Long wait for a new savings policy

www.dawn.com

By Ihtasham ul Haque

THE long-awaited approval has been given by the caretaker prime minister to convert the Central Directorate of the National Savings (CDNS) into Pakistan Savings Corporation with an enlarged policy mandate.

Now, within the next few days, officials expect President Musharraf to promulgate an ordinance to set up the new corporation and lay down the “new savings policy”. The proposed corporation will undertake formal banking, establish an asset management company and issue Shariah-compliant bonds for the overseas Pakistanis.

Apparently, the long pending approval of the new savings policy has been expedited to manage the rising fiscal deficit, likely to touch six per cent of the GDP this year. There is a proposal to raise some Rs45 billion from the National Savings Scheme.

The current level of national savings is 18 per cent of the GDP which, according to the World Bank and the Asian Development Bank (ADB), needs to be raised to at least 23 per cent as in case of many developing countries. The new savings policy is designed to increase these saving rate.

The proposed corporation will fund mega development projects through public-private partnership. The aim is to help ease the growing financial difficulties being experienced by the government with unabated public spending outpacing resource mobilisation.

“Ten-year yield on Pakistan Investment Bond (PIB) floated by the government has increased from 10.2 to 11.4 per cent. But now we will offer long-term financing to the government at lower interest rates”, the new Director General of the CDNS Zafar Sheikh told Dawn.

He says new savings products will be introduced to help the government get cheap funding even at lower mark-up than being offered by the central bank.

On the other hand, he also maintained that the proposed National Savings Corporation was being so structured as to also offer increased rate of profit on various National Saving Schemes. “We will be offering new instruments savings schemes in real sense”, he claimed.

The corporation will be 100 per cent owned by the government. The new policy requiring the signature of the president will be launched very soon.

The corporation plans to formally enter into banking to provide cheque books to its customers. “We will be at par with banks”, the director general CDNS said.

He said the new corporation would offer better interest rate than 5-6 per cent offered by the banks to the depositors. The higher authorities are convinced that improved rates of interest need to be offered by CDNS, if domestic saving rate is to be increased. The new corporation will also extend the facility of Automated Teller Machine (ATM) to the customers.

“For the first time, our current account banking scheme will offer a certain rate of return, the details of which have been finalised and would be known to the public shortly”, he said.

Without giving incentives, Sheikh said, it would be difficult to collect substantial funds. The facility of lockers will be available under a new programme. Under the new policy “domestic sukuk” will also be issued.

Talking about the new workers remittance-related scheme, he said that negotiations were being conducted with the Western Union to buy its franchise in Pakistan. “Through this franchise, we will directly be receiving dollars from overseas Pakistanis and will pay them back in rupee with good profit”. The scheme has been made so attractive that investment in the proposed corporation will be preferred.

As almost entire banking sector has been privatized and the government’s source of funding has shrunk. It is also planned to go into the life insurance and mutual funds business.

Through asset management and mutual funds, the objective is to develop a comprehensive role of the corporation in domestic market. A financing package for CDNS employees was also being finalised.

In the first phase, some branches of the organisation had been automated and now the plan is to automate all the branches. And the number of branches is planned to be increased from 370 to 500 by 2009.

Presently, the CDNS is marketing only government securities. With significant reduction in return on fixed securities, brought about by the market conditions, small savers are feeling frustrated as they have no access to those securities that offer better return.

The pensioners’ and welfare schemes are also expected to be improved once the CDNS is converted into a corporation.

About 25 per cent of the total portfolio belonging to institutional investment including banks has been repaid by the CDNS, resulting in some drop in the net portfolio.

The affairs of the proposed corporation are to be supervised by a board of directors which would include secretaries of finance, establishment, economic affairs division, deputy governor State Bank of Pakistan, additional secretary budget of the ministry of finance and one ex-banker.