There has been a drastic fall in the net sales of national savings certificates, and the government borrowing from them as well.
According to Bangladesh Bank’s latest data, sales of savings certificates subsequently dropped in the eight months from July 2021 to February 2022.
As a result, the government borrowed only 51% of its target through sales of national savings certificates in the first nine months of FY22, mainly due to higher interest rates and slow spending on projects under the annual development programme.
Till March of this fiscal year, it accumulated Tk16,504 crore from selling savings tools against its annual borrowing target of Tk32,000 crore for deficit financing.
According to sources, the government's net debt in the form of savings tools amounted to Tk3,628 crore in August of the current fiscal year. In just a month, this net debt went down to Tk2,825 crore in September.
The downward trend continued through the next two months, massively causing the net debt to drop to Tk766 crore in October, and Tk701 crore in November. In December, the government repaid Tk436 crore without borrowing.
However, in the new year, the whole picture has changed. The government borrowed Tk2,586 crore in January, Tk2,522 crore in February and Tk1,814 crore in March.
Economist Zaid Bakht, chairperson of the state-owned Agrani Bank, does not believe government measures had anything to do with the drop in sales of saving certificates.
Rather, he believes that the introduction of a maximum limit and making the attachment of national identification documents mandatory during the sales of savings certificates are the main reasons behind the sharp decline.
“People did not want to reveal their income while buying savings certificates. They used to buy them under their family members' names, even using pseudonyms. Making NID mandatory during sales forced buyers to stop purchases,” he said.
Slow ADP spending
Fahmida Khatun, executive director at the Centre for Policy Dialogue said: “The government has reduced buying savings certificates as interests on such instruments are higher than the interest on bank loans. The money borrowed through sales of savings tools is spent on development projects that see slow implementation in the current fiscal year. That is why the net borrowing is low.”
The government has set an ADP spending target at Tk217,000 crore in FY22, but in the first nine months, ADP spending stood at Tk98,934 crore or only 45.56% of the target.
On condition of anonymity, an official of the National Savings Directorate said: "The cut in interest rates of savings certificates has had some effect on sales in the last few months. Even though sales and net debt increased in the first three months of 2022, this is still less than what it was in the previous year."
Earlier, the government cut interest rates on all kinds of savings certificates by 1-2%.
According to sources, in the first nine months of FY22, the total investment in savings certificates amounted to Tk81,326 crore. The government spent Tk64,822 crore to pay off principal and interest during this time.
In FY21, the government's net debt in savings certificates was Tk41,959.54 crore, while the government's borrowing target in the original budget of that fiscal year was Tk20,000 crore.
Govt’s borrowing from banks rising
As the sales of savings certificates dropped sharply, the government had to borrow more from banks for deficit financing.
According to Bangladesh Bank’s latest data, in 10 months (July-April) of FY22, the government has borrowed 42.5% of the set target of borrowing.
The government borrowed Tk25,240 crore from banks and Tk7,247 crore from the central bank in the first 10 months of the current FY. Thereby, the government's net debt in the banking sector stands at Tk32,488 crore.
As of April last year, the government had borrowed Tk1,71,420 crore from the banking sector. At the end of April of the current fiscal, the debt has come to stand at Tk2,34,604 crore.
During this one year, the government's cumulative borrowing from the banking sector stood at Tk63,183 crore – implying an increase of the government's debt by 37% till April of the current FY as compared to April last year.
Dr Zahid Hussain, the former lead economist at the World Bank's Dhaka office, said: “Banks are currently facing a liquidity crisis, and the call money rate has risen to 5%. If the money supply increases to meet a huge demand for loans from the government, it will further stoke inflation.”
“There is not much of a tradition of borrowing by printing money in Bangladesh and it is not good. Zimbabwe has always done this, and so has the Sri Lankan government,” he pointed out.
Without so much dependency on internal debt, economists suggest giving more emphasis on foreign debt.
