The Irish may be known globally for their love for prize bonds, but statistics prove that Pakistanis are equally fond of this unique financial instrument issued by the government. Bonds raise funds that are refundable to the bond holder on demand, and money raised through their offering is used to offset the government’s borrowing.
According to State Bank of Pakistan Managing Director Aftab Mustafa Khan, the total value of prize bonds in Pakistan is around Rs350 billion. In percentage terms, this is 2.9% of the roughly Rs12 trillion owed by the federal government in total public debt. In contrast, they account for a little over 1% of national debt in Ireland.
Although a prize bond is theoretically a non-interest bearing security, interest is returned to bond owners in the form of prizes – handed out to the luckier bond bearers after a random selection.
Keeping in view the demand for prize bonds, the National Savings Organisation on Thursday announced the launch of the Student Welfare Prize Bond. The bond will be available at all National Savings centres across the country from today (Friday).
While the name may suggest that the scheme is limited to students, National Savings Regional Director Abdul Bari Shaikh told The Express Tribune that the general public is allowed to benefit from the scheme as there is no set age limit for those eligible to purchase it.
The minimum investment required under the scheme is Rs100. The first prize on the bond is Rs700,000; there are three additional second prizes of Rs200,000; and 1,199 third prizes of Rs1,000.
Shaikh said the government expects to raise Rs3.5 billion from the sale of these bonds in the initial offering. The first issue will be followed by a draw on February 15, 2013, in Karachi. These bonds can be purchased by depositing cash at the issuing office or by presenting a cheque. A 10% withholding tax will be deducted in case a bond owner gets lucky and wins a prize.
Shaikh said the primary objective of launching a separate scheme for students was to encourage them to save money. “It’ll also tap the currency in circulation and control inflation,” he said.
Speaking on the occasion, the SBP managing director said prize bonds were one of the most popular saving instruments in Pakistan. “As far as I know, ours is one of the oldest schemes of prize bonds globally,” he noted.
Pakistan’s gross savings – calculated as gross national income less total consumption, plus net transfers – were 21% of the country’s gross domestic product in 2011, according to the World Bank.
The National Savings Organisation also manages other savings schemes and accounts. The total portfolio of the National Savings Organisation is Rs2.3 trillion, which constitutes roughly one-fifth of the government’s public debt.
Published in The Express Tribune, November 16th, 2012.