Govt slashes profit rates on saving schemes

Lower returns on savings threaten already dismal domestic saving rate

KARACHI:

The government has revised down the profit rates on various national saving schemes and certificates by up to 1.22 percentage points, further discouraging savings and worsening the country's already low domestic saving rate, which lags behind regional peers.

Citing data from the Central Directorate of National Savings (CDNS), Topline Securities reported that the return on the Sarwa Islamic Term Account has been cut by 1.22 percentage points, dropping from 17.58% to 16.36%.

The reduction in returns on savings products is aligned with declining earnings from government debt securities such as Treasury bills (T-bills), Pakistan Investment Bonds (PIBs), and Sukuk. CDNS reinvests funds from national savings schemes into these government debt instruments.

Pakistan's investment ratio has plunged to a 50-year low, falling to just 13.1% of GDP in FY24, significantly lower than that of neighbouring countries.

In another adjustment, CDNS reduced the profit rate on the Sarwa Islamic Saving Account by 1 percentage point, from 19% to 18%. The return on Short-Term Savings Certificates was cut by 68 basis points, dropping from 17.90% to 17.22%.

For Special Savings Accounts, the rate of return was lowered by 30 basis points to 15.20%, down from 15.50%. Similarly, the profit rate on Special Savings Certificates was reduced by the same margin, from 15.50% to 15.20%.

The rate of return on Regular Income Certificates was decreased by 12 basis points, falling from 14.64% to 14.52%. However, CDNS left profit rates unchanged for Behbood, Shuhda, and Defence savings products.

The decline in savings rates comes amid a downward trend in returns on government debt instruments like T-bills, PIBs, and Sukuk, which have seen reduced yields following a series of interest rate cuts by the central bank.

The State Bank of Pakistan (SBP) has lowered its key policy rate by a cumulative 4.50 percentage points over the past three months, bringing it to the current level of 17.5%.