B Mirror Desk : A target of Tk 15,400 crore in net loan proceeds from the sale of savings certificates has been set in order to overcome the fiscal year 2024–2025 budget deficit. The maturity and redemption amounts of savings certificates that customers have cashed in prior to their maturity are subtracted from the overall sales statistics to calculate the net loan. According to recent data, consumers are anticipated to repay more than they invest this time around, just like they did in the previous fiscal year.
After analyzing the investment trends, the National Savings Department projects that the net loan will reach a negative Tk 12,000 crore by the end of the fiscal year. This suggests a reduction in the government’s debt from this sector, as repayments will exceed the amount sold. The increase in repayments, driven by a rise in the redemption of savings certificates compared to new sales, means the government will not be able to secure any loans from this sector to cover the budget deficit. Instead, it will need to repay Tk 12,000 crore from other budgetary sources.
This information was disclosed in a report recently submitted to the Ministry of Finance by the National Savings Department. Individuals invest in savings certificates seeking security and better returns. However, despite elevated interest rates aimed at countering persistent high inflation, there has been a noticeable decline in the purchase of savings certificates, alongside an increase in the tendency to redeem them.
Former Finance Secretary Mahbub Ahmed told media that high inflation over the past few years may be one of the reasons for the redemption or underselling of savings certificates. Due to the high interest rates, the government had taken various initiatives to reduce loans from this sector for several years. Currently, the interest rates are almost the same as those of banks. Moreover, the government’s revenue income is not increasing at the desired rate. In such a situation, it is not desirable to reduce the source of financing to meet the budget deficit. If money is not available from savings certificates, loans from the banking sector will increase further. Then the private sector will not get loans from banks as needed.
The department’s report indicated that a sales target of 83,340 crore taka was established for savings certificates in the current fiscal year. After accounting for the repayment of previously acquired savings certificates, the government’s net debt target was set at 15,400 crore taka. In the first seven months of the fiscal year (July-January), sales reached 36,463 crore taka against a target of 48,615 crore taka. Additionally, customers redeemed 43,476 crore taka in savings certificates during this period, resulting in net sales of negative 7,130 crore taka.
The report highlighted that the decline in net sales is attributed to a significant volume of savings certificate redemptions, alongside a downward trend in new sales. If this investment pattern persists, it is projected that total sales of savings certificates could reach 62,508 crore taka by the end of the fiscal year, while customer redemptions may amount to 74,530 crore taka. Consequently, net sales are expected to fall to negative 12,220 crore taka by the end of June.
Sources from the Ministry of Finance revealed that the government aimed to borrow 2 lakh 56 thousand crore taka from various domestic and international sources to address the budget deficit for the current fiscal year. The borrowing figure from the banking sector, as part of domestic sources, is notably higher. Given the negative net loan from savings certificates, there is a greater reliance on banks for financing.
The interest rate on loans taken from the government has also increased. In some cases, it is higher than that of savings certificates. Individual investment through banks in government treasury bills and bonds is increasing, which is one of the reasons for the decline in the sale of savings certificates.
According to Bangladesh Bank, the interest rate on five-year bonds is currently 11.36 percent. Until last February, it was above 12 percent. The interest rate on two-year bonds was about 12.5 percent before February. However, until last January, the interest rate on five-year savings certificates was 11.28 percent.
And the interest rate on profit-based savings certificates every three months for a three-year period was 11.04 percent. Moreover, although there is a tax on investment in savings certificates, there is no tax on investment in bills and bonds. To bring about uniformity in interest rates, the government has increased the interest rate on five types of savings certificates by about 1 percent since last January. In order to increase sales overall, several restrictions on investment in various savings certificates have also been reduced earlier.
The report mentions significant steps and reform activities in savings certificates. It says that the transaction activities of 9 out of 11 national savings schemes are being conducted through the ‘National Savings Scheme Online Management System’. On January 15, the profit rate of five savings schemes was increased. In the interest of small investors, interest is being paid at a premium rate of up to 7.5 lakh taka in the first slab of investment in national savings certificates. In addition, reinvestment facility has been provided at the end of the term in all individual savings certificates except institutions. Profit in pensioner savings certificates is being paid every month instead of every three months. Despite the increase in the facility, reinvestment is very low. In comparison, the tendency to redeem before the term is high.
According to the department’s report, the Wage Earner Development Bond’s investment cap has been removed. Post Office Savings Bank has reinstated the five-year Bangladesh Savings Certificate and term account reinvestment program. Wage Earner Development Bonds have been made available to non-resident Bangladeshi pilots, cabin crew, and mariners employed by foreign-owned maritime or aviation corporations in their overseas headquarters. Based on the circumstances, the department has also suggested taking the required actions to boost savings certificate sales.
