OPINION

NSS: An object of multiple interests  


Shamsul Huq Zahid    | Published: April 12, 2018 22:38:31 | Updated: April 13, 2018 21:37:09


NSS: An object of multiple interests  

All attention is now focused on the government's savings tools that are being sold and managed by the National Savings Directorate (NSD).

The savings instruments are of objects of great interest to their buyers, the government and the experts. Each of them does look at the instruments ftom different perspectives.

Until now both the investors in the national savings scheme (NSS) and the government have been on the same side and want the existing rates of yield to continue.

But multilateral donor agencies, most economists and bankers found the yield rates 'too high' and were adding to interest repayment burden on the government and creating distortions in the financial market. So, they have been strongly suggesting a cut in yield rates.

The government, in response, changed its stance from time to time; on occasions it hinted at reducing the savings tools' yield rates and on others it vowed to continue the rates for the 'greater interest' of small savers, retirees and old-age people.

Lately, the government has made it clear that the savings tools' yield rates would not be reduced.

There is no denying that the government did offer much higher financial benefits to the investors of savings tools than what the market justified. The government could borrow from the country's banking system at much lower rates of interest as the banks were floating then in substantial volume of excess liquidity. Yet it did not, swallowed lots of criticism for that and borrowed far more than the targeted amounts through the NSD savings tools.

However, the situation has changed radically, of late. The banks and non-banking financial institutions (NBFIs), experiencing severe liquidity shortage, have upped their interest rates. The rates in some cases are more than the yield rates offered to buyers of savings tools.

Although, the central bank, in an unprecedented manner, recently reduced the CRR (cash reserve ratio) by one percentage point and the government allowed its agencies to deposit half of their funds with the private banks, the liquidity situation is unlikely to ease that much in the near future. The rates of interests in the case of both deposit and credit might go further up.

Under the circumstances, there could be a reverse flow of funds from savings schemes to banks as the investors would be more interested to reap greater financial benefit. However, this is a natural phenomenon.

Meanwhile, the top serving bureaucrats at a pre-budget meeting chaired by the Finance Minister recently requested the government to raise the ceiling applicable in the case of investment of public servants' retirement benefits in the savings tools. At present, investment of 45 per cent of the retirement benefit in NSS is allowed.

The bureaucrats, who are often criticised for being self-seekers, decided to be more concerned about their own interests. They overlooked the interests of thousands of private elderly citizens who are also facing the investment-ceiling. Given, the present compensation package of the top government servants, their retirement benefits would be in sizeable amounts. If the ceiling is raised for them, the private investors should also get the same benefit.

At the moment 5.0 per cent income tax is deducted at source on profit earned by the holders of government savings tools. The NBR expects to earn about Tk 10 billion in tax revenue during this financial year. The government might even think about raising the tax rate and make it mandatory for the investors to submit the copies of their annual tax returns. This could help check investments by ghost or fake investors. A section of bureaucrats and private investors is likely to oppose the idea for understandable reasons. But the government should ignore such opposition.

zahidmar10@gmail.com

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