to save. Economists call this the paradox of thrift.

The answer, therefore, is not simply to tell Filipinos to tighten their belts.

Velasquez said the country must increase savings across the economy, direct these funds toward productive investments and earn more foreign exchange through exports, tourism and information technology and business process management services.

“That would help reduce our reliance on external financing and, over time, provide a stronger foundation for the peso,” she said.