It is quite apparent that the government is in a dilemma over yield rates of national savings tools. The conflicting statements coming from none other than Finance Minister AMA Muhith from time to time on the issue do highlight this fact.
Mr. Muhith while taking part in a view-exchange meeting with the members of the Economic Reporters Forum (ERF) on the next national budget on May 09 last said the government does not have any immediate plan to trim the yield rates of the government savings tools. He justified his stance saying that the gap between the bank deposit rates and the savings tools' yield rates are now largely reduced.
The wide gap, between 4.0 to 5.0 per cent, between the two used to be cited as a major distortion in the financial market. The situation is altogether different now because of the liquidity crunch in the overall financial sector, particularly among a section of private sector banks. Some banks and non-bank financial institutions (NBFIs) are now offering more than what is offered against the savings tools.
However, Mr. Muhith made a U-turn on the issue in a gap of only a couple of days on Saturday last. Speaking as chief guest at a discussion meeting on the next national budget, organised by the Dhaka Chamber of Commerce and Industry (DCCI), he said the government is going to review the yield rates of savings tools after the presentation of the national budget. The budget for the fiscal year (FY) 2018-19 is likely to be announced in the first or second week of next month.
Mr. Muhith took a fresh stance on the issue when a number of participants at the DCCI discussion, reportedly, claimed that the high yield rates of savings tools were hurting the banks and development of the country's bond market. However, the claim remains to be debatable.
It is widely known that much of the trouble that the banks are facing now is the product of their own doings. The problem does largely emanate from the accumulation of huge classified loans and a few loan scams. The unpalatable developments have eroded, to some extent, the savers' confidence in banks. The chairman of the National Board of Revenue (NBR), who was present at the DCCI event, also referred to this hard truth.
"Given the current scenario in the banking sector, small savers do not feel safe with banks", he told the discussion meeting. However, one may raise question/s whether a person holding such a high government position should say in public such unsavoury truth on a sensitive area of the economy.
There is no guarantee that cut in yield rates of savings tools would force the savers to deposit their money with banks unless the latter offer attractive rates.
It is no denying that the country's bond market does need support from the savers. But the factors prevailing now are not conducive to have a strong bond market in Bangladesh. It is none but the government remains the sole actor in the bond market. The yield rates it offers against its bonds are not attractive. Corporate bonds are non-existent because of the fact that companies cannot afford the rates the banks and government savings tools offer to the prospective holders of their bonds.
Besides, there are, at least, two types of savers or holders of excess money. The first type of savers do need fair amount of profit very badly for the sake of their own sustenance and the second ones can afford even lower return because their surplus fund is sizeable and they are not as desperate as the first savers for a handsome return.
The latter can also afford to turn their excess funds into 'mattress money'. The small savers in the event of cut in both bank deposit rates and yield rates of the government savings tools do not have alternatives to keeping their funds with either of the two.
But resorting to this arm-twisting tactics with these poor savers, who include women, retired private and government servants and senior citizens, will not be fair. The government should ensure some percentage of financial benefit above the prevailing rate of inflation. The rate of inflation has been hovering around 6.0 per cent for a long time.
Under the circumstances, the suggestion put forward at the DCCI discussion by Khandaker Golam Moazzem, research director at the Centre for Policy Dialogue (CPD), a private think tank, does deserve attention. However, similar suggestions were also made earlier by a number of individuals.
Mr. Moazzem said that government savings tools should be made available to certain groups of people while the rest of the savers should be 'diverted to bond market'. He possibly meant the first type of savers, mentioned above. If the sale of savings tools can be restricted to only the people who badly need a healthy return from their investment, the government may not have to bother about cutting the yield rates. It should not be very difficult for the government to devise ways to ensure restricted sale of savings tools. The question is whether the government is willing to make such a move.