High returns offered by National Savings hurting private sector
NSS is effectively crowding out private financial firms, claim businessmen.
The popularity of the NSS can be gauged from the fact that the target for fiscal year 2012-13 was Rs224 billion, yet these schemes managed to mobilise a total of Rs386 billion in the same year, 72.3% higher amount than the original target. ILLUSTRATION: JAMAL KHURSHID
KARACHI:
Director Mutual Funds Association of Pakistan (MUFAP), Dr Amjad Waheed, has said the government must rationalise the National Savings Schemes (NSS), as their returns at the current levels are stunting growth in the private sector.
“The NSS offer very high returns. How does the government expect private asset management companies to excel while a government-owned body is offering high returns on practically risk-free products?” Waheed said while speaking to The Express Tribune in an interview.
Savings mobilised by the NSS in fiscal year 2012-13 were Rs386 billion, according to the State Bank of Pakistan. The mobilised savings amounted to Rs188.3 billion in fiscal year 2011-12, which translates into an increase of 105% in just one year.
“The government should lower the returns it offers in the NSS in order to reduce overall interest rates in the country. Isn’t the anomaly too apparent when the government borrows at 11-12% while banks borrow at 6% on average?” Waheed said, adding that such risk-free investment avenues offering high returns are crowding out the private sector in Pakistan.
While the NSS include many schemes offering different returns, its flagship products remain prize bonds, Defense Savings, Behbood Savings, Special Savings and Regular Income certificates. The largest share in the total mobilised savings during July was of prize bonds with Rs4.3 billion.
Many people believe that providing widows, the elderly and retired couples with a safe investment avenue yielding profits that are higher than the returns on products offered by private-sector asset management companies is a typical responsibility of every government. However, Waheed believes it is tantamount to subsidising the rich.
“Given that the upward investment ceiling in the NSS is Rs3 million, I wonder how many elderly people in Pakistan have that kind of cash available to invest in their post-retirement life,” Waheed said, implying that a great number of NSS investors are well-heeled.
The popularity of the NSS can be gauged from the fact that the target for fiscal year 2012-13 was Rs224 billion, yet these schemes managed to mobilise a total of Rs386 billion in the same year, 72.3% higher amount than the original target.
The State Bank says the portfolio of the Central Directorate of National Savings is over Rs2.3 trillion, as more than six million investors park their life-long savings in these schemes.
Savings of over Rs13.3 billion were mobilised by the NSS in July alone – the latest month for which official data is available. The NSS has set the target of Rs280 billion for fiscal year 2013-14. However, the amount of savings mobilised this year is likely to surpass its target, according to Director General National Savings Organisation, Zafar M Sheikh.
Proponents of the NSS believe these schemes provide ordinary people with an effective social safety net while increasing the rate of savings in the economy. However, those calling for slashing the high interest rates offered by the NSS claim that the mobilised savings are used solely for debt and budget deficit financing, which is bad for the economy in the long term.
Net government borrowing in fiscal year 2012-13 from domestic banks was Rs960 billion, as the government borrowed over Rs1.5 trillion for budgetary support. The budget deficit remained at 8.8% of the gross domestic product (GDP) in the same year.
Waheed added that the government should revise the maximum investment limit downwards while rationalising the NSS returns. “I’m not against subsidies, but they have to be targeted. The government must stop subsidising the rich at the cost of private sector’s growth,” he noted.
Published in The Express Tribune, September 7th, 2013.
Director Mutual Funds Association of Pakistan (MUFAP), Dr Amjad Waheed, has said the government must rationalise the National Savings Schemes (NSS), as their returns at the current levels are stunting growth in the private sector.
“The NSS offer very high returns. How does the government expect private asset management companies to excel while a government-owned body is offering high returns on practically risk-free products?” Waheed said while speaking to The Express Tribune in an interview.
Savings mobilised by the NSS in fiscal year 2012-13 were Rs386 billion, according to the State Bank of Pakistan. The mobilised savings amounted to Rs188.3 billion in fiscal year 2011-12, which translates into an increase of 105% in just one year.
“The government should lower the returns it offers in the NSS in order to reduce overall interest rates in the country. Isn’t the anomaly too apparent when the government borrows at 11-12% while banks borrow at 6% on average?” Waheed said, adding that such risk-free investment avenues offering high returns are crowding out the private sector in Pakistan.
While the NSS include many schemes offering different returns, its flagship products remain prize bonds, Defense Savings, Behbood Savings, Special Savings and Regular Income certificates. The largest share in the total mobilised savings during July was of prize bonds with Rs4.3 billion.
Many people believe that providing widows, the elderly and retired couples with a safe investment avenue yielding profits that are higher than the returns on products offered by private-sector asset management companies is a typical responsibility of every government. However, Waheed believes it is tantamount to subsidising the rich.
“Given that the upward investment ceiling in the NSS is Rs3 million, I wonder how many elderly people in Pakistan have that kind of cash available to invest in their post-retirement life,” Waheed said, implying that a great number of NSS investors are well-heeled.
The popularity of the NSS can be gauged from the fact that the target for fiscal year 2012-13 was Rs224 billion, yet these schemes managed to mobilise a total of Rs386 billion in the same year, 72.3% higher amount than the original target.
The State Bank says the portfolio of the Central Directorate of National Savings is over Rs2.3 trillion, as more than six million investors park their life-long savings in these schemes.
Savings of over Rs13.3 billion were mobilised by the NSS in July alone – the latest month for which official data is available. The NSS has set the target of Rs280 billion for fiscal year 2013-14. However, the amount of savings mobilised this year is likely to surpass its target, according to Director General National Savings Organisation, Zafar M Sheikh.
Proponents of the NSS believe these schemes provide ordinary people with an effective social safety net while increasing the rate of savings in the economy. However, those calling for slashing the high interest rates offered by the NSS claim that the mobilised savings are used solely for debt and budget deficit financing, which is bad for the economy in the long term.
Net government borrowing in fiscal year 2012-13 from domestic banks was Rs960 billion, as the government borrowed over Rs1.5 trillion for budgetary support. The budget deficit remained at 8.8% of the gross domestic product (GDP) in the same year.
Waheed added that the government should revise the maximum investment limit downwards while rationalising the NSS returns. “I’m not against subsidies, but they have to be targeted. The government must stop subsidising the rich at the cost of private sector’s growth,” he noted.
Published in The Express Tribune, September 7th, 2013.