Focus of savings tools must be realigned: economist

The government should design a policy to avoid the mis-targeting of beneficiaries of the national savings schemes, a top economist said.

Savings tools are meant for middle-class and lower middle-class pensioners but relatively richer ones are getting the most benefits, said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.

Robust sales of national savings schemes are not only a diversion from the government's welfare-thinking; it is pushing the debt burden upward as well, he said.

Net sales of savings tools stood at upwards of nearly Tk 15,917 crore during the July-October period, up 76.19 percent year-on-year, according to data from Bangladesh Bank.

Bangladesh sold savings certificates worth more than Tk 4,266 crore in October alone, which is an increase of more than 81 percent from a year earlier.

BB officials and commercial bankers attributed the robust growth to the higher returns the government offers for investments in savings tools in comparison to other alternatives in the market.

Investors were lured in by the interest rates, which are 5-6 percentage points higher than those offered by commercial banks on term deposits.

Presently, banks offer at best 5-6 percent for term deposits and the average return on five-year bonds is 6.5 percent.

The call money rate has come down to about 3.5 percent in recent days; and the capital market was not lucrative for investors either.

On the other hand, investments on government savings tools generate over 11 percent returns.

The situation is hurting banks, which are sitting on idle funds due to sluggish demand for credit.

More sales of savings tools will force the government to borrow less from the banking system.

The government borrowed only about Tk 4,000 crore from the banking system against the target of Tk 38,523 crore for fiscal 2015-16, though the banks were sitting on excess liquidity.

For the current fiscal year, the government has planned to borrow Tk 43,000 crore from the banking sector to meet its budget deficit. But as of October, the borrowing from banks has remained in the negative.

Net sales of savings certificates more than doubled from the target set by the government for fiscal 2015-16: it stood at Tk 33,688.6 crore -- the highest in the country's history -- against the target of Tk 15,000 crore.

This fiscal year, the target has been set at Tk 19,610 crore, but 80 percent of it has already been achieved in just four months.

Mujeri, also a former chief economist of the central bank, said there are two broader objectives of the national savings schemes.

The first is to borrow to meet the financing needs and the other is welfare implication, which will help pensioners earn something.

But the benefits are being pocketed by relatively rich people, he said.

“It is time to design a policy to reset the target -- welfare for whom? -- to reduce leakages of the schemes,” he added.

The declining interest rates on bank deposits have been forcing people to buy savings certificates, said Anis A Khan, managing director of Mutual Trust Bank.

“Now many people buy these schemes in their names, in their wives, sons and daughters' names,” said Khan, also the chairman of the Association of Bankers Bangladesh, a forum of banks' managing directors.

But there are no other options in the absence of savings schemes for pensioners. “Retired people depend on the government's savings certificates.”

He, however, said high returns on these schemes are affecting the banking industry.

In May last year, the government slashed deposit rates on savings instruments by up to 2 percentage points. But still it is higher than the others.

The interest rate on the five-year family savings certificates has been brought down to 11.52 percent from 13.45 percent, according to a notice of the Internal Resources Division.

The five-year pensioner savings schemes saw its interest rate slashed to 11.76 percent from 13.19 percent.

The interest rate on the three-year post office savings certificates came down to 11.28 percent from 13.24 percent.

For Bangladesh Savings Certificates, the rate was fixed at 11.28 percent, down from 13.19 percent.

The three-year profit-based savings certificates saw their deposit rates go down to 11.04 percent from 12.59 percent.

Presently, an individual can invest up to Tk 30 lakh in five-year term certificates and three-month profit-bearing certificates.

An adult female can purchase up to Tk 45 lakh in savings instruments under Paribar Sanchayapatra (family savings certificates), and the relatively rich take advantage of this by investing big sums in them.