Net sales of domestic savings certificates turned negative in September, the third month of the current 2022-2023 fiscal year, amid rising cost of living and tougher government measures on the purchase of NSC .
According to Bangladesh Bank data, net sales of NSC turned negative by Tk 70.63 crore in September against a positive growth of Tk 2,826 crore in the same month last year.
The net figure turned negative as the government paid more principal and interest than its NSC sales.
The government may want to avoid a high interest charge given the current economic crisis in the country, BB officials said.
Earlier in December 2021, NSC net sales turned negative at Tk 435.96 crore.
In the first quarter (July-September) of FY23, NSC’s net sales fell to Tk 330.57 crore from Tk 8,558 crore in the same period last year. Net sales of savings certificates were only Tk 393 crore in July and Tk 8.08 crore in August.
In order to bridge the fiscal 23 budget shortfall, the government has set a target to raise Tk 35,000 crore through the sale of NSC in the fiscal year.
The budget size for FY23 is Tk 6,78,064 crore and the initial budget for FY22 was Tk 6,03,681 crore.
Market experts said the main reason for the drastic drop in net investment in NSCs was the rising cost of living which eroded people’s ability to save.
Also, government policy in this regard has been quite discouraging lately, they said.
As the government reduced the interest rate, made it compulsory to present various documents, people became reluctant to invest in savings certificates, they said.
Central bank and commercial bank officials said NSC sales have dropped significantly in recent months due to declining profit margins on NSCs alongside different types of government-imposed restrictions.
On September 21, 2021, the government reduced interest rates on all types of cash certificates from 1 to 2%.
In addition, the introduction of a maximum limit and the requirement to include national identification documents when buying cash vouchers were other reasons for the sharp drop, as people did not want to reveal their income and identity when purchasing cash vouchers, officials said. .
The Bangladesh Bank has also recently made it mandatory to submit proof of previous year’s tax returns for investment in savings certificates worth more than Tk 5 lakh.
Lower sales of savings certificates are likely to boost government bank borrowing to fill the budget gap, officials said.
To reduce the cost of interest, the government now prefers to borrow from banks because interest on savings tools is higher than interest on bank loans, they said.
Government borrowing from the Bangladesh Bank soared to Tk 72,700 crore at the end of September, according to BB data.
Bankers said the country’s banking sector was facing a liquidity crunch due to slow growth in deposits against strong growth in loans and increased purchases of dollars from the central bank to cope with the foreign currency crisis.
The government aims to borrow Tk 1,06,334 crore from the banking system in FY23.
In June 2022, net sales of NSC amounted to Tk 1,749.63 crore compared to Tk 4,573.56 crore in the same month of 2021. In FY22, the total investment in certificates of savings amounted to Tk 1.08 crore.
The government spent Tk 40,002 crore to pay interest for the period.