Photo : Collected
People are turning away from the traditionally safe investment sector of savings bonds, with withdrawals consistently outpacing sales each month. This trend has resulted in a negative net investment in savings bonds for eight consecutive months.
In the first ten months of the current financial year (July 2023 to April 2024), the net investment in savings bonds has been negative by approximately Tk 14,500 crore. This means that more savings bonds were withdrawn than sold during this period, indicating that the government did not receive any loans from savings bonds. There is also a risk of not securing loans from savings bonds in the future.
Consequently, the government has significantly reduced the target for net loans from savings bonds in the new financial year and has increased the target for bank loans.
According to the report from the Department of National Savings, the net sale of savings certificates was negative by Tk 2,103 crore in April. The previous month of March saw even more negative net sales, around Tk 3,653 crore. In contrast, net sales in April last year were positive at approximately Tk 582 crore.
Overall, the net sales in the first ten months of the current financial year (July 2023 to April 2024) stood at negative Tk 14,648 crore. During the same period in the last fiscal year, net sales were negative at Tk 3,580 crore. This indicates that the amount of negative net sales has increased more than fourfold this year.
Analysis of the report shows that the net sales of savings bonds in the first two months (July-August) of the current financial year were positive at Tk 5,562 crore. However, since then net sales have been negative where Tk 147 crore negative in September, Tk 1,040 crore in October, Tk 1,554 crore in November, Tk 2,204 crore in December, Tk 1,287 crore in January, Tk 1,541 crore in February and Tk 3,653 crore in March and Tk 2,103 crore in April.
Those concerned have noted that inflation has been above 9 percent for the last 15 months. Under the pressure of high inflation, a segment of investors is depleting their savings. Additionally, the central bank has announced a more contractionary monetary policy to control inflation and has allowed all types of interest rates to be determined by the market, following the advice of the IMF.
Additionally, many banks are offering attractive interest rates on deposits. Banks with liquidity issues are offering up to 12 percent interest on deposits, which is higher than the rates for savings bonds. Currently, the interest rate on the Pensioner's Savings Certificate is 11.76 percent. The interest rates on other savings certificates are also lower: 11.52 percent for family savings certificates, 11.28 percent for five-year Bangladesh savings certificates, and 11.04 percent for profit-based savings certificates over three months. However, if these certificates are cashed before maturity, the full interest is not paid. Consequently, savings certificates are losing their appeal.
Meanwhile, the obligation to submit NID and TIN for investment in savings bonds starts from July 1, 2019. As a result, many of those who bought savings bonds earlier, did not invest again after the expiry. At present, 10 percent tax is payable on the interest earned on investments of more than Tk 5 lakh. Apart from this, various levels of interest rates on savings bonds have been introduced from September 2021 based on the amount of investment.
The government had already predicted that the savings bond sales would decrease. For that, the government's net borrowing target by selling savings bonds in the current fiscal year 2023-24 is Tk 18,000 crore. In the previous financial year 2022-23, this target was Tk 35,000 crore. The government has further reduced the target of borrowing from savings certificates to Tk 15,400 crore in the next financial year as well. One of the reasons behind reducing this target is the fulfillment of the conditions of the International Monetary Fund.
Messenger/Fameema
