Govt orders fixing factors squeezing savings tools investment

A rising reliance on bank borrowing for meeting public financing gaps prompts the government to probe reasons why people are reluctant to invest in savings instruments that feed its funding needs, officials said.

The Ministry of Finance has asked the savings directorate to fix the factors behind the slump in investment in the national savings instruments.

Investing both in banking products and savings instruments produces almost similar returns for the investors. Notwithstanding that, the net sales of savings instruments have been in negative territory for long, officials of the directorate said.

Sources said the Cash and Debt Management Committee headed by finance secretary Dr Khairuzzaman Mozumder held a meeting Monday last reviewing public financing, interest spending, and cash-balance position of the government for the outgoing fiscal year.

Officials at the meeting noted that government borrowing from banking sector significantly surged, narrowing scope for raising private investments that create new jobs.

Data show that for the fiscal year 2024-25 the government set a target to borrow Tk 1.37 trillion from banking system which the post-uprising interim administration revised down to Tk 990 billion.

However, until June 15, the borrowing had surpassed the target to Tk 995 billion, central bank statistics show.

Officials say the government, until mid-June, had borrowed Tk 1.22 trillion from commercial banks of the country and repaid Tk 227 billion to the central bank, thus the net borrowing stood at Tk 995 billion.

During the stocktaking of the financing situation, the officials also found that people's investment in the savings instruments remained considerably low for a long period and was not rising and so the government is forced to borrow from the banking sector.

A senior finance division official told the FE few years back investment in savings instruments was pouring in, forcing the government to control their sale.

To curb investment of illegally earned money and stop investing by rich people the government back then made mandatory tax identification number (TIN) for buying savings instruments to keep track who are making investment, he said.

Since then, investment in savings certificate has been low, said the official.

"We now decided to find the reasons and take measures to attract investment in savings instruments," he said, citing meeting decisions.

Central bank data show during the July-April period of FY25, net sales of national savings certificates had been negative at Tk 74.31 billion as encashment surpassed fresh investments.

Economists think the government ought to give focus on raising its earnings instead of depending on borrowings, no matter it is from banks or by selling savings instruments.

Dr Zahid Hussain, a former lead economist at the World Bank's Dhaka office, told the FE Friday that deposit growth in banking sector is very weak which indicates people are now unable to make savings.

He said investment in savings instruments is a term investment for which one needs to have idle money. "But people now don't have huge idle money in hand to invest in savings instruments."

However, Mr Hussain suggests that instead of focusing on borrowing money from banking system or selling debt instruments, the government should give importance on raising its earnings.

"Revenue earnings need to be increased to fund government spending," he said, adding that budget deficit also has to be reduced in this case.

syful-islam@outlook.com