Govt slashes investment limits for NPCs

Pakistan on Friday drastically reduced the minimum investment limits but significantly increased profit rates to raise foreign debt from overseas Pakistanis through the Naya Pakistan Certificates (NPCs), after the government’s borrowing options shrank and people started pulling out money.

The Ministry of Finance, through a notification, revised the profit rates and investment limits for the foreign and local currency debt.

Except for the euro-denominated debt, profit rates on investment in US currency, British pound and Pakistani rupee were revised upwards. The ministry amended the NPC Rules 2020 to give effect to the revised rates.

The last government of Pakistan Tehreek-e-Insaf (PTI) had introduced the NPCs aimed at acquiring short-term debt. Initially, it remained an attractive instrument of borrowing from the overseas Pakistanis due to very high dollar-denominated returns, but gradually people started losing interest due to the better returns offered by overseas markets and the increasing default risks faced by Pakistan.

The government lowered the minimum investment limit from $5,000 to just $1,000 aimed at attracting more money from abroad. It increased profits on all instruments which included investment for three months, six months, one year, three years and five years.

Dollar-based loans through the NPCs would now have 7% interest for three-month maturity, up from 5.5%.

Similarly, the six-month rate has been revised upwards from 6% to 7.2%, for one year from 6.5% to 7.5% and three years from 6.75% to 8%. Five-year deposit rate has been increased from 7% to 8%.

In case of pound sterling, the investment limit has been lowered from a minimum of £5,000 to £1,000 and rates have been increased for all five maturities.

For three-month maturity, the rate has been increased from 5.25% to 5.5%, six months from 5.5% to 6%, one year from 5.75% to 7%, three years from 6.25% to 7.5% and five years from 6.5% to 7.5%.

The government expects the overseas Pakistanis to provide a net $800 million in loans through the NPCs during the current fiscal year. The amount is part of the $32 billion external financing plan.

However, the ministry’s revised estimates showed that not even a net amount of $300 million could be borrowed in the first half of FY23. SBP data showed that a gross $510 million in new loans were given by the overseas Pakistanis during July-December FY23.

The overall debt acquired through these certificates remained at Rs46 billion as of end-November 2022, since the start of the scheme in September 2020.

For rupee investment, the limit has been cut from a minimum deposit of Rs100,000 to just Rs10,000. The profit rate for three months has been increased from 9.5% to 15%, for six months from 10% to 15.25%, for one year from 10.5% to 15.5%, for three years from 10.75% to 14% and for five years from 11% to 13.5%, according to the finance ministry.

The revision of rates came two days before the next monetary policy announcement, where the market expects a further increase of 1% to 2% in the core interest rate. The existing key rate is 16%.

The notification showed that the government had lowered the euro investment limit to €1,000 and also slashed the profit rates for three different tenors.

For three months, the profit rate has been reduced from 4.75% to 4%, for six months from 5% to 4.5% and for one year from 5.25% to 5%.

However, for three years, the rate has been increased from 5.5% to 6.5% and for five years from 5.7% to 6.5%.