Savings certificate sales tumble

Sales of national savings certificates saw a drastic fall in the first five months of this fiscal year, making the government heavily dependent on borrowing from banks.

Between July and November, the government borrowed 21 percent of its fiscal target from the savings certificates. The figure was 83 percent in the same period of the last fiscal year.

Sales of saving certificates dropped by 73 percent in the first five months of the current fiscal year compared to the same period in the last year.

However, economists see it as a positive occurrence as less dependency on savings certificates will reduce the government's debt burden.

The government has to pay higher interest on savings certificates than on bank loans.

The highest interest rate for savings instruments is near 12 percent when the government can borrow at 8 to 9 percent from banks.

A high dependency on bank loans has, however, squeezed the opportunity for private sector businesses to get loans.

The economist Dr Zaid Bakht, chairman of Agrani Bank, told The Business Standard that there was nothing to be worried about in the fall in sales of saving certificates since the government was getting money from the banking system at cheaper rates.

The government tightened the rules relating to investment in saving instruments in order to facilitate small investors, a measure which truly worked. The fall in sales of savings certificates has occurred because big investors are now away from such investment, he said.

Less dependence on savings certificates will provide relief to the government from its debt burden to some extent, he added.   

According to the National Savings Directorate, in the July-November period of the fiscal year 2019-20 the government had a net Tk5,841 crore from this budgetary instrument. The figure was Tk21,661 crore in the same period of the previous year.

Since July 1, 2019, the government has imposed a 10 percent source tax on profits from investments of more than Tk5 lakh. The government has made a provision of tax identification numbers mandatory for investments.

In November 2019, net loans of the government from this savings instrument stood at Tk320 crore, which was Tk3,833 crore in November 2018.

In the first five months of this fiscal year, net government borrowing from the banking system was Tk40,163 crore, which is 85 percent of fiscal target.

Recently the government declared that it will cap deposit interest at 6 percent and lending rate at 9 percent from April 2020. It will not help to move bank deposits to investment in savings instruments, explains economist AB Mirza Azizul Islam.