Money Matters

Dwindling national savings

Money Matters
By Zeeshan Haider
Mon, 11, 20

For low income countries like Pakistan, national savings are vital for the economic growth.

For low income countries like Pakistan, national savings are vital for the economic growth.

Since such countries have small capital markets, they rely heavily on the national savings to generate investment in the country.

But unfortunately, Pakistan habitually is an extravagant nation which seldom saves money. Even if people save money, they generally avoid investing it in government saving schemes and prefer to save it privately to later invest in businesses on hopes of earning higher profits.

Pakistan’s saving to GDP ratio in the last financial year was just 14 percent, which is very low if compared with other regional countries.

National Savings is Pakistan’s largest investment and financial institution in Pakistan, which is fully owned by the government. It is thus the main source for the government to generate funds to finance budgetary deficits as well as infrastructure projects.

However, in a country of over 200 million people, the National Savings have just over seven million investors that shows general apathy of the public towards savings.

The main reason behind this public indifference is lack of awareness about the importance of national savings as well as their role in national development.

Recent indicators show that even the existing clients in the national savings are reluctant to put in their money in government instruments like National, Behbood and Defence Saving Certificates, as well as prize bonds.

The downward trend is largely attributed to declining rate of return on these schemes in recent years.

The State Bank of Pakistan in recent months has lowered the interest rates in order to spare funds from the banks for big investors to borrow money and spur economic activity in the country. Resultantly, the National Savings also had to slash its profit rates on its scheme.

This policy discouraged small investors like retired government servants to put in their pensions in these schemes and forced them to look for other investment avenues where they could earn bigger profits.

According to data, the National Savings schemes could attract only a little over rupees seven billion investment, which on average was around rupees three billion and a half for a month.

It is a sharp decline in investment in such schemes over last year where on average thirty billion rupees were invested in a month in these instruments.

Though rate of return on these schemes is still higher than profits given by the commercial banks on savings, still the government needs to mull ways to attract investment in these instruments which are vital for its budgetary support and financing of infrastructure development.

Most of the investors in these schemes are retired government employees. They had put their money in these schemes to earn higher profits. Now, observers say that government’s tightening scrutiny rules under the recommendations of the Financial Action Task Force (FATF) could also be a reason behind falling investment in these schemes.

Investors generally avoid intrusive monitoring of their money, but in order to curb terror financing and money laundering, there is a worldwide stringent effort to clampdown dirty money.

Pakistan has recently passed a slew of bills from the parliament to meet the FATF criteria to get its name off the so-called “grey list” of countries, which still need to step up efforts to stem flow of dirty money through financial channels.

The FATF in its recent plenary held in Paris appreciated Pakistan’s efforts to meet its criteria and found it in total compliance of 21 of the 27-point recommendations. But it deferred Pakistan’s removal from the grey list for another three months, and ruled that it would order an on-site verification in February if Pakistan is found to have fulfilled all recommendations.

The government must redouble its efforts to get off the FATF grey list, so it could send a green signal to the foreign and private investors to put in their money into Pakistan without any fear. However, it also needs to maintain confidence of its own genuine and small investors by allaying their concerns, if any, with regard to the stringent scrutiny rules being implemented under FATF-pushed regulations.

Growing international monitoring for monetary transactions across the globe has resulted in the channeling of foreign remittances through official channels, and Pakistan in recent months has also witnessed growth in foreign remittances.

Taking credit for the rise in foreign remittances, the government says it was due to the rising confidence of overseas Pakistanis in their policies.

But the government also needs to pay attention to the domestic investors, whose confidence seems shaky in view of the tightening rules and regulations concerned with money.

If government failed to boost the confidence of these investors, it would have to borrow money on high interest rates from commercial banks to fill its budget deficit in future.

Since the government domestic and foreign debt has already hit exorbitant height, it needs to act prudently and explore ways and means to generate investment opportunities for the countrymen. This would lessen its reliance on borrowed money.

Despite government’s claim that the country’s economy was edging towards a comfort zone, all indicators show that it was getting into a blind alley, and the situation could aggravate if the current political uncertainty in the country deepens.

The establishment-backed government is locked in a bitter tussle with the opposition alliance, which plans to hold countrywide rallies to muster support for its agitation movement against the PTI rule.

In view of growing anger among masses because of rising inflation and fears of a second wave of Covid-19 pandemic that has aroused possibility of more stringent restrictions on economic activities, aggravation of political tension would be the last thing desired by any Pakistani.

The government, therefore, needs to swiftly find out ways to bring down political temperatures and focus its attention on the economic problems faced by the country.

If it failed to rise to the occasion than there is fear that whatever little it has achieved on the economic front over the past two years, would be squandered.

The writer is a senior journalist based in Islamabad