Is patriotism overrated? The dam fund’s fate would suggest so – as no more than $10 million made their way five months later. But now comes the real ‘moment of truth’ with the Pakistan Banao Certificate (PBC). With PBC, the government is looking to entice expats with juicy returns (reportedly over 6%) and appealing encashment options.
Perhaps mixing self-interest with some patriotism may help the PBCs succeed where the dam fund failed. PBCs will work more like National Savings Certificates – a running tap for the government – and not like a one-time bond issuance. A similar product was developed by the National Savings Scheme towards the tail-end of the PML-N government, but it couldn’t be implemented for some reason.
It’s a ‘moment of truth’ because soon the government will realise whether or not the diaspora has the capacity and the commitment to invest in Pakistan. On one hand, some $20 billion p.a. is already being sent home via workers’ remittances. There is no empirical evidence – but anecdotal evidence suggests that some of those proceeds are meant for investment, mostly in real estate. With the property market a dud for the last 18 odd months, will the PBCs not cannibalize on annual remittance inflows? Let’s see.
On the other hand, a sizeable investment slack apparently exists among expats. An analysis in this column has previously put the diaspora ‘savings’ at around $15 billion p.a. (Read: In search of patriotic capital, published August 13, 2018). Some of that diaspora capital is said to be lying idle in overseas bank deposits that pay nominal rates. Slicing a billion dollars out of that pie shouldn’t be so hard for the PBCs.
The fact that the PBCs target ‘retail’ diaspora is significant. Now the PM – who had hoped, rather naively, for billions in free, dollar-based cash flows to arrive in the dam fund and help kill two deficits with one stone – can have better reason to expect individual expats to invest a thousand dollars each. Out of the estimated nine million strong diaspora, even if ten percent heed the call, Pakistan can haul close to a billion dollars in a year’s time.
Reportedly, the rubber hits the road today (January 31), when the PBCs are officially launched under the SBP’s custodianship. The interest rates reportedly offered – 6.25 percent on three-year maturity and 6.75 percent on five-year maturity – seem a bit steep for this kind of an issue. This is not to argue for a diaspora discount, where expats are offered the courtesy of a return but one that is below comparable instruments.
Instead, a profit rate of up to 5 percent p.a. might keep the government’s financing costs in check without compromising diaspora interest in this issue. However, sources indicate that the first time government went to the commercial banks for this issuance, it had a 5 percent return in mind. But the bankers insisted that it was not enough to lure expats to invest in these certificates. It is time to wish good luck to the economic team. With this initiative, there is a chance to keep expat interest alive in the country’s economy through continuous subscriptions of PBCs. The key for the economic team is to generate goodwill on governance matters so that it can retain expats’ trust for investing back home in government-sanctioned saving schemes.
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