Abnormal rise in interest payment against savings tools unnerves govt

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S M Jahangir
The finance ministry has voiced concern over an 'unusual' rise in the payment of interest against the state-run savings instruments in the last fiscal year.
The debt management wing of the ministry recently sought explanation from the authorities concerned about such an alarming increase in the last fiscal's interest payment against its borrowing through the savings tools, official sources said.
Referring to official data, a senior government official said the government's payment of interest on account of savings instruments registered a record high of nearly Tk 70.62 billion in the fiscal year (FY) 2008-09.
The data also revealed that the volume of interest paid by the government in the last fiscal surpassed its net borrowing through savings tools by Tk 34.28 billion during the same period.
The government borrowed a net amount of Tk 36.33 billion through its existing savings certificates and other investment bonds during the last fiscal.
"Such an abnormal increase in the payment of interest had raised worries among the authorities concerned," the official said.
Admitting the government's concern over big increase in the payment of interest, official sources said the National Savings Directorate (NSD) has already found some reasons behind the unusual rise in the payment of interest.
The NSD has identified the encashment of a large number of mature 'defence savings certificates', which are not in operation now, by their respective investors as the key reason behind the hike in interest payment, officials said.
"Since the closure of the defence savings certificate in July 2008, the respective investors had encashed their certificates after their maturity," an official said.
As a result, the government had to pay a huge amount of interest against its borrowing through the defence savings certificate, interest rate of which was 17.75 per cent after an eight-year period for maturity.
Referring to figures, officials said the government had to count Tk 25.82 billion as interest on account of servicing its debt through the defence savings certificate alone.
They predicted a further rise in the volume of interest payment in the current fiscal as the defence savings certificates, which were sold earlier, would expire on June 30, 2010.
According to the officials, withdrawal of an increased volume of investment through the savings tools following deduction of 10 per cent tax at source imposed earlier by the government on Tk 25,000 or more interest gains from savings instruments also contributed to the government's interest payment.
The overall investment under state-run savings tools continued to increase again after the government raised the tax-exemption ceiling to Tk 150,000, they mentioned.
Official figures also showed that the government's interest payment for servicing its debt through the savings tools continued to rise over the recent years.
The government paid Tk 56.31 billion as interest against its net borrowing of Tk 25.18 billion in the FY 2007-08 while the figures were Tk 41.78 billion and Tk 49.24 billion respectively in the FY 2006-07.