National savings fall as consumption spending rises: What does it mean for the economy?

As the country’s economy has expanded, both domestic and national savings in current-price terms have increased. However, savings as a proportion of gross domestic product (GDP) have not risen accordingly. Instead, both ratios have declined steadily.

National savings as a share of GDP have fallen for three consecutive fiscal years. In other words, although the economy has grown in size, the savings rate has failed to keep pace.

The latest edition of the Bangladesh Bureau of Statistics’ (BBS) National Accounts Statistics report contains these findings. According to the report, alongside national savings, investment as a share of GDP has also declined steadily. In contrast, consumption spending has increased.

According to BBS data, national savings stood at 29.95 per cent of GDP in the 2022–23 fiscal year. In the provisional estimate for the latest 2025–26 fiscal year, the ratio had fallen to 26.93 per cent. This means national savings declined by nearly 3 percentage points over three fiscal years.

Meanwhile, domestic savings accounted for 25.76 per cent of GDP in 2022–23, falling to 21.38 per cent in 2025–26. By that measure, domestic savings declined by 4.38 percentage points over the three-year period.

Economists say that a decline in savings relative to GDP means less capital is available for investment. Lower investment, in turn, affects employment and people’s incomes. A decline in national savings may also increase dependence on foreign or domestic borrowing.

Therefore, maintaining relatively high levels of savings and investment in relation to GDP is essential for sustainable economic growth. However, these indicators have been moving in a negative direction over the past several years.

Asked about the issue, Mustafizur Rahman, distinguished fellow at the private research organisation Centre for Policy Dialogue (CPD), said rising prices of essential goods and services had increased the cost-of-living burden on ordinary people.

According to him, as consumers try to balance their incomes with the cost of living, their capacity to save has fallen significantly.

He added that slower growth in remittances and losses incurred by various state-owned enterprises were also among the reasons for the decline in the national savings rate.

For context, domestic savings refer to what remains after total consumption expenditure by households and the government is deducted from the income generated from goods and services within Bangladesh’s borders.

National savings comprise domestic savings together with remittances sent by expatriate Bangladeshis and income from foreign sources.

Savings rate declining steadily

The savings rate began to decline during the Covid-19 pandemic, starting in the 2020–21 fiscal year. It increased slightly only in 2022–23, before declining steadily over the following three fiscal years.

Before the pandemic, in 2019–20, domestic savings accounted for 27 per cent of GDP, while national savings accounted for 31.42 per cent. In the provisional estimate for the latest fiscal year, domestic savings had fallen to 21 per cent of GDP, while national savings had declined to around 27 per cent.

However, savings in current-price terms have increased compared with previous years. BBS data show that national savings amounted to around Tk 1.345 trillion in 2022–23, rising to Tk 1.648 trillion in 2025–26.

Economists, however, place greater emphasis on savings as a proportion of GDP when assessing the actual savings trend and the economy’s capacity for capital formation.

That is because an increase in savings in nominal monetary terms does not necessarily mean that people’s real capacity to save has increased. Calculating savings as a share of GDP, on the other hand, provides an indication of how strong or weak the economy’s savings capacity is relative to its current size.

Inflation hits savings

MA Razzaque, chairman of the private research organisation Research and Policy Integration for Development (RAPID), said one of the main reasons for the decline in the national savings rate was persistently high inflation over an extended period.

Inflation has caused a large portion of people’s incomes to be spent on consumption — goods and services — leaving them with less capacity to save after meeting their living expenses.

According to BBS data, total consumption expenditure as a share of GDP rose from 74.24 per cent to 78.62 per cent over the past three fiscal years. The main factor behind the increase in consumption spending has been the high inflation that has persisted for several years.

Inflation rose in India, Sri Lanka, Pakistan and several other countries after the Russia–Ukraine war began. Bangladesh, too, has experienced high inflation for four consecutive years. Overall inflation stood at 8.26 per cent in August, while inflation was above 10 per cent in the 2024–25 fiscal year.

Negative impact on investment

According to BBS data, total investment as a share of GDP was above 31 per cent six years ago. It has now fallen below 28 per cent. During this period, both private and public investment have declined.

RAPID Chairman MA Razzaque said a decline in national savings reduces investment because lower savings mean that banks and other financial institutions have fewer funds available. As a result, entrepreneurs have less access to loans to expand their businesses. This constrains overall investment and business expansion in the country.

CPD Distinguished Fellow Mustafizur Rahman said a decline in the savings-to-GDP ratio means it is becoming increasingly difficult to meet domestic investment needs using capital accumulated within the country. In such a situation, dependence on domestic and foreign borrowing increases in order to sustain investment. This, in turn, increases the pressure associated with securing loans, managing them and repaying the borrowed funds.

What needs to be done?

To overcome the existing challenges and restore a positive trend in the economy, CPD Distinguished Fellow Mustafizur Rahman recommended increasing productivity, attracting foreign direct investment (FDI), and reducing losses incurred by state-owned enterprises.

He said that, alongside these measures, unnecessary spending should be reduced at both the public and private levels, while efforts should be made to restore public confidence in the financial sector.