Staff Reporter :
The net sales of national savings certificates in Bangladesh have plummeted to a staggering negative Tk14, 648 crore in the first 10 months (July- April)) of the current fiscal year 2023-24, according to data from the Bangladesh Bank.
This figure represents a significant decline compared to the same period in the previous fiscal year, where net sales were negative Tk3,579 crore This troubling trend has persisted, as the government has been repaying investors instead of making new sales, thereby pushing the net position of NSCs further into negative territory.
The month of April alone saw a further decline, with net sales plummeting to negative Tk 2,103 crore, compared to a positive Tk 581 crore in April of the previous year.
This negative trend in net sales occurs when the repayment of principal amounts surpasses sales, resulting in a net outflow of funds from the government’s exchequer or through loans taken from the banking system.
Consequently, the total outstanding investment in NSCs fell to Tk 3,52,745 crore in July-April FY24, down from Tk 3,60,430 crore in the same period of the previous year, as reported by the central bank.
Bankers attribute this decline to the increasing reliance of individuals on their savings amid acute and prolonged inflationary pressures. The rising cost of living has left many without the extra funds necessary for savings and investments, further exacerbating the negative net sales of NSCs.
Bangladesh’s inflation rate has remained above 9percent for the 15th consecutive month, edging up further to 9.89percent in May, a 15 basis point increase from 9.74 percent in April. The point-to-point inflation rate stood at 9.81percent in March.
The rise in inflation was driven primarily by higher food prices, with the point-to-point food inflation rate increasing to 10.76percent in May from 10.22percent in April. Non
-food inflation, on the other hand, declined slightly to 9.19percent in May from 9.34percent in April.
Bankers attribute the declining appeal of national savings certificates to investors to the central bank’s increase in bank interest rates, which has made deposit rates and Treasury bond rates more attractive. People now prefer investing in government treasury bills and bonds due to their high-interest rate earnings, with Treasury bill interest rates soaring to a record 12percent.
To fund its activities in the current financial year, the government plans to borrow Tk 18,000 crore by selling savings certificates. In FY23, the government borrowed Tk 80,858 crore against the repayment of Tk 84,154 crore in the period.
Amid economic crises, the government has prioritized repayment over further borrowing through these high-interest instruments. Similarly, in FY22, the government raised only about Tk 19,915 crore from NSC sales, significantly lower than its target of Tk 32,000 crore.
The persistent high inflation rate and the government’s efforts to control borrowing through savings certificates highlight the economic challenges Bangladesh faces. As the central bank continues to raise interest rates to curb inflation, the impact on investment patterns and government financing remains a concern.
This declining trend has continued since FY21, the year of the Covid pandemic when the government raised Tk 42,000 crore.
Bankers have attributed the decline in NSC investments to a reduction in interest rates by 1-2 per cent on all savings certificates in September 2021.
The introduction of a maximum limit and the mandatory inclusion of national identification documents during the purchase of savings certificates further exacerbated the decline, they said.
They said that people were reluctant to disclose their income and identity when purchasing these certificates.
The Bangladesh Bank has also made it mandatory to submit proof of the previous year’s income tax returns for investments in savings certificates worth more than Tk 5 lakh.
Meanwhile, the government plans to borrow Tk 15,400 crore from NSC in FY25, which is 14.45 per cent or Tk 2,600 crore less compared to FY24.