Returns on NPCs increased

Raised by up to 6 percentage points on foreign and local currency-based bonds

KARACHI:

In a bid to encourage overseas Pakistanis to invest more actively in the homeland through the Roshan Digital Account (RDA), the government has raised the rate of return on Naya Pakistan Certificates (NPC) by up to 6 percentage points on both foreign and local currency-based savings bonds. This revision, effective from September 1, 2023, aims to boost foreign currency reserves and support the rupee against foreign currencies like the US dollar.

Citing the Ministry of Finance, local research houses have reported that the government has increased the rate of return by 1.25 to 1.50 percentage points on US dollar-denominated NPCs with three-month, six-month, and 12-month maturities, raising the maximum return to 9% on 12-month certificates.

For pound-denominated NPCs with maturities ranging from three to 12 months, returns have been increased by 1-1.75 percentage points, with the maximum return now at 8% for 12-month bonds.

Euro-based certificates with maturities of three to 12 months have seen returns surge by 2-2.25 percentage points, with the maximum return reaching 7% for 12-month bonds.

For rupee-denominated NPCs with maturities ranging from three months to five years, the government has raised returns by 1.50-6 percentage points, setting the maximum return at 21.50% for 12-month certificates.

The government has left the rate of returns unchanged for three-year and five-year tenure papers in various foreign currency denominations, maintaining them in the range of 6.50-8%.

This move comes after a long-awaited decision to reignite interest among non-resident Pakistanis in these savings products, as monthly foreign currency inflows into NPCs via RDA had slowed down due to rising returns on similar products in global markets.

Speaking to The Express Tribune, Director of Research at Chase Securities, Yousuf M. Farooq, emphasised the necessity of this revision to attract overseas Pakistanis to invest in their homeland, even at a premium compared to similar products offered in developed countries.

“Pakistan is paying a premium of 2-3 percentage points on returns compared to the ones being offered by the US on similar bonds and saving certificates. Paying the premium will encourage overseas Pakistanis to invest in their homeland over similar products available in the global markets,” said Farooq.

However, he also noted that political stability is crucial to fully restore the confidence of expatriates in the domestic economy, and this may remain uncertain with general elections expected in a few months.

Arif Habib Limited, Head of Research, Tahir Abbas, acknowledged that the increased rate of return has made the certificates more competitive and will likely attract higher inflows. However, he pointed out that high global inflation has constrained savings for people, which may hinder an immediate surge in inflows.

Notably, RDA inflows had slowed to $150 million in the six weeks from July 1 to August 15, compared to a record high of $290 million in March 2023.

The Central Directorate of National Savings (CDNS) has reported attracting Rs 250 billion from the sale of various bonds and certificates to local resident Pakistanis from July 1 to September 5, surpassing the annual target. In the previous fiscal year ending June 30, 2023, CDNS sold certificates worth Rs 1.6 trillion.

Gross inflows have surpassed $6.5 billion in the 35 months up to mid-August, with a significant portion of the funds directed towards NPCs, as reported by the central bank.

Saving target surpassed

In another development, the Central Directorate of National Savings (CDNS) has reported attracting Rs250 billion through the sale of various bonds and certificates to local resident Pakistanis from July 1 to September 5, according to a local news agency.

The CDNS not only met but surpassed the annual target, selling certificates worth Rs1.6 trillion in the previous fiscal year ending June 30, 2023.

Additionally, CDNS has introduced Automated Teller Machines (ATMs) to provide enhanced facilities to users.

Kibor rate drops

Commercial banks have revised down their benchmark six-monthly interest rate, known as the cost of bank lending, by 1.51 percentage points to 23.09 on Friday.

This downward revision comes after the central bank left its key policy rate unchanged at 22% on Thursday, contrary to high expectations of a potential upward revision of up to 3 percentage points.

Previously, banks had increased the rate by a similar magnitude in anticipation of a rate hike by the central bank.

Published in The Express Tribune, September 16^th, 2023.

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