KARACHI, Oct 9: Withdrawals of investment from national saving schemes continues after the cut in their rates of return in July this year.
According to the latest statistics, people made a net withdrawal of about Rs917 million from NSS in August 2003. Earlier in July they had made a net withdrawal of Rs1.1 billion. Thus in two months the NSS saw a negative inflow of Rs2 billion plus primarily due to the downward revision in the rates of return.
Net investment in NSS has been on the fall not only because of falling rate of return but also because those who had got bank loans using defence saving certificates and special saving certificates as collaterals liquidated the same.
According to the statistics posted on SBP website the largest withdrawal of Rs3.6 billion was seen in August in case of five- year regular income certificates. The rate of return on RICs was reduced from 9.12 per cent to 7.68 per cent. The statistics show that three-year special saving certificates also saw a nominal net negative inflow of Rs53.5 million in August. From July the government had reduced the rate of return on SSCs from 8.67 per cent to 7.67 per cent.
Unlike SSCs and RICs that saw a net negative inflow in July and August, defence saving certificates continued to lure investors. An investment of Rs589 million was witnessed in the 10-year paper in August. Earlier in July DSCs had attracted a net investment of Rs422 million.
In August all other national saving schemes combined also attracted Rs2.1 billion worth of investment. Senior bankers say most of this investment was made in 10-year Bahbood certificates specially designed for widows and retired people.
Senior bankers say net negative inflow in NSS suits the government interests. They say since most instruments of NSS originally carried a high interest rate the government is interested in shifting its borrowing from NSS to the market-based PIBs or Pakistan Investment Bonds. Whereas the government has failed in linking the NSS rates completely to the market forces, the return on PIBs is fully market-based. That is why the IMF has been insisting that NSS rates should be made at par with the cut- off yield on PIBs of matching tenures.
Senior bankers say by announcing Rs50 billion PIBs auction for October-December 2003; allowing retail investors to invest in PIBs directly and by introducing 15-year and 20-year PIBs the central bank wants to deepen the secondary market for PIBs. The deepening of the secondary market would help the government shift focus from debt raising through NSS to PIBs. “Even now it makes sense for the government to raise more loans through PIBs at cheaper rates and retire the expensive loans raised through NSS,” said treasurer of a local bank.
But whereas government borrowing through NSS is treated as its non-bank borrowing not the entire borrowing through PIBs may come under this head. If banks continue to hold PIBs this would constitute government bank borrowing. But the steps announced by the government and the SBP are such that banks would soon have to offload their PIBs holdings onto the secondary market.