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The government in the first half (July-December) of the current fiscal year of 2020-2021 borrowed Tk 20,487.12 crore through selling national savings certificates and spent Tk 16,263.1 crore on interest payment against its outstanding borrowing through such tools, according to National Savings Directorate data.
In the national budget for FY21, the government set the NSC sales target at Tk 20,000 crore for the entire fiscal year.
The outstanding government borrowing through NSCs increased to Tk 3,41,717.89 crore at the end of December of 2020 from Tk 2,91,093.28 crore at the end of December of 2019.
The government in FY 2019-20 tightened rules and regulations on sales of the savings instruments and launched an online NSC sales management system to reign in NSC buying spree.
So, the government’s borrowing through NSCs had dropped to Tk 14,428.35 crore in FY20 against its Tk 49,939.48 crore in net sales of NSCs in the previous fiscal year.
Though the government’s borrowing through NSCs had dropped significantly in FY20, the situation reversed in FY21 due mainly to the interest rate plunge against all sorts of deposit products in the banking sector.
The plunge in interest on bank deposits has made the government’s savings tools much lucrative to the savers even after the payment of the newly slapped taxes.
After the implementation of a 9-per cent lending rate cap on April 1, 2020 for the banks, the deposit rate in almost all the banks has come below 6 per cent while several banks are offering as low as 2 per cent interest against deposits.
Yield against investment in savings certificates still remains as high as 12 per cent, making it a lucrative option for savers even after the payment of 10 per cent tax on the returns.
With the investment climate remaining cloudy as the coronavirus situation is yet to be brought under control, different entities might have preferred to park their funds in safe and high-yield instruments rather than keeping those in banks.
Given the lower budget spending in the current fiscal year amid the COVID-19 outbreak, the government’s borrowing through much cheaper banking sources has been on the decline in the fiscal year 2021.
In the budget for FY21, the revenue collection target was set at Tk 3,78,000 crore, leaving a deficit of Tk 1,90,000 crore. In order to finance the deficit, the government plans to collect Tk 1,09,983 crore from domestic sources, including the Tk 20,000 crore through NSCs sales.
