ISLAMABAD, July 1: The federal government will borrow Rs150 billion from the national savings organisation to partially meet its budgetary requirements during 2008-09.

The government had borrowed an unprecedented Rs550 billion from the State Bank during the last financial year that caused high inflation and fiscal deficit. This has forced the government to drastically limit its borrowing from the central bank and instead seek maximum resources from the savings organisation.

The government believes that borrowing from the central bank has reached an “unacceptable level” and being a major source of inflationary pressure, it needs to be contained.

“But from our side Rs150 billion will be an all-time high borrowing by the government. Our borrowing is less expensive than that of the central bank,” said Zafar Sheikh, the Director General of the Central Directorate of National Savings (CDNS).

Talking to Dawn on Tuesday, Mr Sheikh said that the CDNS had mobilised Rs80 billion against a target of Rs43 billion during the last financial year and it had been given a target of Rs150 billion for 2008-09.

He said that Rs80 billion was mobilised in 2007-08 despite the fact that his organisation had repaid high-cost loans received during 1997 and 1999.

Mr Sheikh said that after the National Bank of Pakistan (NBP), CDNS was finalising arrangements to transfer foreign remittances through Western Union to be received in 24 hours. “On each transaction, the Union is expected to give us $5 to $10 and this will help us to mobilise more resources for the government,” he said, adding that investment in saving schemes was a risk free preposition and good for small investors.

The CDNS director-general said the CDNS had increased its 2 per cent profit rates on all schemes last week due to profit in the inter-bank rates. “We had to adjust our rates to benefit our investors who repose so much confidence in us,” he added.

The popular savings schemes which get 2 per cent extra profit are Savings Accounts (raised from 6.5 per cent to 8.5 per cent); Special Savings Schemes (9.25 per cent to 11.25 per cent); Regular Income Certificates (9.54 per cent to 11.52 per cent) and Defence Savings Certificates (10.15 per cent to 12.15 per cent); Pensioners Benefit Account (11.64 per cent to 13.56 per cent); and Behbood Savings Certificates (11.64 per cent to 13.56 per cent).

Mr Sheikh said the federal government had been requested to allow the revision in profit rates after every three months to help the CDNS remain competitive vis-a-vis the commercial banks.

He said the national savings organisation was going online and planning to launch new schemes, including Sharia compliant products, short-term products and specialised products for non-resident Pakistanis.

He said that small investors who had been ignored, would be provided new opportunities to invest in various national savings schemes and get better rate of profit.

He said the CDNS was offering 13 per cent profit to pensioners and widowers on monthly basis which was unique. The government had planned to promote non-bank borrowing to manage its affairs, rather than relying on the central bank whose borrowing was expensive, he added.

The CDNS director-general said Shariah Compliant Instruments, ATM machine, fresh saving and current account schemes and cheque book scheme would be introduced in 2008-09. Besides, he pointed out, other schemes would also be updated in terms of enhancing their profit.

He said the total portfolio of the CDNS, which was still to be converted into Pakistan Savings as decided by the government of former prime minister Shaukat Aziz, had crossed Rs1.2 trillion mark.

A decision had been taken to increase the number of CDNS branches from 370 to 500 by 2009, he said, adding that there were six million customers of the savings organisation whose number was expected to rise considerably during the next financial year.

The current level of national savings is 18 per cent of the GDP which according to the World Bank and the Asian Development Bank (ADB) needs to be stretched to at least 23 per cent as in many developing countries.

“Ten-year yield on Pakistan Investment Bond (PIB) on which the government borrows has increased from 10.20 per cent to 11.40 per cent. But now we have formulated a policy under which national savings department will offer long-term financing to the government on lower interest rate,” Mr Sheikh said.

He said the CDNS had planned to formally enter into banking field to provide cheque books to its customers. The facility of lockers would also be available under a new programme, he said, adding that under the new policy “domestic sukuk” would also be issued.