Staff Report
ISLAMABAD: The global health crisis has forced people to save more to cope with unforeseen challenges but a massive drop in profit rates of saving schemes prevented investors from investing their savings in formal schemes. The development has posed a new challenge to the government which wants to attract fresh investment into saving schemes. The investment received is utilised to finance the budget deficit.
The Central Directorate of National Savings (CDNS), which offers several saving schemes and certificates, received investment of a mere Rs7.28 billion in the first two months (Jul-Aug) of current fiscal year 2020-21, according to the State Bank of Pakistan’s (SBP) latest numbers.
People had invested on an average over Rs30 billion a month in the saving schemes in the previous fiscal year. The low investment in initial months of FY21 is partly due to pullout of capital from the Defence Saving Certificates (DSC) and withdrawal of savings from prize bonds and other schemes. People pulled out a total of Rs1.43 billion from DSC in the first two months of FY21.
A CDNS official believed that the drop of investment in DSC was primarily due to maturity – completion of investment period. DSC has a maturity period of 10 years. People may still sell the saving certificates prematurely for any reason, he said. People, however, may not have reinvested in the certificates apparently due to a notable drop in the profit rate. The government revised down the profit rate for DSC to 8.49% in August compared to 10.4% before April.
The drop in profit rate is in line with the 625-basis-point reduction in the benchmark interest rate from March-June to 7%. The central bank cut the policy rate to help individuals and businesses to avert default on bank loans and inject fresh investment into businesses to support economic activities in an otherwise sluggish economy. People may have not reinvested to keep hard cash in hand to meet any challenge during Covid-19, the CDNS official added.
He said the investment in saving schemes may naturally remain low this year after the government barred institutional investors from parking capital in these schemes. People, however, invested Rs3.92 billion in the short-term (three-year maturity) Special Saving Certificates (SSC) during July-August despite a lower profit rate of 7.77% compared to DSC. People, who pulled out investment from DSC, may have reinvested in the short-term certificate in the hope of increase in profit rate.
