Small investors look for better options

LAHORE: Continuous downward slide of profit rates on various national savings certificates has compelled the small investors to look for better options.
The federal government has curtailed the profit rates up to 3.8 percent on various savings certificates from January 2014 till date.
The profit rate cut down to 7.6 percent on Special Savings Certificates (SSCR) from 11.4 percent from 2014 till today, on saving account 4.01 per cent from 7.75 percent, on short term savings certificates (STSC) 6.96 percent from 9.4 percent, on Bahbood Savings Certificates (BSC) 10.8 percent from 14.04 percent, on Regular Income Certificates (RIC) 8.232 percent from 11.88 percent, on Defence Savings Certificates (DSC) 8.92 percent from 12.26 percent.
The young savers of short term certificates have also approached the National Savings to review their policy of cutting down the profit rates.
However, National Savings (NS) Director General Waqar Ahmed said that they were unable to entertain the demands of the young savers. “The profit rate on national savings certificates is directly attached with the monetary policy and interest rate fixed by the State Bank of Pakistan (SBP) in the country,” he said, adding that the NS with the change of interest rate amends the profit rates on national saving certificates.
Last week the SBP cut interest rate for the fourth straight time to a 42-year low of 7 percent from 8 percent. The low inflationary trend allowed the central bank to cut interest rate in successive monetary policy announcements from November 2014 onwards. The SBP projects consumer price index inflation in the range of 4 to 5 percent for the whole year as compared to the original target of 8 percent.
On a question if this continuous decline in profit rates affect the national savings depositors and savers, Waqar said that the NS achieved ongoing fiscal year savings target of Rs284 billion as the rate of interest was gradually reduced. However, in the next financial year it might be affected. He said that the NS will further revise interest rates in the next month.
Waqar went on to say that the government did not force anyone to invest in the national savings.
Rather, the government wants the younger people to start their businesses with these savings, create economic activity and contribute to the economic growth of Pakistan. He believed that young savers have options to invest in other ventures. However, the senior citizens, widows, and pensioners savings schemes profit rates did not affect much.
Waqar further said that still the profit rate is almost 2 percent higher than the inflation rate of the country.
Former Chief Economist Dr Pervaiz Tahir said that savings are a vital component of economic growth of any economy, whereas in Pakistan, saving culture does not exist expect the national savings savers. “Pakistan’s saving rate is one of the lowest in the world while further reduction in profit rates will discourage existing savers,” he said.
If the NS savers are discouraged, the saving culture will almost vanish from Pakistan. However, from the government’s perspective, reduced profit rates are very beneficial, as the government is the largest borrower of the NS. Reduce in savings rate will offset the government burden of repayment. Thus, reduction in profit rates is disadvantageous for the savers, but beneficial for government, Dr Tahir asserted.
NS DG Waqar Ahmed also accepted that the government is the largest borrower of national savings and continuous reduction in profit rates benefits it in retiring the debt. He said that now the government is looking for long term borrowing and introducing Sakuk bonds for long term financing.