Savings tools: Confusion over benefits

The sales of government savings tools, known as Sanchaypatras, in first nine months of the current financial year (2016-17) surpassed the target set for the entire year and reached a record level.
The overall sales of the tools during the period stood at around Tk466 billion and the net at 116.5 billion, according to a newspaper report.  
Is the government happy with this soaring sales record? The Ministry of Finance may prefer to avoid a direct answer to this question, for the issue, of late, has become a dilemma for it.
The general impression is that the sales of the savings tools have been fetching enough of money for the government and making it less dependent on bank borrowing, which has been in the negative territory in the first nine months of the current fiscal year.
Whether the government does need this much of money from this relatively expensive source of borrowing is altogether a different question. But the truth is that the money is gushing in its coffer no matter if the government wants it or not. But has the scheme become an Albatross around the government's neck?
Undeniably, the government's savings tools, these days, are the prime destinations of funds, earned legally or otherwise, because those are offering the highest yield rates in the current market. True, the scope of entering large funds held by any individual does not exist. Yet a few unscrupulous officials get illegal funds of moderate amounts invested in savings tools in the name of some other family members because of a rather easy procedure. Except for national identity cards the submission of any other documents is not required. One can deposit funds in the savings tools even in minors' names.
There is provision to deduct 5.0 per cent tax at source on the profit earned from savings tools. But no tax identification number (TIN) is sought from persons wanting to buy savings tools.
The reason for funds rushing into savings tools is understandable. The banks are now offering the lowest ever rates on deposits in the name of narrowing their interest rates. But the fact remains that the spread has not been reduced in any notable manner. What the banks have done is that they have cut the deposit rates more than the lending rates.
The real effective rate of return on bank deposits is now negative when the same is adjusted with the prevailing rate of inflation. One can well imagine the state of the stock market these days. None knows for sure whether it would look up again without employing a few manipulative tricks. No honest investor or market player, however, would ever want that. Enough damage has been caused to the normal growth of the market because of the attempts to pull it up artificially and using manipulation.   
All the factors on the ground would now, naturally, pull the savers to the government savings tools. The central bank, banks and stock brokers surely do not cherish this sight. But that is the reality. Banks should not have reasons to grumble, for a good many of them are awash with funds. The demand for funds from the private sector waned remarkably for the last couple of years and the banks, too, are quite cautious in lending big amounts against the backdrop of some large loan scams.
However, the real outcome of the government's savings tools, under the present circumstances, remains a bit confusing.
In the Annual Financial Statement for the FY 2016-17, tabled in Parliament by Finance Minister AMA Muhith on the last budget presentation day, the receipt from the sales of savings certificates was projected at Tk 343.3 billion for FY'17 as against the revised estimate of around Tk390 billion in the previous fiscal. The sales of the tools during the last seven months far exceeded the projected amount.
In the same Financial Statement, the payment against investments in savings tools during the current fiscal has been estimated at Tk 167 billion and the disbursement of profit on account of savings tools during the period has been projected at an identical amount. Put together the two payments leave little in the form of receipt for the government.
The net sales of savings tools at the end of the third quarter, according to the estimate done by the National Savings Directorate (NSD), stood at Tk116.5 billion. The amount is received after deducting the payments made against savings tools on maturity from the total sale proceeds of savings tools during a certain period. The amount does not include the profit disbursed among a huge number of savings-tools holders. So, the size of the fund that the government actually had during the first three quarters of the FY'17 is very difficult to guess unless all the statistics are available.
The operation of high-interest bearing savings tools by the government, logically speaking, is not justified when cheaper sources of fund are available aplenty. But the government has certain responsibility to  small savers, retirees and other elderly persons. This particular issue, it seems, has been compelling the government to continue with this scheme. No doubt, that is an honest and humane approach. But it should not debar the government from stopping the abuse of the facility.  The deficiencies should be removed at the earliest.
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