Flows into unfunded debt of the government, represented by more than a dozen savings schemes (excluding prize bonds), amounted to Rs 2.5 billion during FY06 so far (July-August, 2005) raising the outstanding level of such debts to Rs 852.6 billion on August 31, 2005, according to data released by the SBP in October 2005.
At this level, outstanding unfunded debts formed about 39 percent of total outstanding domestic debt of Rs 2,177 billion of the Government of Pakistan as on that date--the other segments being Permanent Debt (23 percent mainly on account of Pakistan Investment Bonds and Prize Bonds) and Floating Debt (38 percent mainly on account of Market Treasury Bills (MTBs) and MTBs for Replenishment).
It may be of interest to note that proceeds realised from heads covered under unfunded debt and prize bonds form part of Government of Pakistan's non-bank borrowing to meet its budget deficit besides borrowings for the purpose from the domestic banking system and from abroad. Since investments/borrowings under prize bonds declined by Rs 0.4 billion, total non-bank borrowing of the government for budgetary support during FY06 to August 30, 2005 amounted to Rs 2.1 billion [Rs 2.5 billion (-) Rs 0.4 billion].
Break-up of unfunded debt, however, showed that the entire increase took place under two heads: namely, 'Bahbood Savings Certificates', and 'Pensioners' Benefit Accounts', as outstanding balances under these heads surged by Rs 15 billion and Rs 4.2 billion, respectively, during the period under report. All other heads recorded no (or negligible) changes or declines of varying magnitudes.
Heads recording no or negligible changes included National Deposit Certificates, disbanded Khas Deposit Certificates/Accounts, Special Savings Certificates (Bearer), Mahana Amdani Accounts and Postal Life Insurance.
Heads recording declines included Defence Savings Certificates (down Rs 1.3 billion to Rs 302.3 billion), Special Savings Certificates (Reg) (down Rs 9.8 billion to Rs 187.9 billion), Regular Income Certificates (down Rs 3 billion to Rs 82.4 billion), Savings Accounts (down Rs 2.1 billion to Rs 6.1 billion), Special Savings Accounts (down Rs 0.4 billion to Rs 52.7 billion) and GP Fund (down Rs 0.2 billion to Rs 20.2 billion).
The main reasons for increase in outstanding balances under 'Bahbood Savings Certificates' (BSC) and 'Pensioners' Benefit Accounts' (PBA), involving widows and senior citizens, are the attractive terms governing the two schemes, especially the rate of return. The mode of payment of profit is monthly and there is no withholding tax and compulsory deduction of Zakat. Effective from July 1, 2005, the rate of return is 11.04 percent--highest on any government savings scheme.
Other Schemes attract relatively lower rates and tougher terms. For instance, the most attractive of them all, the 10-year Defence Saving Certificates (DSCs) could currently earn a maximum of 10.5 percent as return with the return and the principal (at maturity) being subject to both withholding tax and Zakat. Schemes other than DSCs are presently earning 4.5 percent (Savings Accounts with withdrawals) to 8.88 percent (Regular Income Certificates).