Govt reduces rates on national savings schemes

Special Saving Certificates, Regular Income Certificates and Short Term Savings Certificates see largest cuts

KARACHI:

The government has implemented a downward revision in the rate of return on national saving certificates and schemes by 25 basis points (bps) up to 160bps, discouraging individuals from placing their savings in these sovereign papers.

As per data compiled by Topline Research, the Central Directorate of National Savings (CDNS) has substantially reduced the rate of return on Special Saving Certificates (SSC) by 160 basis points to 16.40%, effective from December 19, 2023, down from the earlier rate of 18%.

Similarly, the Directorate has reduced the rate by 96 basis points on Regular Income Certificates (RIC) to 15.12% compared to the previous 16.08%. Short Term Savings Certificates (STSC) also saw a rate cut of 92 basis points to 20.80%.

The rate of return was adjusted downward by 24 basis points on three saving products, namely Pensioners Benefit Account (PBA), Behbood Saving Certificate (BSC), and Shuhada Family Welfare Account (SFWA), all now offering a rate of 16.08%.

However, the rates on other saving products remain unchanged, with Defence Savings Certificate at 14.48% and Saving Account Rate at 20.50%.

Speaking to The Express Tribune, Yousuf Rahman, Head of Research at KASB Securities, noted that the rate adjustments on national saving schemes are in line with the drop in returns on investment in Pakistan Investment Bonds (PIBs), as CDNA reinvests the funds received from investors in PIBs. Despite the reductions, he doesn’t anticipate a massive cut in returns, as rates on long-term government papers like PIBs have remained relatively stable.

He noted that the rate of return on the benchmark 10-year PIB has been reduced to 15% at present compared to 17% in the recent past.

Read Govt increases profit rate on savings certificates

Rahman suggests the government introduce Shariah-compliant saving products to attract more investment from the general public, aligning with national strategy and potentially reducing the government’s reliance on debt for development projects and other expenditures.

There’s a growing demand for Shariah-compliant products in the financial sector, and introducing such options could cater to a section of society seeking these alternatives.

PIB rate cuts

In a related development, the government successfully raised Rs397 billion through the auction of 3-10 year tenure PIBs, surpassing the set target of Rs190 billion.

The cut-off yield (rate of return) on three-year PIB slashed 19 basis points to 17.19% in the latest auction of the papers. The yield on the five-year bond dropped seven basis points to 15.88%. The yield on the 10-year PIBs decreased 10 basis points to 15% in the auction.

The rate of return on sovereign bonds saw reductions ranging from 7 to 19 basis points, with strong demand evidenced by bids totalling Rs421 billion—more than double the target amount. However, there were no bids received for 15-year, 20-year, and 30-year PIBs.

Published in The Express Tribune, December 21^st, 2023.

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