Rush for savings tools forces govt to downsize bank borrowing

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Nazmul Ahsan
The government has downsized its bank borrowing target for the current fiscal to Tk 97.08 billion, or about 43 per cent, in view of its higher borrowing from the non-banking sources, including savings instruments, sources in the Ministry of Finance (MoF) said.
Of the revised target Tk. 47.48 billion has already been borrowed from banking source during the first six months of the fiscal. The remaining Tk 49.60 billion will be borrowed during January-June period of the current fiscal, BB sources said.
The decision has recently been taken at a meeting of the Cash and Debt Management Committee (CDMC) of the government. Presided over by Mohammed Tarek, Secretary, Finance Division, MoF, the meeting was attended by the representatives of Bangladesh Bank (BB), Economic Relations Division and National Board of Revenue.
The government in its budget document for the current 2009-2010 fiscal had estimated its bank borrowing at Tk 167.55 billion and non-bank borrowing at Tk 38 billion to finance the budget deficit.
The borrowing by the government from banking source, however, far less than the estimated amount during the first half of the fiscal in the backdrop of abnormal rise in borrowing through the National Saving Instruments (NSIs) during July-November period, official sources said.
According to the latest data, the amount of borrowed amount of the government from the non-banking source during the first five months of the current fiscal year was Tk 48.80 billion against the annual target of Tk 38 billion.
"This borrowing level from non-banking source is unprecedented. This has been due to drastic cut in interest rates on deposits by banks during the recent months,'' a top MoF official told the FE.
"We were compelled to review the bank borrowing target for the current fiscal year halfway through the fiscal year. Normally, such review is done before the final quarter of a financial year."
The CDMC of the government will soon bring about changes in the Auction Calendar of the government, through which the government borrows money through the sales of its Treasury Bills and Treasury Bonds, it is learnt.
The MoF has recently formed a high-powered committee, headed by a Deputy Governor of BB, to recommend the ministry the measures to rationalize the current policies and interest rates of different NSIs.
Earlier, a government report suggested rationalization of the interest rates of saving instruments.
The higher sale of different kinds of saving instruments has created a destabilizing effect on the government's debt management and the securities market, MoF officials said.
Officials said the current compound interest rate for 5-year Treasury Bonds is 9.12 per cent, while 12.50 per cent compound interest rate is applicable in the case of 5-year savings certificate.
According to preliminary findings of BB, affluent section of the society is now major buyers of NSD.
The BB officials said the very purpose of the government's saving instruments is to cater to the demand from the lower and middleclass of the society.
Presently, 10 kinds of saving instruments are available for individuals. A single individual can invest maximum of Tk 5.0 million and jointly with another individual Tk 10 million.