Net investment in national savings certificates (NSCs) dropped sharply in the first nine months of the current fiscal year – an indication that can be viewed as a possible roadblock for the government to manage its bulging deficit smoothly.
Between July and March, the net sales of savings instruments stood at Tk 11,203 crore, down 71.80 per cent year-on-year, according to data from the Department of National Savings (DNS).
Economists say the decreased sale of the instruments would not create any major impediment if the government takes appropriate measures immediately to manage the deficit financing caused by the plunging revenue incomes.
Savers have to require a tax identification number to invest in the tools as well.
The government now monitors the investment in the saving tools by using an online management system, which is another reason behind the fall in the investment in the segment.
Some people, lured by higher profit compared to the deposit products in the banking sector, had earlier invested heavily in the savings tools breaching the limit set by the DNS.
The government is giving interest ranging from 11.04 per cent to 11.76 per cent to the investors of savings instruments.
Net investment in the savings instruments maintained a declining trend in the first six months to December after the government imposed a 10 per cent source tax on the profits of the investments above Tk 5 lakh.
It picked up in January, but this did not put a long-lasting effect and investment has started to descend steeply since February.
The capacity of savers will fall further in the days ahead due to the ongoing economic fallout brought on by the coronavirus pandemic, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
"The expatriate Bangladeshis usually invest a good amount of their fund in the savings instruments, but they have been in dire straits now," he said, cautioning that this will further hit the net investment.
The government has faced problems in mobilising required revenue this fiscal year and the trend may continue into FY21 due to the collapse in economic activities.
Against the backdrop, the government should give importance on availing foreign loans and grants to manage the deficit financing, he said.
The target for net sales of savings tools has recently been revised down to Tk 12,000 crore compared to the original target of Tk 27,000 crore for FY20 because of the massive fall in net investment.
Finance Minister AHM Mustafa Kamal on June 11 set a borrowing target of Tk 20,000 crore from the national savings tools to tackle the deficit financing in the next fiscal year.
In fiscal 2018-19, Tk 26,446 crore was borrowed from the banking sources by the government.
But this time the government will have to depend on borrowing from the banking sector heavily as the mobilisation of funds from the savings tools will decrease.
Kamal plans to borrow Tk 84,980 crore from the banking sources in FY21.
"The government will have to enhance its capability to implement the projects funded by the foreign lenders and agencies," said Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue.
The government's decreasing reliance on savings instruments is a good trend as many savers had earlier put their funds illegally in the government tools, he said.
Some donor agencies and multilateral lenders now think of giving debt repayment relief to the developing countries, he said. "We will be able to enjoy the opportunity if foreign-funded projects can be implemented on time."
The government plans to secure Tk 80,017 crore in foreign loans and grants to manage its deficit financing.
The budget deficit is Tk 190,000 crore in FY21, which is 6 per cent of the country's gross domestic product, up from Tk 153,508 crore in the revised budget in FY20, or 5.5 per cent of GDP.
The government has set a target to mobilise Tk 17,000 crore, or about $2 billion, in budget support from development partners in fiscal 2020-21.
In order to modernise the management system of NSC transactions, the National Savings Scheme Online Management System has been introduced in the current fiscal year at the initiative of the finance division.
Accordingly, the sale, profit and encashment of NSCs have been digitised.
Besides, the postal savings scheme and the postal banking system have also been automated.