APROPOS the news ‘SBP’s Naya Pakistan Certificate launched’ (Nov 13), one is perplexed at the high rate of interest being offered on these certificates to persuade overseas Pakistanis to invest in them. On maturity, the State Bank of Pakistan (SBP)will have to return the principal amount along with interest. From where is the SBP going to pay this high an interest rate?

On the one hand, higher than the prevailing bank rate interest is being offered on certificates offered to overseas Pakistanis, while, on the other, negligible or no interest is being paid on the dollar-denominated deposits of resident Pakistanis.

The government seems desperate to borrow foreign exchange and that explains such expensive rates on offer. If the purpose is to build foreign reserves and pay the foreign debts, the proposition does not seem to be rational, and is not likely to help us get out of the crisis. It is akin to borrowing from Peter to pay Paul. This experiment was also tried earlier in the shape of Foreign Exchange Bearer Certificates (FEBCs), but failed amid controversies.

Another facility offered as an incentive for the new certificates is that no question will be asked about the source of funds being invested. This means there is no yardstick to ascertain whether the funds involved in purchasing the certificates are legally earned. Nor is there a way to verify that these certificates are not being used as a conduit for siphoning ill-gotten wealth on behalf of some third party.

Furthermore, the tax applicable on repatriation would be 10 per cent irrespective of the amount, whereas the tax deducted on profit in local currency from tax-filer resident Pakistanis exceeding Rs 500,000 is 15pc. Nothing explains this discrimination.

The solution to our financial problems is not yet more ‘new’ certificates, but supporting and giving incentives to our export-oriented large scale manufacturing (LSM) industry that needs discounted finance from commercial banks.

These commercial banks continue to report huge profit as a major portion of it comes from non-fund income and treasury bills. If Bangladesh can build up foreign exchange reserves by increasing exports, why can’t we?

Muhammad K. Sufi

Published in Dawn, November 22nd, 2020