ECONOMIC distress and falling returns have not dissuaded people from aggressively investing in National Savings Schemes. The total investment so far during the current fiscal has doubled from that over the last year.
On the last working day of last week, investment in National Saving Schemes (NSS) stood at Rs300 billion, against Rs188 billion during 2011-12, confirmed the directorate of the National Saving Organisation (NSO). At this rate, it will probably be safe to assume that the investment in NSS will surge to RS350 billion by the close of the current quarter on June 31, 2013.
Saving and investment in government schemes have picked up, even though the rate of return has been revised downward by an average 2.5 per cent on all schemes, following the loosening of the State Bank monetary policy.
The central bank brought down the discount rate by about the same rate during the year in progress, taking comfort from the drop in the officially recorded inflation rate into single digits. The move was also projected to be in support of the policy to revive private sector investment and growth.
There are two interesting factors to note. Firstly, higher investment in NSS is financed by mainly domestic savings. The rising rate of saving is intriguing in a sluggish economy. At an average annual three per cent GDP growth, with population rising at over two per cent, the capacity of the economy to absorb new entrants in the job market cannot be possibly high.
It is common knowledge that wages have been generally static in real terms over the immediate past. It is, therefore, hard to explain what possibly could have persuaded people to set aside a greater portion of their family income for investment than what they did last year.
Secondly, even the returns on savings dipped followed by the fall in the rate of return on fixed investment schemes of the government. Why would a person prefer to invest at rates that are significantly lower than before?
Government officials try to oversimplify the situation by ignoring the complexity of the relationship between factors influencing the economic behaviour and preferences of the people. They take credit for the sharp spike in investment in the government saving schemes, and also interpret it as an indication of the confidence of people in the government.
On the other hand, bankers believe the trend to be a tilt in the government’s policy in its favour, at the cost of the private sector. Some experts partially blame the lack of innovative products offered by the private sector, which limits the options for low risk investment for citizens. Recalling financial scandals involving some elements in the private sector, and hidden costs often deducted by banks without informing depositors, they feel that the public fear is not entirely misplaced.
NSO Director General Zafar M. Sheikh, reached over telephone in Islamabad, took full credit for mobilising valuable resources for the cash-starved government.
“I need not make claims. The performance speaks for itself. The government heeded our pleas for investment in technology and allowed us a freer hand to manage our staff. We launched computerisation, regularised contract workers, and promoted officers on merit. The strategy delivered, and the same organisation, on the strength of technology and mobilised workforce, made record collection,” he said.
Giving details, he told Dawn that there are 377 branches of NSO in 12 regions of the country. Around one-third of the branches have been computerised, at a cost of Rs380 million, while work on the rest will start as soon as the Phase-2 of the project, which will cost Rs900 million, is sanctioned.
Commenting on the success of NSS, he said that “our products are attractive, even at the reduced rate, compared to other investment options available in the market. There are no hidden charges and invested capital is covered by sovereign guarantee.”
Sheikh also stressed upon the need to reframe the role of NSS to put the economy back on a high growth trajectory by raising resources to close the infrastructure gap.
“If permitted, we can introduce schemes to fund highways, bridges, dams, and other key projects. It will help reduce the government’s dependence on the central and commercial banks, combat inflation, and reduce public debt,” he asserted.
He mentioned Turkey and Latin America as examples where ordinary people have stakes in gigantic infrastructure projects.
Sheikh said that the processing for Shariah-complaint products was being finalised, so as to offer options to citzens who have a stronger commitment to faith.
When asked how the NSS collection will play on the total public debt, the NSO director general said the share of NSS in the Rs8,000 billion total debts is 38 per cent, which is 10 per cent less than the government’s borrowing from commercial banks.
But some key bankers did not seem to agree with the claims made by the government body.
“The NSS offers better returns and penalises the least if the investor wants to liquidate before the maturity of a product. Besides, it is perceived by people to be the safest of all other options. The NSO, therefore, commands a captive market in the country,” commented Shaukat Tareen, a seasoned banker and former finance minister, over the phone. He added that money market funds lacked innovation for a variety of reasons.
Another banker agreed, and added that the surge in the NSS investment signals diversion of funds from commercial banking system to NSS. “I do not think that this additional collection of over Rs100 billion by NSO is new capital. I think these funds were earlier parked in banks or somewhere else. When the rate of capital formation is so slow, it will be naïve to treat it as fresh earnings,” he said.
“I think there is a lot more cash circulating that can be leveraged with custom-made investment products,” an expert contested the bankers’ opinion.
“I think the surge indicates that institutions have again started investing in saving schemes. I believe that cash- rich pension and gratuity funds must be investing aggressively beside others,” said a chief economist of a foreign bank.
Pakistan’s economy seems to be a riddle that is difficult to crack. The economic data give confused signals, which challenge conventional economic wisdom. “For me, either the GDP growth data is flawed, or the NSS collection is overstated,” said an expert.