Govt may create a database of savings tools

The government considers a plan to create a database of investors on savings certificates so that target groups get the benefits as part of the government's social safety net programmes.

“The database will integrate information of the national identity card with the national savings tools,” Finance Minister AMA Muhith said in his concluding budget speech in parliament on Wednesday.

Muhith also hinted at lowering the interest rates on savings instruments as the returns from these schemes are very high compared to other rates prevailing in the market.

“But it is in our strong consideration that pensioners, lower middleclass and middleclass beneficiaries are not affected with a reduction in interest rates,” said the finance minister.

At present, banks offer 5 to 7 percent for deposits, whereas the rates for savings instruments are 11.52 percent on the five-year family savings certificates and 11.76 percent for the five-year pensioner savings schemes. The return on the three-year post office savings certificates stands at 11.28 percent.

This exorbitant return on savings schemes is also pushing the government's interest liability up every year, said Muhith.

For example, the government set a target to raise Tk 19,000 crore from the sale of its savings certificates for the outgoing fiscal year, which ends today, but the sale was Tk 42,000 crore in the first 10 months.

The sales proceeds from these tools were more than double, nearly Tk 34,000 crore, against a target of Tk 15,000 crore in the last fiscal year.

Economists and bankers also said if the trend continues, money would flow out of bank deposits and end up in savings schemes, meaning the government's interest liability will go up further.

They said a cut in the interest rates on savings tools would be a welcome move as it would fix the distortion in the market.

The International Monetary Fund (IMF) in a recent report advised the government to reduce its borrowing costs by cutting reliance on national savings certificates.

The IMF called for phasing out the savings instruments and increasing the issuance of low-cost treasury bonds and bills as an alternative.

The report presented various drawbacks, pointing out that the interest paid has amounted to about 1 percent of the country's gross domestic product (GDP).