Dhaka Bureau: The government is reducing the amount of borrowing from savings bonds to meet the conditions of the International Monetary Fund (IMF). To meet the deficit budget of the fiscal year 2023–24, a target of taking at least 7 thousand crore rupees less than the current year has been fixed. The analysis of the finance department is that the high rate of interest on savings bank loans has led to abnormal expenditures. This decision has been taken to reduce costs. The IMF has also given conditions to reduce the interest cost. However, more loans will be taken from the banking sector to meet the deficit.
According to economists, if the sale of savings bonds is halted, the new and middle classes will suffer. Those who are running the household by buying savings certificates will be in danger. On the other hand, if more loans are taken from the banking sector, there is a danger that private entrepreneurs will face a crisis. And this will have a negative impact on investment and employment. And to deal with such a situation, they also expressed fear that the government may have to print money in the coming days.
Recently, the economic coordination council meeting highlighted the government’s debt situation. In the meeting chaired by Finance Minister AHM Mustafa Kamal, it was decided to take 20 percent of the total domestic debt from savings bonds and the remaining 80 percent from banks. A senior official of the finance department involved in this process told the media that the IMF’s conditions and our thoughts regarding savings bonds are the same. This is because savings certificates are considered social security tools by the government. But on review, it has been found that the investment amount of 97 percent of savings card buyers is above 5 lakh rupees. Savings certificates are no longer restricted to new-income earners. Many middle- and upper-class Americans are investing in this sector. Now the question is: Who is the government paying interest on savings bonds at such high rates? Who is the beneficiary of this interest? The IMF is also asking the same question here. Due to this, the government will gradually reduce the amount of borrowing from savings certificates. Usually, the budget is announced every year with a deficit. Borrowing is done from two sources to meet the deficit. Firstly, from foreign and, secondarily, from domestic sources Internal sources include borrowing from banks and savings bonds. According to the finance department, the initial target for borrowing from savings bonds to meet the budget deficit of the next financial year is Rs. 28,400. And the target of this loan in the current financial year is 32 thousand crores. Accordingly, in the new budget, at least Rs. 7 thousand crores of debt will be reduced.
Sources also said that the finance department has already stopped the sale of savings bonds by taking several steps. First, the process of purchasing savings bonds is done online; second, the investment limit is reduced to a “reasonable level,” and third, profit rates are divided into several tiers. Due to the implementation of these reforms, investment in savings bonds has decreased compared to earlier. According to the finance department, the net sales of savings bonds in the first six months of the financial year (July–December) have been negative at 3,107 crores. The total target for the sale of savings bonds this year is Tk 35 thousand crores.
Former Senior Finance Secretary Mahbub Ahmed told the media that the IMF has asked to adjust the interest rates on savings bonds to reflect the current market. Besides, the government has also adopted the policy of taking fewer loans from savings bonds. He also said that the bank interest rate is increasing gradually. As a result, the difference between the bank interest rate and the savings bond interest rate will decrease very soon. As savings bonds are used as social security tools, many new earners, widows, and retirees run households with investments. Interest rates on savings bonds have also been reduced earlier. It will not be right to shake hands here.
According to sources, a loan of Tk 1 lakh, 14 thousand, and 400 crore will be taken from the banking sector to meet the budget deficit of the financial year 2023–24. In the current financial year, the target of this loan is Rs. 1 lakh, Rs. 6 thousand, and Rs. 334 crores. In other words, 8 thousand crore rupees more will be taken in the next financial year.
But the review shows that the growth of deposits in banks has been 6 to 7 percent this year. According to the draft of the upcoming budget, 6.64 percent has been set as a target for borrowing from banks. But the increase in deposits will be swallowed up by the increase in government debt. That is, the entire increase in deposits will go to the government’s credit sector. In this case, there is a fear that private entrepreneurs will be in financial crisis. In this regard, Bangladesh Bank advised borrowers to take out fewer loans from the bank.
The executive director of the Policy Research Institute, Ahsan H. Mansoor, told the media that the government has taken several initiatives to reduce the sale of savings certificates. Due to these reasons, sales have decreased a lot. Now the question is about taking a loan from the bank. But the lack of deposits in banks is a big problem. The amount of deposits in the banks should increase in the coming year. If not, the situation will have to be solved by printing money through the central bank. In addition, government spending should also be reduced.
Meanwhile, the government is on its knees due to interest expenses. In the current financial year, 80 thousand 375 crore rupees have been allocated for the payment of loan interest. This year, the government will have to pay an additional 9,638 crore rupees in interest expenses. Most of it will go into the savings account. In the next fiscal year, this interest expense will exceed one lakh crore taka.
IMF’s outline on savings bonds: According to the IMF’s estimate, the budget deficit will come down to 3.3 percent in the fiscal years 2025–26. The regulator behind reducing this deficit will be the increase in income in the tax sector. The organization has calculated that Bangladesh will have to raise additional tax revenue of Tk 4 lakh, 37 thousand, and 300 crore in three fiscal years from 2023 to 2026. If implemented, the budget deficit will come down from 5.5 percent of GDP to 3.3 percent. And if the deficit decreases, the amount of borrowing from the savings sector will also decrease. According to the conditions, not more than one-fourth of the domestic debt can be borrowed from savings bonds.
