Net sale of savings tools negative after 80 months 

The government is feeling the pinch of debt burden due to random selling of savings tools for the last several years. 

Now the repayment has become so high that net sale of national savings certificates– new sale minus repayment – has gone negative after 80 months, a development that was unthinkable even a year ago.

According to the recently released data of the National Savings Directorate, net sale after deducting principal payments stood at negative Tk408 crore in December last year.

Data showed the government paid Tk12,602 crore as principal in the 2013-14 fiscal year and the amount rose to nearly three and a half times after five years. The figure stood at over Tk28,778 crore in the first half of the current fiscal year.

Excessive sale of the instruments for the past several years has burdened the government's repayment. Mandatory use of tax identification number and an increase in source tax has pushed down the sale of the tool even after paying over 11 percent interest rate, which is almost double the return of bank deposits.

In December 2019, total sale of savings certificates was Tk5,348 crore and the repayment, including the principal amount, was Tk5,756 crore.

The last time repayment exceeded net sale was in April 2013, when the payment was Tk1,989 crore against sales of Tk1,975 crore.

Economist Dr Zaid Bakht told The Business Standard that there is nothing to be worried about this fall in sales of saving certificates since the government is getting money from the banking system at cheaper rates.  

The government tightened the rules relating to investment in savings instruments in order to facilitate small investors – a measure which has borne fruit. 

"A fall in sales of savings certificates has occurred because big investors have been driven away from this investment tool," he said.  

Less dependence on savings certificates will provide relief to the government from its debt burden to some extent, Bakht added.  

The government's borrowing spree from the banking system also pushed down the demand of the tool.

In the first seven months of this fiscal year, government borrowing from the banking system was Tk49,043 crore, which was 103.54 percent of the fiscal target. Still the government continues to borrow from the banks to meet its demand for money to implement megaprojects.

"Less sale of savings tools forced the government to go for bank borrowing and high bank borrowing is crowding out private credit," said AB Mirza Azizul Islam, former finance adviser to the caretaker government.

Data shows that in the July-November period of the current fiscal year, net worth of this budgetary instrument was Tk5,841 crore. 

The net worth went down to Tk5,433 crore in the first half of the 2019-20 fiscal year. This is 78 percent lower than the net sale of the same period in the previous fiscal year, which stood at Tk24,993 crore. 

In the current fiscal year, the government has set a target to borrow Tk27,000 crore from national savings certificates. 

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 number mandatory for purchasing savings certificates. 

Experts say 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. 

On the other hand, for the drastic fall in sales of national savings certificates in the first half of this fiscal year, the government needed to heavily depend on borrowing from the banking system. 

Between July and January, the government borrowed 21 percent of its fiscal target from savings certificates. 

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 December 2018 net sale of savings certificates was Tk3,332 crore. 

Recently the government declared that it will cap deposit interest at 6 percent and lending rate at 9 percent from April 2020. 

However, economist AB Mirza Azizul Islam thinks even this will not help to move bank deposits to investment in savings instrument.