The government is getting more than Rs 2 billion a day in its kitty through National Saving products. In just one month (that is March 2009), National Saving Schemes got net funds of Rs 63 billion (Rs l26 billion gross sales of NSS) which is higher than last 3 year average annual mobilisation of net Rs 54 billion.
This huge investment in NSS by individuals and selected corporations is due to attractive risk free returns and due to expectations that interest rates on these products may come down from July onwards.
NSS mobilization can reach all time high of Rs 250 billion this year: Looking at the current trend of investment in NSS, it is likely that during FY09 total mobilization can cross record Rs 250 billion mark thereby total funds (stock) raised through NSS by the government can reach closer to Rs l.6 trillion.
Thus the cash starved government had been successful to attract record funds through this scheme this year where there is no limit compared to T-Bills and PIBs where government set targets to finance its deficit. This aggressive borrowing through NSS will affect the fiscal position of the government through higher debt servicing in coming years.
Government's more reliance on non-bank borrowing: With huge decline in bank financing by the government during first nine months of current fiscal, reliance on non-bank sources has increased. According to available data, net non bank borrowing rose by Rs 176.8 billion in Jul-Mar FY09, compared to moderate increase of Rs 109.4 billion in the corresponding period of the previous year. With sharp decline in bank financing, non banks' share in domestic sources of budgetary financing saw a large boost.
Affecting banking sector deposit mobilisation: With funds moving towards high-yielding NSS, banks deposits are suffering. That is why in this fiscal year (till middle of May) banking deposit has posted no growth so far in this fiscal year. With banks' risk aversion coupled with difficulties in deposit mobilisation, the overall credit growth has also been affected. And one of the reasons of recession in large scale manufacturing (down 8 percent in first 9 months) is lesser availability of credit. Thus huge investment in NSS is crowding out private investment thus affecting the industrial growth and slowing down overall economic activity.
Financial markets are dull: One of the main reasons why debt and equity markets are showing lackluster behaviour is the lack of funds. With more than Rs 2 billion diverted to NSS on a daily basis, the liquidity in the stock and bond market will remain tight. And that is what we are seeing these days that despite attractive valuations, Pakistan stock market is not performing mainly due to lesser availability of funds.-PR
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