A finance ministry internal report has strongly recommended making immediate revision on the interest rates regime of savings tools amid their astronomical growth in a sluggish investment climate in the country. The report warned of an imminent fiscal risk to be caused by high interest burden of the government if the interest yields are not slashed down and current pace of borrowing trend continues from national savings schemes.
The borrowing from savings certificates in the July-September period of the current fiscal year registered above 225 per cent growth year-over-year that accounts for 75 per cent of the yearly target, according to data of the finance ministry.
‘High interest expense of the government could lead to a fiscal risk if the current trend of borrowing through savings tools continues for the remaining period of the current fiscal year,’ the report said.
‘Under the prevailing situation, it is of the utmost importance to review the interest rates for savings certificates.’
The cash and debt management committee of the finance ministry, led by finance division secretary Mahbub Ahmed, at a meeting on Thursday analysed the report of macro-economy unit of the division on savings tools and borrowing situation of the government during the first quarter to September of the current 2014-2015 fiscal year, sources said.
‘The meeting fully agreed with the report on non-bank borrowing and consequence of high interest expense of the government due to skyrocketing growth in sales of savings instruments to meet the budget deficit,’ a finance ministry official, also a member of the committee, told New Age on Sunday.
He said that the recommendations of the report along with the observation of the committee meeting would be sent to prime minister Sheikh Hasina for approval.
The official, however, said no concrete decision on reducing interest yields of savings tools might be taken before January as they were keen to see the situation of borrowing till December.
The net investment in the national savings instruments shot up to Tk 6,820.99 crore in July-September of the FY15 from Tk 2,097.47 crore in the same period last financial year, the Directorate of National Savings data showed.
The borrowing target for the whole of 2014-2015 financial year is Tk 9,056 crore.
The report said the net interest expense of the government against savings tools for the first quarter shot to Tk 2,158 crore, which is Tk 302 crore more than same period of the previous fiscal year.
The interest yields of savings tools offer as high as 13.50 per cent compared to 9 to 10 per cent in commercial banks for fixed deposits of money.
Finance ministry officials said they were examining the impact of any decision on small savers as they park their funds in the national savings scheme amid dull investment situation and tepid returns from banks against their funds.
They said as an immediate step they had stopped publication of advertisements to promote sales of savings certificates.
-With New Age input
