Rate of return on saving certificates revised

KARACHI:

The government has revised up the rate of profit on a couple of saving certificates for the general public after the income of the certificate management company surged from sovereign debt securities in which it reinvests people’s money to offer them returns.

Central Directorate of National Savings (CDNS) has revised the rate of return on Savings Accounts (SA) by 125 basis points to 13.50%. It improved the rate by 24 basis points to 12.60% on Regular Income Certificates (RIC), according to local research houses on Saturday.

The rate of profit on Behbood Savings Certificates (BSC) and Pensioners Benefit Account (PBA) remained unchanged at 14.16% each. Returns on Special Savings Certificates (SSC) were maintained at 13%, while the rate on Defence Saving Certificates (CDS) was also left at 12.40%.

CDNS reinvests people’s money in government bonds like three to 12-month T-bills and three to 10-year Pakistan Investment Bonds (PIBs) depending on the tenure of investment by retail investors from three months to 10 years.

The government utilises the investment attracted through saving certificates and bonds.

The returns on T-bills and PIBs have kept surging for about one year now, as government reliance on domestic debt (investment received in the certificates and bonds) remained high to finance its elevated budget deficit.

The returns also increased in association with the domestic high inflation reading and the central bank increased its key policy rate by a cumulative 800 basis points in the 11-month to two-decade high at 15% at present.

The investment in saving certificates, saving schemes, and prize bonds have continued to decline for the past two consecutive years (FY21 and FY22) mainly due to the discontinuation of high-value prize bonds and the maturity of investment by institutional investors.

Earlier, the government barred institutional investors from parking their savings into the certificates, as they have access to directly invest in T-bills and PIBs. The government also discouraged institutions to buy saving certificates under IMF loan programmme conditions for Pakistan.

CDNS is managing an investment portfolio of around seven million individual and institutional investors.

State Bank of Pakistan (SBP) reported the investment in saving certificates, schemes, and prize bonds declined by Rs296 billion in the first 11-month (Jul-May) of the previous fiscal year ended on June 30, 2022.

The inflation reading agreed on some of the people to pull out of investment to survive in high inflation reading environment, as the inflation reading spiked to a 14-year high close to 25% in July.

In the prior fiscal year 2021, the investors pulled out another Rs317 billion from the instruments, according to the central bank data.

To recall, the government discontinued prize bonds of the value of Rs40,000 each, Rs25,000, Rs15,000, and Rs7,500 and asked bondholders to encash them.

The government has discontinued the bonds to check suspected corruption and encouraged businesses and people to use banking channels to settle their payments instead of paying prize bonds.

The Central Directorate of National Savings (CDNS) has set a target for mobile investment worth Rs1.5 trillion into the saving instruments in the current financial year 2022-23.

The Central Directorate of National Savings (CDNS) has set a savings target of Rs1.5 trillion for the current financial year (2022-23).

Reports suggested the directorate is working to introduce Shariah-compliant saving instruments and digitalise CDNS to attract new investment online.

Published in The Express Tribune, August 7^th, 2022.

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