As was expected after the latest reduction in policy rate by 0.5 percent to 0.6 percent by the State Bank of Pakistan, the government on 1st October, 2015 also slashed the rates of return on various National Saving Schemes (NSS) by up to 68 basis points. Returns on Regular Income Certificates were reduced by 68 bps to 7.85 percent, Pensioners and Bahbood saving schemes by 24 bps to 10.8 percent, Defence Saving Certificates by 28 bps to 8.87 percent and Saving Accounts by 50 bps to 4.24 percent. Obviously, the rate of return on NSS was brought down keeping in view the declining interest rates in the monetary sector in the wake of falling inflation and improvement in foreign exchange reserves of the country. Sadly, investors in the NSS would have also to face the consequences of a fall in return on their investments in the short to medium-term as CPI inflation is coming down and foreign exchange reserves have reached a record high level of about dollar 20 billion. The CPI inflation in September, 2015 was negative by 0.10 percent compared to a month earlier and only 1.32 percent higher over the same month a year ago.
Apparently, cut in the NSS rates must have been a rude shock for the common investors, particularly the elderly who mainly depend on this source of income. The government may defend its move on some positive factors but investors in these schemes would not be convinced by the rationale offered by the public authorities. For instance, the real worth of their returns, measured by the purchasing power of the rupee in terms of a basket of goods and services have been substantially reduced overtime. There is, therefore, no doubt that their standard of living would have declined considerably when the returns on NSS are falling. Unfortunately, however, the investors in NSS schemes have no proper forum to air their grievances except occasional publication of letters in newspapers' 'Letters to Editor' columns. The measure could also have certain other negative repercussions. Some of the investors could encash their certificates and invest in land and other real estate-related ventures, the prices of which are increasing sharply or convert the amount into US dollars and other currencies in anticipation of a further rise in their value. Such a trend could, therefore, reduce the flow of funds from this avenue and oblige the government to borrow more from the banking system to finance its budget deficit which could be inflationary.
However, the cut in the NSS rate would provide a more level playing field to banks by reducing the margin of profits offered by banks to depositors and through NSS. Debt servicing liability of the government would also come down which would help lower the budget deficit. Nonetheless, while there could possibly be no convincing argument against the present cut in the NSS rates, the government at least needs to consider certain aspects of its present policy towards NSS. For instance, the standard of service at national saving centres must be raised to alleviate the sufferings of investors who have to form long queues to get the attention of overworked government employees who often complain about the lack of proper service structure. The overdue idea of depositing the monthly returns in the investors' bank accounts should be given a serious consideration. Besides, the returns on Bahbood and Pensioners' accounts need to be kept unchanged or reduced minimally since most of the investors in these schemes have hardly any other source of income and cannot engage themselves in any other profession due to their old age.
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