The encashment of savings certificates has surged in recent months, with Tk 256.95 billion worth of certificates being withdrawn between October and December.
On the flip side, the sale of savings certificates has dropped by 27 per cent in the first half of the 2024-25 fiscal year compared to the previous fiscal year, according to a Bangladesh Bank report published on Wednesday.
According to the report, savings certificates worth Tk 301.09 billion were sold during the July-December period in the current fiscal year, a significant decline – Tk 111.81 billion – from Tk 412.90 billion during the corresponding period of the previous year.
Economists and experts attributed the fall in savings certificate sales and the rise in encashment to several factors, including high inflation, decline in earnings, and lack of trust in banks.
High inflation is pulling up the cost of living, while the income is not rising accordingly. It is forcing the people to withdraw their savings. Some are encashing their savings due to trust deficit as some banks are struggling to repay deposits.
Besides, a significant number of people are shifting their investments elsewhere from savings certificates amid increased scrutiny and freezing of bank accounts following the changeover in the political landscape.
Common people are preferring liquidation of savings certificates to parking money. In the current fiscal year, Tk 323.54 billion worth of savings certificates were redeemed in the first six months – Tk 90.83 billion in October, Tk 81.5 billion in November, and Tk 84.61 billion in December.
In the 2023-24 fiscal year, total sales stood at Tk 788.47 billion, while Tk 999.72 billion worth of certificates were redeemed. It led to a net decrease of Tk 211.24 billion in government borrowings from this source.
Sales of the savings instrument dipped by Tk 22.44 billion in the first half of the current fiscal, against a Tk 60 billion decline in the previous year’s corresponding period.
A decline in sales indicates that the government is borrowing less from savings certificates. It reduces the interest burden on the government. Still, a handsome amount needs to be allocated to pay interests of the previously sold savings certificates.
In response to the decline, the interim government raised the interest rate on savings certificates in January, increasing the interest rate from 12.25 per cent to 12.55 per cent.
Khondaker Golam Moazzem, research director of the Center for Policy Dialogue (CPD), said the decrease in savings certificate sales could force the government to reassess its budget allocations. The government has been in a financial crisis. The National Board of Revenue (NBR) is struggling to meet the revenue target, while foreign investment has been insignificant.
“In such a circumstance, savings certificate is an important source for funds. A decline in sales of savings certificates and rise in liquidation rate will leave an adverse impact. The government may need to cut the budget at the middle of the year and reduce the annual development rogramme (ADP) further,” he added.