KARACHI, Feb 22: Net investment in National Saving Schemes remained negative in the first half of this fiscal year even though people continued to invest heavily in two of these schemes.
THE REASON: funds are flowing out from once-popular Defence Saving Certificates, Regular Income Certificates and Special Saving Certificates faster than the newer schemes are attracting fresh investment.
According to the State Bank data released on Monday, a net withdrawal of Rs2.368 billion from NSS was witnessed in July-December 2004 against a net investment of Rs4.952 billion in July-December 2003.
People made the largest net withdrawal of Rs27.19 billion from three-year SSCs, followed by Rs22.783 billion from five-year RICs and Rs3.718 billion from 10-year DSCs. Thus, net withdrawals from all the three schemes totalled Rs53.691 billion.
On the other hand, 10-year Bahbood Saving Certificates (BSCs) and Pensioners Benefit Accounts (PBAs), tailor made for senior citizens, widows and pensioners attracted net investment of Rs46.54 billion in July-December 2004.
Some less-known schemes as well as prize bonds also raised Rs4.783 billion net investment during this period, increasing overall investment in NSS to Rs51.323 billion. But overall withdrawals of Rs53.691 billion exceeded this amount resulting in a net withdrawal of Rs2.368 billion from NSS in July-December 2004.
The reason why once popular DSCs, RICs and SSCs are losing charm is that they now offer much lower return than in the past forcing people to withdraw their investment.
Annual return on three-year SSCs and five-year RICs declined to 6.95 and 6.84 per cent respectively for July-December 2004, from 7.67 and 7.68 per cent for July-December 2003. And, the return on 10-year DSCs came down to 8.15 per cent from 8.50 per cent. On the other hand, the return on tailor-made 10-year BSCs and PBAs remained unchanged at 10.08 per cent, far higher than the return on DSCs of similar maturity.
The government has been offering a higher rate of return on these two schemes because they are supposed to benefit targeted group of small investors i.e. pensioners, senior citizens and widows. But the return on DSCs, RICs and SSCs are linked with the change in Pakistan Investment Bonds of similar maturities. This linking, done on the insistence of the IMF, was aimed at making interest rates more market-driven in the country.
FUTURE OUTLOOK: As interest rates have started moving up since the beginning of this fiscal year in July last, chances are that the government will have to increase the yields on PIBs as well.
That will push up the rates of return on DSCs, RICs and SSCs in line with the increase in 10-year, five-year and three-year PIBs. In that event, the pace of withdrawals from any of these schemes may slow down and regenerate public interest in them.
That would also give the government room to further increase the rates of return on BSCs and PBAs, thus attracting still larger investment through these schemes. But much would depend on whether the government implements its plan to get PIBs listed on bourses and offer zero-coupon bonds or it continues to sell the bonds only in inter bank market through pre-set auctions.