Investment in savings tools marks sharp fall

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S M Jahangir
Investment under the government savings instruments has marked a significant fall, thanks to the government's changed fiscal measures that also helped reduce its borrowing from the system.
The revised fiscal measures, through which the government in the current budget has withdrawn the tax-exempt ceiling on the interest gains from all but two existing savings tools, adversely affected the investors, official sources said.
Moreover, the government slashed the rate of interest ranging between 1.0 per cent and 1.5 per cent on various savings certificates that was also responsible for the situation, they mentioned, adding the highest investment ceiling has also been trimmed down.
Latest official figures showed the overall investment in the savings certificates and investment bonds declined by about Tk 6.52 billion or more than 16 per cent in the first two months of the current fiscal compared to the corresponding period last fiscal.
A sum of Tk 33.53 billion was invested in the government's savings instruments in July-August period of this fiscal compared to Tk 40.04 billion in the same period of last fiscal.
"Overall sales of savings instruments continue to fall following the changed fiscal measures," an official told the FE.
Citing comparative statistics, the official said the gross sales of existing savings tools almost halved in last July to reach 15.98 billion from that of June, as the new fiscal measures came into effect from July 1, 2010.
Both the reduction of interest rate and imposition of tax at source prompted a good number of investors to terminate their savings instruments, they observed.
On the other hand, a section of investors also transferred their investment from other savings tools to the recently introduced Family Savings Certificate (FSC) and Pensioners' Savings Certificate (PSC) because of higher interest rates.
The rate of interest on FSC and PSC is at about 1.0 per cent higher than that of other investment schemes, they mentioned.
As a result, the investment both under FSC and PSC continued to rise significantly despite sharp decline in overall sales, said an official.
Investment under the FSC shot up to Tk 4.24 billion last month from Tk 2.89 billion in July while that under the PSC also rose to Tk 2.25 billion from Tk 1.83 billion respectively, officials said.
Officials, however, feared that both the withdrawal and conversion of investment would persist in the months ahead if the existing fiscal measures and interest rates are not revised.
Another official dealing with the savings sachems said the government's net borrowing through the savings instruments declined by around 35 per cent to Tk 10.98 billion during last July-August period over the corresponding period last fiscal.
Officials predicted a further decline in overall sales of savings tools and government's net borrowing from the system in the coming months.
Citing example, they said the government's net borrowing posted a negative growth previously after it fixed tax-exempt ceiling on interest gains from savings certificates to Tk 25,000, which came into force in July 1, 2007.
Later, it raised the ceiling to Tk 150,000, they mentioned, adding currently a 10 per cent tax at source is applicable to interest gains from savings tools except for FSC and PSC.