Govt borrowing up as savings tools sale slumps

Hasibul Aman

6 December, 2019 12:00 AM printer

New tight rules for purchasing government savings tools have driven away people with good amount of cash in hand, but at the same time it triggered government’s bank borrowing.

Sale of the savings instrument witnessed drastic fall this year on the back of putting in place a set of rules in a move to bridle huge investment it by well off people.

Net sales of savings instruments slumped by Tk 3,594 crore to only Tk 822 crore in October this fiscal year, whereas it was Tk 4,416 crore during the first four months of FY19, says Department of National Savings data.

Introduction of some stringent rules in buying savings certificates from the current fiscal year actually caused the drastic fall in sales, according to analysts.

From the very first month of FY20 the sales started falling. In July total sales were Tk 2,160 crore, in August Tk 2,205 crore and in September Tk 985 crore.

The new rules are higher income tax, making tax identification number (TIN) mandatory, making payment through bank cheques in case of over Tk1 lakh purchase, online buying system, revealing income source and putting a cap on individual buying.

Confusion with regard to tax on savings certificate interests at the outset of this fiscal year also contributed a lot for low sales, analysts said. 

In recent past years, there was a mad rush for buying government savings tools for their lucrative interest rates compared to that on bank deposits.

There was a demand among economists as well as politicians for controlling the buying spree in fear that it could eventually leave the government with a debt burden.

However, the high sales put a cushion for the government in budget deficit financing in the previous years, which has reflections on the government’s very low bank borrowing.  

Meanwhile, the government has gone for aggressive bank borrowing this year to meet the deficit financing. In five months, it has already taken 90 percent of of its targeted bank loans in FY20.

The central Bangladesh Bank figures showed that govt bank borrowing stood at Tk 42,607 from July 01 to November 21, whereas the budgetary target was Tk 47,364 crore for the whole year.    

In 2018-19 fiscal year, the government’s total bank loan was Tk 26,446 crore.  

Some analysts, however, warned that such aggressive bank borrowing by the government may squeeze scope of private sector credit, which is not healthy for the economy as well.