The sales of national savings certificates increased in January amid an interesting decreasing trend for bank deposits.
In January, a total of Tk7,308 crore in fresh investments came from the sales of savings tools. And the government's net debt was Tk2,240 crore after deducting principal and profit payments.
In December 2019, the net sales had stood at negative Tk408 crore after 80 months.
During the first seven months of the current fiscal year, a total Tk41,520 crore of fresh investment came in the form of national savings schemes. During the period, the government has paid Tk33,846 crore for previously sold schemes.
The net sales were Tk7,673 crore, which was 75 percent lower than the sales in the same period of the previous year.
The government borrowed only 28 percent of its fiscal target – Tk27,000 crore from national savings certificates.
The target may be reduced to Tk12,000 crore in the amended budget because of low sales.
Economist Dr Zaid Bakht told The Business Standard that during the end of the year in December, many savings schemes mature. After getting interest, savers again invest that money.
"Moreover, the banks are starting to cut deposit interest rates from the beginning of the year," he said.
Because of the overall decrease in sales of savings tools, the government heavily depends on bank borrowing to meet the deficit budget.
From July 1 last year to February 18, the government borrowed net Tk52,310 crore from the banking system which was 110.44 percent of the fiscal target.
The government still continues to borrow from the banks to meet its demand for money to implement megaprojects.
Since July 1, 2019, the government imposed a 10 percent source tax on profits from investments of more than Tk5 lakh in savings instruments. The government also made tax identification numbers mandatory for purchasing savings certificates.
Experts said that in the last few years, the government had heavily borrowed from this instrument and now it is having to repay for that principal with interest after maturity.
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, whereas the government can borrow at 8 to 9 percent interest from banks.
A high dependency on bank loans has, however, squeezed the opportunity for private sector businesses to get loans.
In January 2019, the net sale of savings certificates was Tk6,002 crore.
The government declared that it will cap deposit interest at 6 percent for cutting the lending rate to single digit from April 1.
Recently, the central bank issued a circular capping 9 percent for all loans but credit cards.
The government also declared to restore the postal savings bank deposit interest rate to 11.28 percent.
But the upcoming automated system of investing in national savings schemes will not allow more than Tk50 lakh from an individual investor.
All that puzzles savers, economists said.
Ahsan H Mansur, executive director of Policy Research Institute and chairman of Brac Bank, said, "Now depositors are going to cooperative societies which is very risky for small savers."