Kazi Zahidul Hasan :
Sales of saving certificates get big boost again taking advantage of low interest rates on banks’ fixed deposits.
The Directorate of National Savings sold saving certificates worth Tk 39,168 crore from July to December last year, which is 65 per cent of the annual target, according to an official figure.
It has set savings certificate sales target at Tk 60,150 crore for the current fiscal (2017-18).
If the current trend of sales continues, the target would surpass setting a new record, officials said.
Sales of saving certificates hit a record high of Tk 75,100 crore in the last fiscal (2016-17) compared with previous fiscal’s Tk 53,700 crore, showing a 40 per cent year-on-year increase.
“Sales of saving certificates picked up again as a result of falling fixed deposit rates at banks,” former Bangladesh Bank (BB) Governor Dr Salehuddin Ahmed told The New Nation yesterday.
He said people flocked to buy saving certificates expecting high returns. The government earlier slashed interest rates on savings tools by about two percentage points to reduce its borrowing. But people continue to prefer it due to poor rates on banks’ fixed deposits.
Presently, the rates of return on the five-year family savings certificates is 11.52 percent, five-year pensioner savings schemes 11.76 percent, three-year post office savings certificates 11.28 percent, Bangladesh Savings Certificates 11.28 percent, three-year profit-based savings certificates 11.04 percent and five-year wage earners development bond is 12 percent.
Contrarily, the bank’s fixed deposit rate is now ranging from 4.0 to 6.0 percent.
“People do not have any other option but to invest in saving certificates when the banks cut their rates on fixed deposit. If we look at the bank rates, it is almost half of the savings certificates,” said former BB Deputy Governor Dr Khandoker Ibrahim Khaled.
The government has set a target to borrow Tk 30,150 crore from the savings certificates during the current fiscal.
“The rise in sales of savings instruments has both the positive and negative impact on the economy,” said former adviser to the Caretaker Government Dr AB Mirza Azizul Islam.
He said that it would bring positives on the economy if the government utilizes the amount as internal borrowing to the productive purposes. In the financial point of view, the rise in sales of savings tools will push up the government’s expenditure on interest payment depriving the development needs of the country.
“Fund collection through sales of savings tools is the most expensive means of internal borrowing as the government has to allocate a huge chunk of money every year from revenue budget for interest payment,” he said.
Contradicting the above view, Dr Salehuddin Ahmed said, “I don’t think that borrowings from the sales of saving certificates were costly when the government was paying the interest from taxpayers’ money and it was going to the taxpayers again.”
The government’s interest payment against its borrowing from the high yielding national savings certificates jumped by 44 per cent in the fiscal year 2016-17 due to the abrupt rise in the sales of savings certificates during the period.
During the fiscal, it had paid Tk 16,046 crore as interests for the borrowing, while the figure was Tk 11,151 crore in the previous fiscal year (2015-16), according to an official figure.
The government’s borrowing from savings certificates stood at Tk 33,688 crore in the fiscal year 2015-16.
“The sales of national savings certificates reached record high last fiscal pushing up the government’s interest payment to this head. People continue to park up their funds in savings certificates due to lucrative interest rates,” a senior Finance Ministry official told The New Nation yesterday.
He said the government had borrowed the amount to meet budget deficit. The borrowing was an internal debt, which is not a burden for the economy in the real sense because the debt repayments represent transfer form taxpayers.
