December 15, 2003	Monday	Shawwal 20, 1424

Savers in Pakistan are in a serious trouble. More so, those who are totally dependant on the shrinking income from their savings for their livelihood.

And they include not only the much sympathized but seldom helped senior citizens, retired persons from official and non-official employment, widows, orphans and also a large number pf persons who had accepted the golden-hnadshake from numerous public secotr institutions like the PIA, Pakistan Steel and the major banks, etc.

If the widespread unemployment makes the situation critical, the resulting low wages make it far worse. And while they are getting a small returns on their bank deposits in savings account, they are penalized further for keeping the small deposits through arbitrary bank charges which reduce their deposits and income further. The plight of many savers is indeed pitiable as they have large families to cope with in the face of the constantly rising prices.

The only fractional help the government has come up with is to exempt the income from the National Savings deposits up to Rs150,000 from the 10 per cent withholding tax on deposits. They have to pay the Zakat of 2.5 per cent if they do not belong to the sect exempt from Zakat.

When they accpeted the golden-handshake and placed the lum sum amount they had recieved in the special savings ceritificates of the National Savings they were hoping to get 17 per cent as return on the deposits and meet their monthly expenses and live modestly well. But now they find their income has shrunk to a third of what they had hoped for, while the inflation goes on increasing far above the 3 and 4 per cent projected by the government.

Since then the interest rates around the world have come down and the Japanese banks have almost done away with the interest. Now 10-year government bonds in the west yield an interest rate of five per cent, including the US 10-year Treasuty bonds 4.23 per cent, British bonds 4.81 per cent, German 3.3 per cent, Japanese bonds 1.41 per cent. In Japan while the banks pay hardly any interest on deposits they charge a fee for keeping the money of the account holders. Hence the people prefer to keep their money in water-proof envelopes in refrigirators and use it when they need. In those countires inflation has really come down steeply and is around one to three per cent. In Pakistan we are told that inflation last year was 3.3 per cent and 3.5 the year before. But in reality it is far higher. The Sensitive PRice Index is certainly in the double digit and that is what is affecting most persons. In October alone the PSI shot up by 3.5 per cent when tomatoes were selling at Rs90 per kg and potaotoes at Rs20 per kilo, while meat at Rs180 if not at Rs200. The POL prices have been shooting up constantly and the transport rates have been going up. Rent rates too, are rising following the soaring property prices.

ALL this is hapeening in a country in which national savings are as low as 13.9 per cent having come down from 15.3 per cent last year and domestic savings are onyl 13.8 per cent after they came down from 16.9 per cent last year. As a result the national savings mobilized by the National Savings Orgainzation have come down from Rs139.7 billion four years ago to Rs84.9 billion last year and the once popular regular income scheme recieved Rs11 billion last year agaisnt Rs59.1 billion four years ago.

But the banks are doing pretty well as their profit figures for last year show. While their average rate of interest on deposits last year was 3.6 per cent, the average rate of lending was 13.9 per cent, says the annual report of the State Bank of Pakistan for 2002-03. That means the banks are gettign four times as much on lending as they give on deposits made by the public with them. No wonder some of the banks have come up with fabolous pay scales for their senior staff, particularly those it had hired from the foreign banks like the Citibank.

The banks are concentrating far more on consumer banking which can yield short-term interest of 30 per cent or more overall. Hence they prefer short-term consumer lending to the long term for investment which the country need for the creation of jobs on a regular basis.

The governemnt cannot blame altoether for crashing intertest rates from great heights to the current low level for depositors. The IMF and the World Bank have been stressing for long the goevernment should have uniform rate of interest for all official dealing for the Treasury Bonds and the Paksitan Investment Bonds and the National Saving Orgaziation. And the governemnt is trying to comply with that pressure to the best possible extent despite the hardships caused to the vulnerable section of the society who are in alrge number.

Until recently the policy of the governemnt was to popularize the banks and make the people use the banks more and more for their savings. If the people were earlier encouraged to open bank account with Rs5 and students with only one rupee in school bnaks, the new policy in effect appears to be discouraging small income groups from having banks accounts unless they have a sizable deposits well above the margins specified by the banks or make them pay penal bank charges. And this is taking place in a country with one of the lowest saving rates in the region, and while some of the bnaks are being given a very high salaries with luxorious perquisites.

The average bank deposit rates has now sunk to 1.45 per cent, the weightage average deposit rate fell from 1.90 per cent by the end of June to 1.60 per cent by the end of August. The rate slipped to 1.50 per cent by the end of September and 1.45 per cent to by the end of OCtober.

Meanwhile the rate of interest on the 10-year Defence Saving Certifcates is set to come down to 6.23 per cent in line with the Pakistan Invesmtent Bond. Those who want this rate of interest regarded as high now and very low unit recently have to freeze their deposits for 10 years.

Meanwhiel, the Privatization Commosion has also changed its policy in respect of sales of its shares to the largest number of people and enable more people to benefit by the current stock market boom, it wants to sell its shares to the middle and middle class people. Hence 100 of its shares prices at Rs32 each were sold for Rs32,000 and the National Bank shares were priced at Rs26 per share or Rs26,000 for 1,000. The Commission may argue that its shares were priced too low they could be concenred by the operators in the field who could not be restrained because of thier resources.

There is a lot of surplus funds in the market. Earlier, that went to real estate and the property market. After the prices peaked that money went to the stock exchange. And now it is going to the new shares put on sale by the Privatization Commission, incluidng four new shares of major enterprises to come soon led by the PSO.

The small saver may not have enough money to enter the stock amrket confidently, And there is no certainty when the sharks in the exchange will resort to profit-taking and bring down the shares before taking them up again.

The government is better equipped to handle the situation now than before. Adn yet the men who manipulate the market are shrewder and can be totally unscrupulous.

If the return frum the savings is low in many rich countires now, the people can put up with it for sometime. Their savings and resources are very large, but the savings in Pakistan are too low. And the rural indebtness is excessive. They cannot put up with such excessive hardships on such narrow savings. Over 38 per cent of the people are living on less than $1 dollar a day, they can’t resist poverty in all its manifestations.

Interesrt rates for lending must come down greatly instead of remaining at an average of two to three times the deposit rates.

Experts say more mutual funds which are better supervised can be helpful for the samll savers. In the US mutual funds are producing outrageous scandals. Muutal funds coming up in Paksitan must be saved from such misuse of funds.

The governemnt talks of coming up with new schemes to help small savers. IT should act quick with the cooperation of the private sector. We need to rationalize economic order and not have one in which the small wolves flourish along with the big and make a very lucrative compact.