Investment in premium bonds climbs twofold in Oct

KARACHI: Investment into premium prize bonds of Rs40,000 denomination sharply increased 192 percent year-on-year in October owing to drive of the government to document the economy, the central bank’s data showed on Tuesday.

The State Bank of Pakistan’s (SBP) statistics showed that investment into registered or premium prize bonds surged to Rs17 billion in October 2019 compared with Rs5.8 billion in the corresponding month a year earlier.

The sharp increase in investment in premium prize bonds could be attributed to discontinuation of bearer bonds of the same denomination. In April 2017, the previous government started introduction of premium prize bonds to document the economy. The premium prize bonds are being issued only against computerised national identity cards with valid bank accounts.

The government also announced biannual profit of 1.965 percent to make the instrument attractive and the payout is directly transferred to the bond holders.

However, the fast pace of investment in the premium prize bonds was seen from July 2019 after the announcement of the government to discontinue the bearer bonds of Rs40,000 on June 24, 2019.

The bearer bonds of Rs40,000 would completely be discontinued for legal tender by March 2020. The government agreed with the International Monetary Fund (IMF) under a loan agreement to get prize bonds and other bearer instruments registered to rein in their use as bearer instruments for potential tax avoidance or other illegal activities.

In July this year, the IMF agreed to loan $6 billion to Pakistan to help it bring the economy back on stability path. The IMF said prize bonds are high-denomination bearer instruments issued by the government to mobilise retail savings, which could effectively be used as anonymous medium of exchange and a substitute to rupee.

Around Rs232 billion was converted into either premium bonds or transferred into saving accounts or other bank accounts following the government’s initiative to discontinue prize bonds of Rs40,000 denomination to bring the money into documented economy. However, the government disallowed surrender of the bearer bonds against cash money.

As of May 2019, the total investment in Rs40,000 bearer bonds was Rs258 billion. The latest data showed that only Rs26.25 billion remained under the head.

The total investment in bearer prize bonds in various denominations registered a decrease of 20 percent to Rs719.48 billion in October 2019 compared with Rs896.41 billion in the same month of the last year, the official data showed.