Unbridled sale of savings certificates

By Special Correspondent

The government's borrowing from savings instruments reached the full-year target within seven months of the current fiscal as people flocked to invest in saving schemes due to their high return.
The net sale of National Savings Certificates (NSC) during July-January was Tk 30,9,96 crore which is 118 per cent of the government's total borrowing target, according to data from the Department of National Savings (NSD).
The government's borrowing target from savings instruments was fixed at Tk 26,197 crore for the fiscal 2018-19.
"Small saving scheme has become most lucrative investment option for fixed income group of people because of their high yields. This has encouraged people to invest more on national savings instruments pushing up their sales abnormally for the period under review," former Finance Adviser to the Caretaker Government Dr AB Mirza Azizul Islam told The New Nation yesterday.
The yield of saving instruments is currently ranging from 11.04 per cent to 11.70 per cent, while banks are typically offering 5-6 per cent interest on fixed depoits (FDs).
"Interest rates on saving schemes are maintaining a striking difference with the rates of fixed deposits at banks making NSCs the best investment option for fixed income group of people, pensioners, women and senior citizens," said Dr AB Mirza Azizul Islam, adding, "Every investment has some risk attached to it. But investment in the government's saving schemes is risk free. This is another key factor for the high sale of savings certificates."
When asked, Dr AB Mirza Azizul Islam said, "Usually, the government borrows from savings certificates to meet the budget deficit. It's a high cost internal borrowing and a high-level borrowing from savings certificates only pushes up the government debt burden and create fiscal indiscipline."
He said the government has to spend a huge amount for paying interest on the sale of savings certificates every year. "So, an unbridle sale of saving certificates should be checked for maintaining the fiscal discipline."
According to the Department of National Savings certificates (NSD), worth Tk 6,003 crore were sold in January. However, Tk 22,260 crore was spent for paying the principal and profits on previous sale of savings certificates (during July-January period of the last fiscal year). Of the amount, Tk 14,111 crore was spent on interest payment only.   
In the FY 2017-18, the government's net borrowing from savings certificates stood at Tk46,530 crore against a target of Tk44,000 crore.
"The government's borrowing target from NSCs has surpassed the target in just seven months as people are investing more on savings instruments due to falling interests rates on FDs at banks and volatility in the capital market," former Bangladesh Bank (BB) governor Dr Salehuddin Ahmed told The New Nation.
He said the current trend of the NSC sale suggests that it would go up over Tk 50,000 at the end of this fiscal.
"The savings schemes were introduced for the betterment of pensioners and fixed income group of people. But now wealthy people of the society and institutional investors are heavily investing on savings certificates for making rapid profit. This also put an additional burden on the national exchequer."
Dr Salehuddin Ahmed said that the government should bring some sorts of reform in the operation of the savings schemes to guarantee the benefit to the targeted group of people and prevent leakage of the national exchequer.
"The government should also bring a balance between the interest rates of the saving schemes and FDs at banks to plug the loopholes in the operation of savings schemes," he added.