Shawdesh Desk:

People have been withdrawing their savings to cope with the rising living costs caused by the growing inflation in the country.

According to Bangladesh Bank data, savings deposits dropped by 4.16 per cent to Tk 3,53,911 crore while fixed deposits declined by 0.16 per cent to Tk 6,91,431 crore in December 2022 compared to September 2022.

Experts said that many people withdrew their savings to maintain their consumptions in the face of inflation shock.

Despite the increase in inflation, as fixed-income people’s earnings have not necessarily gone up, they are forced to rely on their bank savings, they said.

In addition to the rising inflation, depositors are not getting expected interest rates from banks, which could have supported them in their precarious financial situation.

Banks can’t offer high interest rates to the savers due to the 9 per cent lending rate ceiling, which also prompted savers to withdraw money from banks, bankers said.

Against this backdrop, the net sales of national savings certificates were Tk 3,509.5 crore negative in the July–February period of 2022–23 as consumers struggled to meet daily expenses due to a rise in commodity prices, which also eroded their capacity to save.

As a result, investments in savings certificates, postal savings, NRB bonds, prize bonds and postal life insurance have declined significantly.

According to the Bangladesh Bank data, the GDP to gross national savings ratio declined to 25.45 per cent in FY22 from 30.79 per cent in the previous year.

The growth in deposits in 2022 was much lower than in the earlier years, with the growth being 5.66 per cent in December 2022, 9.19 per cent in December 2021, 13.48 per cent in December 2020.

The country’s overall inflation rate hit 9.52 per cent in August 2022, which was the highest in a decade.

Though the rate gradually came down to 8.57 per cent in January 2023, it again started rising in February to reach 8.78 per cent in the month and 9.33 per cent in March.

The Bangladesh economy was negatively impacted by a host of adverse factors, including global supply chain disruptions, a hike in raw material prices, the currency devaluation and a local commodity price spiral, after the Russia-Ukraine war began in March 2022, bankers said.

According to Ahsan H Mansur, executive director, Policy Research Institute, it is common for the people to use savings to bridge the gap between their needs and financial affordability,caused by high inflation.

Citing the decreasing inflation globally, Mansur emphasised that the reduction in inflation in Bangladesh would depend on the government’s management capacity.

However, he noted, effective measures by the government have not been seen so far in this regard.

Mansur hoped that if the measures suggested by the International Monetary Fund were implemented, it could alleviate inflation to some extent.

If high inflation persists, he warned, it will continue to negatively impact the general population, eventually affecting the overall economy of the country.

Furthermore, the decline in bank deposits is likely to reduce the credit expansion capacity of banks, which would further hinder the country’s economic growth, according to Mansur’s analysis.

According to economist Anu Muhammad, the reality is that those who had some savings have used these to face the inflation.

He said that many people didn’t have any savings and they suffered the most due to the rising living costs.

Inflation remained high due to the irrational pricing by some businesses and traders, particularly who control imports and the wholesale market.

He also pointed out that the government should have avoided hiking energy prices as the higher prices eventually added salt to the wounds.

According to a survey by the South Asian Network on Economic Modeling, 35.3 per cent of the savers used their savings during the past six months to cope with the rising inflationary pressure.

The SANEM carried out the survey on 1,600 households across eight divisions of the country from September 2022 to February 2023 and the survey report was presented at a programme in Dhaka on March 29.

At the national level, the food expenditure saw a 17.2 per cent rise and the non-food expenditure a 5.8 per cent increase during the period, while the average household income decreased to Tk 14,025 from Tk 14,030 in the same period, the survey said.

On top of that, nearly 74 per cent of poorer families across the country depended on borrowing as a coping strategy to face the rising inflation, it said.

According to M Masrur Reaz, chairman and founder, Policy Exchange Bangladesh, people use their savings to cope with increasing living costs.

While there was increase in inflation, he pointed out, people’s income has not necessarily gone up, leading them to rely on their savings to meet their expenses.

Reaz further pointed out that various loan scams in banks had also caused panic among depositors, leading them to withdraw their savings from banks.

In order to restore confidence among depositors, Reaz stressed, the government must focus on improving governance in the banking sector.

Besides, he observed, people might turn to borrowing in order to cope with the rising living costs.

According to Bangladesh Bank data, consumer loans surged by 14.55 per cent to Tk 1,28,879.5 crore at the end of December 2022 from Tk 1,12,517.81 crore at the end of September that year.