The government has already cut interest rates of all types of government-owned savings certificates to near about single digit: no more payment of Tk. 1,000 as interest income per month against investment of Tk 1,00,000 to the holders of these certificates. These are favourite savings instruments with senior citizens as these are risk-free and used to offer returns to them compared to those from other options open to them.
The main reason for bringing down the savings instruments' rates was that the government wanted to lessen the burden of public debt both in terms of rates it offered to the purchasers of these certificates and by selling less to the public. In recent months though the total sales of these certificates did not go down that much, the government's debt liability on this count is expected to drop significantly because of rate cuts or lowering of interest rates it was offering to the purchasers.
Another important objective of the rate cuts in the savings certificates was to give an effect to a lowering of interest rates in the market. The economy was having high interest rates which were acting as a damper on investment. Though the Bangladesh Bank's monetary policy should have been used as the main mover in giving an effect to a lower interest rate in the market place, demand was raised from businessmen, their associations and chambers to lower savings instruments' interest rates which were serving, according to them, as reference rates.
But the fallout of the rate cuts on the saving instruments was widespread, sometimes cruel. Who were the investors in these certificates? Certainly not the big businesses, but the people who have grown old and lost the capacity to work and earn. Senior citizens, after retiring, are the main customers of these certificates, as they find these instruments suitable and in some cases only outlets for investing their life-long savings and thereby earning their livelihood somehow.
Many of the senior citizens are also retirees from public or private jobs. In the retired life, they cannot earn any money from any source. Life for them becomes, to an extent, easy if sons and daughters lend financial support to them. But many retired persons do not have worthy sons or daughters and the reality is that some of the retired persons even have to support their siblings till their last breath.
Many of senior citizens once dreamt, while they were on job of one kind or another, of having a good life after their retirement. But all are not lucky. Some of them very unwillingly land as burden on their near and dear ones; some live in private old homes and some others die enduring sufferings silently. Bangladesh does not have any social security system for its senior citizens. Today's pension holders thought, while they were on job, that they would invest the pension money in some good investment schemes and earn money that will help their life go well.
But the reality was that they did not have many good investment schemes for investing their pension money. The best and the most favoured option with them was to use the money as investment in savings certificates and earn an income that would help them pass days with a little bit of comfort in the fag end of their life. Many of the retired people calculate how much money they would receive from their investments in the government-owned savings certificates and how much money they would be needing for food, medicines and hospital care. When the savings instrument rates were above double digits per annum a year ago, they were contented with their calculations, but not anymore. Now their calculations are failing them and they see more darkness before them as they are no more in a position to foot their bills on food, medicines and hospital care. As they grow more old, their expenditures on these accounts go up but their income from investment in savings certificate goes down. They are compelled to spend less, which means they are to eat less, go without medicines or hospital care.
How can the government help the country's senior citizens? One option is to have a social security system in place for them. Pending this, the government can offer differential interest rates on financial instruments it sells to them. Private and public banks can also be instructed to offer senior citizens 2-3 per cent higher interest rates on their fixed and savings deposits. The government has made a mistake by keeping open investment opportunity in savings certificates for all, irrespective of their ages. Also, as our knowledge goes, it has kept these savings instruments open for investment by trust bodies, cooperative societies and other types of institutions. It should have narrowed down the option of such investment, keeping open only for retired persons, vulnerable women groups and helpless senior citizens.
Offering of 2-3 per cent more interest on savings instruments to be sold to senior citizens and retired persons will not cost much. If a decision is taken to this effect, then the government will have to define who the senior citizens are and who are in the vulnerable groups.
The writer is Professor of Economics, University of Dhaka.