Savings certificate sales drop 486pc in Jul-May FY24

People have been increasingly withdrawing their savings to cope with the rising living costs caused by the growing inflation in the country.

As a result, investments in National Savings Certificates drastically fell about 486% year-on-year in the first 11 months (July-May) of the just concluded fiscal 2023-24, compared to the same period of the previous fiscal.

According to the Bangladesh Bank data, the net sales of savings certificates reached a negative Tk17,743 crore in the first 11 months of FY24, while the net investment in the savings tool was at negative Tk3,029 crore in the same period of FY23.

The net sale of savings certificates is what remains after paying the interest and principal on the savings certificates that were sold previously. For this reason, in economic terms, the net sale of savings bonds is considered a “debt” or “borrowing” of the government.

That means the government paid Tk17,743 crore more as principal and interest on the saving certificates in the first 11 months of FY24, while it paid Tk3,029 crore more in the same period of FY23. This amount is paid from the government treasury or by borrowing from the banks.

Experts said the prolonged inflation has dealt a severe blow to people’s purchasing power as well as to their capacity to save money, which in turn have affected the savings certificate sector. Besides, recently it has become more lucrative to keep money in the banks than to invest it in saving certificates.

Khondaker Golam Moazzem, research director of Centre for Policy Dialogue, said that the burden of high inflation falls disproportionately on the poor and low-income households. With the persistent rise in the prices of essential food items, people in Bangladesh are now spending more on food than in other richer countries. Now it is time to take steps on the proper implementation of the policies undertaken by the government.

Echoing him, Dr Mohammad Abdur Razzaque, chairman of Research and Policy Integration for Development (RAPID) and research director of Policy Research Institute (PRI), said, “Inflation has remained above 9% for over a year, but we are delaying too much to take policies in this regard. If high inflation persists, it will continue to negatively impact the general population.”

Besides, people involved in the financial sector said the interest rate on bank deposits has increased now, with many banks currently offering attractive deposit rates crossing 12%, which is higher than the interest rates offered by savings certificates.

Currently, the interest rate on pensioners’ savings certificates is 11.76%, on family savings certificates it is 11.52%, on the five-year Bangladesh savings certificates it is 11.28%, and on three-month profit earning savings certificates it is 11.04%.

However, if depositors cash their saving certificates before they reach maturity, the promised interest on them is not provided.

According to the Bangladesh Bank data, during the first two months of FY24, net investment in savings certificates boomed by a staggering 14 times, surpassing the figures from the corresponding period in FY23.

In July and August FY24, net sales of it stood at Tk3,250 crore and Tk2,312 crore respectively. In these two months, more savings certificates were purchased than redeemed.

However, September, the third month of the fiscal year, witnessed a sharp decline in saving certificate sales, as investment in the sector reached a negative Tk148 crore.

Since then, net sales have been in the negative, with Tk1,040 crore in October, Tk1,554 crore in November, Tk2,204 crore in December, Tk1,287 crore in January, Tk1,541 crore in February, Tk3,653 crore in March, Tk2,103 crore in April and Tk3095 in May.

The government aimed to tame inflation within 6% in the FY24 budget, but the actual inflation surpassed expectations, hovering around 9% since March 2023.

In April this year, the overall inflation reached 9.74%, according to the Bangladesh Bureau of Statistics. Consumers go on paying higher for essential food items amid price hikes, as the food inflation at national level reached 10.22% in April – the highest in five months.

In FY24, the government aimed to take a Tk18,000 crore loan by selling savings certificates. In the current fiscal, the government has set a target of raising Tk15,400 crore by selling the savings tool.