Sales of savings instruments soar

Sales of savings instruments rose 18.86 percent year-on-year in the first six months of the fiscal year due to higher interest rates than banks and a dull stockmarket.

The government sold Tk 23,024 crore of savings instruments between July and December.

Although seven months have passed in the fiscal year, the government is yet to borrow any fund from the banking system, which is the cost-effective option.

From July 1 to January 26, the government repaid Tk 9,477 crore in loans. In the same period last year, it borrowed Tk 2,899 crore, according to central bank statistics.

As the investment demand was low, there was pressure on banks to cut the lending rates, so all lenders obliged.

On the other hand, the stockmarket has been dull for long.

As the rate of interest on savings instruments is high, many have tilted toward it instead of parking their funds in banks.

The average deposit rate in December stood at 6.34 percent -- down about 1 percentage point in a year -- which is close to the current inflation rate.

Inflation has been hovering around 6 percent for almost a year and a half, meaning if the deposit rate is adjusted for inflation, the savers do not get any real returns.

In contrast, the rate of interest on savings instruments is between 11.04 percent and 11.76 percent.

More than half of the savings instruments sold in the first six months of the fiscal year were Paribar Sanchaypatra and three-monthly interest-bearing Sanchaypatra, as the interest rates on them are higher, according to the Department of National Savings.

A finance ministry official said the borrowing from savings instruments will cross the current fiscal year's target if sales continue at this rate.

In this year's budget, a target to borrow Tk 15,000 crore from savings instruments has been fixed.

As a result, the government's borrowing cost on account of interest payment went up. The government has repaid Tk 5,348 crore on account of interest payment in the first six months, up 17 percent year-on-year.

The finance ministry official said the government is now contemplating lowering the interest rate on Sanchaypatra.

Finance Minister AMA Muhith has recently said the government will fix the market-based interest rates for savings instruments.

The government's target for bank borrowing this fiscal year is Tk 38.523 crore. A finance ministry official said if development expenditure, which has been slow this far, goes up, bank borrowing will also increase.