In search of much-needed financing, the government has increased the rate of profit on national saving schemes up to 4.13 percentage points to offer lucrative investment avenues and finance the widening fiscal deficit.
A research house reported on Friday that the Central Directorate of National Savings (CDNS) increased the rate of return (RoR) by 4.13 percentage points to 17.13% on Special Savings Certificates (SSC) compared to 13% earlier.
It revised the rate up by four percentage points to 18.50% on Savings Account, 3.86 percentage points to 19.82% on Short-term Savings Certificates (STSC), 2.64 percentage points to 16.56% on Behbood Savings Certificates (BSC) and Pensioners Benefit Account (PBA) each.
Besides, it raised the RoR by 2.61 percentage points to 14.87% on Defense Saving Certificates (DSC) and by 0.24 percentage point to 12.84% on Regular Income Certificates (RIC).
A CDNS official told The Express Tribune earlier this week that individual and institutional investors were pulling out investments from the government’s saving schemes.
Lack of revision in the RoR pushed investors to “prematurely” withdraw investments and invest in other lucrative instruments like fixed deposits at banks, he said.
That shift worried the government that had long relied on savings mobilised through the CDNS to finance its fiscal deficit. In turn, it led to an increase in reliance on expensive financing from commercial banks.
The government on Wednesday this week acquired a record high debt of Rs2.25 trillion by selling treasury bills to domestic commercial banks at a historically high return of 22%.
A leading analyst said that Pakistan’s fiscal deficit was projected to spike to Rs5.8 or Rs6 trillion (7% of GDP) in the current fiscal year compared to the initial target of Rs3.7 trillion (4.4% of GDP).
Interest payments on soaring debt constitute the largest government expenditure.
The day the government made the record borrowing from commercial banks, the SBP reported that investors withdrew Rs32.38 billion ($190 million) from saving schemes in February 2023 alone.
Published in The Express Tribune, April 9th, 2023.
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