High demand for savings tools leads to idle money build-up
November 11, 2009
A government report suggested rationalisation of the rates of return of saving instruments as the high cost borrowing tool has caused huge stock piling of idle money for the government.
The higher demand for different kinds of saving instruments has destabilised the entire debt management and securities market of the government, warned the report.
The report is now waiting the approval of Finance Minister AMA Muhith, sources in the Ministry of Finance (MoF) said.
‘The cost of debt servicing of the government would increase enormously if it continues to borrow through savings instruments at higher rate of returns despite having an option to borrow at lower cost through Treasury Bonds,’ said the report of the finance division.
‘The idle money at the disposal of the government will increase as it borrows money from both the Treasury Bonds and saving instruments.’
According to the report, the government has borrowed Tk 25.53 billion between July and September of the current fiscal year through the sales of saving instruments, which represents 77.92 per cent of the total borrowing target of the government for the current fiscal from the same head.
The amount of money borrowed through the savings instruments between July and September in the previous fiscal year was Tk 7.79 billion, sources in the savings directorate said.
The borrowing of the government through the savings instruments could shot up to Tk 70 billion to Tk 80 billion in the current fiscal year against its borrowing target of Tk 32.77 billion if the current trend persists throughout the remaining period of the current fiscal year, cautioned the report.
The report said the current compound interest rate for 5-year Treasury Bond is 9.12 per cent, while the compound rate of return in the case of savings certificate is 12.50 per cent.
The individual investors are heavily tilted towards saving certificates as the rates of return for different such instruments have not been reduced despite a cut in rates for bank deposits and Treasury Bonds, argued the report.
Furthermore, the auction calendar of the government, through which the government borrows money through the sales of its Treasury Bills and Treasury Bonds, would be ineffective if the rate of returns of savings instruments are not reviewed.
The report said an unprecedented surge in cash balance of the government took place in recent times due mainly to increase in sale of savings instruments and poor implementation of annual development programme.
The cash balance of the government has stood up to Tk 49.76 billion as of October 21, 2009, which was Tk 50 million on June 30, 2009.
The report recommended rationalization of current interest rates of 3-year and 5-year saving certificates, reducing the investment limits both for individual and under joint names, introducing investment for single category instead of present system of investment limits for individuals and joint categories and reducing the government’s borrowing target through its Auction Calendar.
Source: thedailystar.net
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