THE two-year long political uncertainty almost squeezed the country’s economy by narrowing FDIs, shuttering investments, alongwith the removal of GSP facilities by the US and the EU, limiting migration to Middle Eastern countries, and eventually lowering interest rates against savings in commercial banks. Due to cutting interest rates against deposits in banks, people find it profitable to invest in national savings certificates and bonds which offer higher rates that has contributed to an increase in deposits in savings instruments by 225.20 percent in the first quarter of the 2014-15 FY compared to that of the same period of the previous FY. People now tend to invest on government savings tools which offer 12.59 percent to 13.45 percent interest rate against commercial banks’ average rate of 8 percent to 9 percent. It is mounting pressure on the banking sector through lower deposit availability on the one hand and also forcing the government to offer higher interest rates for arranging large amounts by internal borrowing on the other.
A leading daily said the banks are forced to cut the interest rates against saving due to narrowed investment, overabundance of remitted money and political uncertainty that made the sector volatile. Many senior bankers said they are now reluctant to take deposit from the clients, so they cut the interest rate on their deposit products. The gross investment in the national savings certificates and bonds would hit a new record this financial year if the existing trend continues in the coming months, officials of DNS said. The government is worried as the net investment surpasses the government-set target and if the present investment trend continues at the end of this financial year it will bring about an economic imbalance.
The businesses are yet to start their business expansion by taking loans from the banks due to political uncertainty. The solutions to remove the lethargy of the economy will not surely come from economics but rather from politics.
It is evident that the government is raising money by internal borrowing through selling savings tools at higher interests to meet its current expenditures. This practice will simply weaken the national economy further because the trade and industries sectors are in a fix over their investment strategies in the back drop of the uncertain political scenario of the country. Over subscription in government savings tools will in turn pull down the economy to a dangerous level for lack of real growth related investment. The scenario needs to be reversed without delay.
