Dr Khondaker Golam Moazzem on interest on savings certificates

Published in Daily Sun on Tuesday, 17 March 2015.

Sales of savings certificates soar on higher interest

Sales of savings certificates soared to Tk 157.39 billion in the first seven months of the current fiscal till January, mainly due to higher interest rates on the savings instruments, officials said.

The government has so far borrowed Tk 921.36 billion over the years from sales of savings instruments, according to Bangladesh Bank data.

The government’s bank borrowing remains low this FY as the flow of finance was adequate from sales of savings certificates.

In January (2015) alone, gross sales of savings certificates stood at record Tk 35.74 billion, which was Tk 22.42 billion in the same month last year.

Experts say such a hefty borrowing from non-banking system might create medium and long-term financial burden for the government as it pays higher interest on such savings instruments.

BB data show that the sales turnout of saving certificates stood at Tk 229.45 billion during the July-January period of the current FY with net sales of Tk 157.39 billion after repayment of Tk 72.06 billion.

In the corresponding period previous FY, net sale was Tk. 49.83 billion against total sale of Tk 127.01 billion.

Interest on savings certificates is higher than that of depositing in commercial banks.

The rates start from low double digits up to above 13 percent, which is much higher than the interests offered by banks.

Dr Khondaker Golum Moazzem, additional research director of Centre for Policy Dialogue, said banks have lowered the interest rates on deposit products but the interests offered by the government on savings certificates remains higher, which resulted in the higher demand of government-backed instruments.

He said the government should also lower the interest rates on savings certificates to maintain a balance.

“Otherwise, it (huge sales of savings certificates) might create both medium and long- term burdens on the government.” The government borrows from banking and non-banking sources to finance budget deficit.

Dr Moazzem, however, said the government’s borrowing from sales of saving certificates is either way benefiting the both—people are investing in savings certificates while the government can meet the budgetary expenditure.

“But, it is unclear who are being benefited from investing in savings certificates. If the low- income people gain benefit from it, it is sort of incentive for them. But, the high interest rates on savings certificates is unjustified if wealthy people make more money by investing crores of taka on saving certificates,“ he said.

He said the government can consider this issue and introduce multiple interest rates based on the amount of investments so that the low-income people can get higher return from saving instruments than the wealthy people.