The government is moving to significantly curb its reliance on borrowing through National Savings Certificates (NSCs), opting instead for the lower-cost funds available via Treasury Bills and Bonds (TBBs).
In a budget review file of the Ministry of Finance, the Ministry has recently given this instruction to the authority of the Department of National Savings, an official of the Ministry of Finance confirmed it, UNB.
As part of this strategic shift, the Ministry of Finance has decided to further reduce the interest rates on NSCs starting in January, which could see the highest rate in this sector drop close to 10 percent early next year.
Experts suggest that while NSCs are a primary domestic source for financing the budget deficit, their relatively high interest rates have become a financial burden for the government. The current plan aims to establish lower-interest TBB as the primary source of internal borrowing.
Currently, the maximum interest rate on Savings Certificates stands at 11.98 percent, with the lowest at 9.72 percent. This follows a reduction of 47 to 57 basis points across several schemes in July of this year. The ministry planned cut of an additional 1 percent to 1.5 percent with effect in January. As a result, the NSCs will become substantially less profitable for general investors.
In contrast, the government is securing loans more cheaply through TBB, where the average interest rates hover around 9.5 percent.
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According to Bangladesh Bank data from a review of the October 13 auction, the average interest rate for 91-day Treasury Bills was 9.50 percent, the 2-year Bond was 9.44 percent, and the 10-year Bond was 9.90 percent.
The ongoing rate reductions are having a direct impact on the net sales of NSCs, which continue to decline sharply. Bangladesh Bank figures show that net sales for the fiscal year 2024-25 are at a negative Tk 6,063 crore. This follows the record negative net sale of Tk 21,124 crore in FY 2023-24.
Economic Analyst Towfiqul Islam Khan anticipates that this trend of diminishing NSC sales will persist if the rate reduction continues.
"The decision disproportionately affects the elderly, retirees, and low-to-middle-income segments who depend on Savings Certificates as a safe, fixed-income investment," he pointed out, who is also the additional research director of CPD.
The Department of National Savings currently operates a total of 11 savings schemes, including four types of Savings Certificates, two Post Office Savings Bank accounts, a postal life insurance, a prize bond, and three special bonds for expatriates.
While lowering interest rates on Savings Certificates offers a measure of relief to government finances, analysts warn that it places pressure on the average citizen who relies on savings.
This segment of the population, specifically seeking secure investment options, is expected to be the most impacted by the government’s continued pivot toward market-linked Treasury instruments.