Over subscribing in Govt saving tools will only increase its debt obligations

THE New Nation on Saturday reported, people in recent years are very much hesitant to keep their money in banks due to squeezing or negative return of interest rates in real terms. This low interest rate on bank deposit schemes is forcing the depositors to put their money in public saving instruments like National Savings Certificates (NSCs) and bonds. Such rising investment in the NSCs and bonds at the end would push up the government’s non-bank borrowing and it would put a systemic burden on the government for a high debt serving obligation.

It is highly frustrating that the depositors’ returns are lower than the inflation rate, meaning their money has lost value in real terms. The situation has hit the common people, the pensioners in particular, hard as on the one hand their cost of living is increasing and on the other hand their savings are becoming worthless now. Bankers blamed the squeezing return on deposits on the low demand for loans that has ultimately been fuelling the banks’ excess liquidity. Hence, banks cannot raise interest on deposit unless there is a pickup in credit demand. Due to such trend of interest setback, people are largely thronging to invest in government saving tools for a higher yield.

According to an official figure of the Directorate of National Savings (DNS), the net investment in the saving instruments increased to Tk 11,650.07 crore in the July-September period of the current financial year (2016-17) compared with Tk 6,612.43 crore during the corresponding period of the previous financial year (2015-16), showing a year-on-year increase by 76.18 per cent.

The government in an attempt to avoid the burden of interest payment against such deposits lowered the interest rate by 2 per cent on May 23 last year. Even then, the rush for the government saving tools continued on the increasing trend. If the current investment trend to the national saving tools continues, the government’s borrowing from the NSCs would cross the annual budgetary target at the year end.

Experts said, government has taken huge money from banks at low interests for spending in mega projects. Thus banks are trying to make up these financial shortages by decreasing the interest rate on deposits. It is also opined that the government is the only stakeholder to mitigate the crisis as it is the real crisis-maker.

Unless the current increasing trend of people’s preference to keep money in government supported saving tools, not in the banks, the government would be over-burdened with debt (interest) servicing obligation and the banks will also face lendable fund crisis resulting in a dampening investment situation. It needs to be reversed in the interest of the economy as a whole.