The net sales of national savings certificates plunged by 76.24 per cent or Tk 16,520.29 crore in the July-November period of the current fiscal year 2019-2020, leaving no room for the government but to borrow from banks to meet deficit financing.
Bankers said that the tightening of NSC sales procedure and imposition of higher tax on interest income from investment on the government savings tools were the major reasons for the steep fall in NSC sales.
The mandatory provision of submitting tax identification number and NID number for the purchase of NSCs was another reason for the fall.
The customers were also supposed to pay through bank check if the NSC value exceeded Tk 1 lakh.
The government has already borrowed Tk 47,139 crore from the banking sector against its budgetary target of borrowing Tk 47, 363 crore from the sector to meet budget deficit.
Banks have become incapable of providing adequate credit to the private sector due to the government’s high dependency on bank borrowing to meet deficit financing, bankers said.
As a result, the private sector credit growth in November last year dropped to record low of 9.87 per cent in November, 2019.
As per the Bangladesh Bank data, the net sales of NSCs dropped to Tk 5,141.64 crore in the first five months of FY20 against Tk 21,661.93 crore in the same period of FY19.
In November last year, the net sales of NSCs dropped by 91.64 per cent or Tk 3,512.58 crore to Tk 320.62 crore from Tk 3,833.2 crore in November, 2018.
For the FY20, the government’s budgetary target was to borrow Tk 27,000 crore by issuing NSCs.
Former Bangladesh Bank governor Salehuddin Ahmed suggested that the government should maintain a balance between its borrowing from the banking sector and that from the NSCs so that the private sector could get required amount of credit from the banks.
Criticising the tax hike on the NSCs’ interest earnings, Salehuddin said that the government should have taken measures for the prevention of misuse of the savings tools instead of increasing taxes.
He suggested restoration of previous tax rate and other facilities for the purchase of NSCs.
In the budget for FY20, the government increased the tax rate by twofold to 10 per cent.
However, the tax rate is 5 per cent, with an effect from August 28 this year, on interest income from investment on NSCs worth up to Tk 5 lakh.
Salehuddin also said, ‘The government’s recently adopted policy is discouraging savings and shrinking scope for the private sector for borrowing from banks.’
Apart from these, the newly launched NSC sales process — all the NSC selling entities including banks have access to the centralised database that allows them to know the value of NSCs that have been issued against an individual or entity so far — is another reason for the fall in NSC sales.
Besides, it also bars selling NSCs beyond the allowable limit. Earlier, there was no such scope for verifying the number and value of NSCs that were sold to an individual or entity by the other selling agencies.
Although the system brought transparency to the NSC management and convenience for the beneficiaries, it has shrunk the government borrowing directly from public.
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