Interest payment to go up 24pc

The government's spending on interest payment is set to go up by 24 percent in the upcoming national budget compared to the previous year because of a rise in sales of costly savings instruments.

On June 7, Finance Minister AMA Muhith will propose to allocate Tk 51,330 crore to pay interests in 2018-19, up from Tk 41,457 crore in the current fiscal year, according to an official of the ministry.

According to a Bangladesh Bank report, government borrowing from savings instrument is increasing significantly as it carries relatively higher interest rate compared to other savings rates.

The rate of interest on savings certificates is about 12 percent whereas deposits in the banking sector offer 6 to 7 percent interest.

After the Farmer's Bank scam and its failure to return depositors' money, more people are now tilting towards the savings certificates, which are deemed secure.

The government has set a target to borrow Tk 30,150 crore by selling savings instruments and Tk 28,203 crore from banks in the current fiscal year.

But it has not borrowed a single taka from the banking system in the first 10 months; rather, it repaid Tk 25,705 crore.

However, the government sold savings instruments valued Tk 40,063 crore during the same period.

The government pays 11-12 percent interest for savings certificates whereas it has the scope to borrow funds from the banking system at less than 3 percent.

Because of the government's preference for savings certificates, almost half of the fund set aside for interest payment will be used for the savings tools in the current fiscal year.

The finance division and a number of economists had pursued Muhith to cut the interest rate on savings certificates, but their efforts went in vain as he continues allowing it for the sake of low-income savers. However, Muhith, at various pre-budget meetings, said the government would review the savings instrument system to see whether any reform could be made.

The minister also plans to set aside Tk 66,200 crore for salaries and allowances of 14 lakh public servants in the next fiscal year, up 70.20 percent from Tk 56,442 crore in the previous year.

The size of the next budget will be Tk 460,000 crore, said Muhith.

However, a finance ministry official said the amount may hover between Tk 460,000 crore to Tk 470,000 crore finally. Like previous budgets, the minister will keep the budget deficit at 5 percent in 2018-19.