After a decade-long trend to borrow from savings certificates to finance development and pay for other expenses, the government is now facing the fallout as sales have dropped.
The net sale in December last year was around Tk 53.5 billion but it was more than Tk 4 billion less than the amount the government had to repay in interests and principal sums.
It spent Tk 57.56 billion on the repayment.
In December 2018, the government was able to keep over Tk 33.31 billion after repaying the customers of savings certificates.
Analyst Zaid Bakht says the government is now “paying the price” for vigorously selling savings certificates with high interest rates.
The sales jumped every year as the interest rates were much higher than those offered on bank deposits.
And the slump in the share market made the savings certificates the most lucrative investment in the country, leading to huge government borrowings.
In the budget for 2019-20, the government doubled the tax at source on interest earnings from savings certificates to 10 per cent regardless of the amount of investment.
It later halved the tax on investment of up to Tk 500,000 in savings certificates.
Tax Identification Number was also made compulsory for investments of more than Tk 100,000.
As the government set some more conditions like use of bank account for the purchase of savings certificates, it caused a drop in the sale, bdnews24.com reported.
The outcome of the decisions could be easily felt. Otherwise, the huge interests and principal sums for repayment would have created huge pressure on the government in the future, Bakht said.
But now concerns have grown over aggressive government borrowing from the banks as the authorities are not doing well with revenue collections.
“Now the government is repaying the customers of savings certificates with bank loans,” Bakht pointed out.
The government has set a target to borrow Tk 270 billion from savings certificates this fiscal year, but was able to take only Tk 54.33 billion in the first six months.
It means the government now has two options. Firstly, it can take steps to raise savings certificate sales to borrow Tk 219.67 billion from these in the remaining six months.
The other option is to borrow the money from the banks, which will mount already high pressure on private sector investment.
There is a third option as well - to slash the budget.