SALES of savings instruments rose 18.86 percent year-on-year in the first six months of the fiscal year due to higher interest rates than banks and a dull stock market. The government sold Tk 23,024 crore of savings instruments between July and December.Although seven months have passed in the fiscal year, the government is yet to borrow any fund from the banking system, which is the cost-effective option. From July 1 to January 26, the government repaid Tk 9,477 crore in loans. In the same period last year, it borrowed Tk 2,899 crore, according to central bank statistics. As the investment demand was low, there was pressure on banks to cut the lending rates, so all lenders obliged.In contrast, the rate of interest on savings instruments is between 11.04 percent and 11.76 percent. More than half of the savings instruments sold in the first six months of the fiscal year were Paribar Sanchaypatra and three-monthly interest-bearing Sanchaypatra, as the interest rates on them are higher, according to the Department of National Savings. A finance ministry official said the borrowing from savings instruments will cross the current fiscal year’s target if sales continue at this rate.In this year’s budget, a target to borrow Tk 15,000 crore from savings instruments has been fixed. As a result, the government’s borrowing cost on account of interest payment went up. The government has repaid Tk 5,348 crore on account of interest payments in the first six months, up 17 percent year-on-year.It is mysterious as to why the government has not borrowed money from the banking sector as it already has an excess liquidity of over 100 000 crore but instead concentrated on borrowing funds from the public directly. This has a serious opportunity cost in terms of revenue spent as over Tk 1000 crore could have been saved if money had been directly obtained from banks by paying lower rates of interest.Even if interest rates are cut now it would mean that the money paid in interest has been wasted. It makes no sense to borrow money at high rates when low rates are available – it would have stimulated banks income and reduced revenue spent in interest. But it appears that the taxpayers money is yet again being used inefficiently, without a thought about the way it was collected. This nonchalant use of public funds must come to an end. Saving a penny is more efficient than earning one and misusing it. It is a lesson the administration must learn.
