KARACHI: Savings mobilised under National Saving Schemes (NSS) rose to a record high of Rs315.8 billion during the first 10 months of the current fiscal year mainly because of impact of low inflation, increased remittances and higher profits compared to those offered by banks. The amount was 127 per cent higher than the last fiscal year’s figure of Rs188bn. The State Bank reported on Wednesday that the money raised under the NSS during the July-April period of the current fiscal was the highest during the last five years. However, domestic debt increased more aggressively than the savings under NSS over the past five years, reducing the share of scheme in domestic debt. According to State Bank’s earlier report, the outstanding stock of NSS constituted 35.3pc of domestic debt in 2009. Since the size of the domestic debt magnified during the five years, it reduced percentage of NSS that constitutes domestic debt. Share of NSS stock in domestic debt fell to 26pc in April this year. The size of NSS also swelled to Rs2.009 trillion at the end of June last year and with addition of 10 months’ saving it was up to Rs2.324tr in April this year. The savings rate in Pakistan is the lowest among neighbouring countries which can be in single digit at the end of the current fiscal. Low inflation and higher remittances this year helped build savings under NSS, but the State Bank has been critical of this type of savings because of many reasons. The State Bank believes that various characteristics of NSS along with high returns are one of the major impediments for the development of the nascent bond market in the country. Provision of institutional investments in NSS severally affects the demand for corporate bonds. At the same time, risk-free returns on these schemes distort price discovery of corporate debt instruments. While NSS plays a key role in mobilising financial savings in the economy, the central bank is of the view that there is an urgent need for reforms in this area as NSS creates distortion in the financial sector. Funds mobilised through NSS are costly as compared to other sources of borrowing. This increases debt servicing burden on the fiscal account. Since the size of domestic debt is so huge, it demands fresh borrowing to repay interest and principal amounts. The financial sector also believes that provision of early encashment facility on most of the schemes distorts the maturity profile of government debt. These schemes have no maturity profile, which ultimately undermines government’s efforts to manage its financing. Stock of NSS is not a true reflection of government debt liabilities as it represents the face value of NSS investments without taking into account accrued interest.
Posted on: Sat, 08 Jun 2013 08:26:57 +0000