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How is FATF reducing investment in Pakistan's National Savings Schemes?


The first two months of the current financial year, July and August, saw a sharp decline in investment in national savings schemes in Pakistan. Only Rs. 7 billion was invested in national savings schemes in the first two months.


Comparing the total investment of Rs. 7 billion in national savings schemes in two months with the previous financial year, there is a clear decline in this investment as the average investment of Rs. 30 billion per month in the last year is Rs. This was done in savings schemes.


The government meets the needs of its budget through investments in national savings schemes. The government rewards investors every month for investing in these schemes. However, the rate of return on these schemes has been reduced this year, which economists say is one of the reasons for the low investment in these schemes.


At the same time, the scrutiny of the amount invested in these schemes under the terms of the Financial Action Task Force (FATF) is discouraging investment in them.


It should be noted that the rate of 'savings to GDP' in Pakistan is lower in the region than in the previous financial year which was close to 14% in the previous financial year. However, due to low investment in savings schemes so far this year, it is likely to go down again.


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National Savings Schemes


In Pakistan, under the National Savings Center, a subsidiary of the Ministry of Finance, such schemes are run in which money is invested for a certain period of time to make a profit. Not only do these schemes promote savings, but the government uses the money to cover its budget deficit and infrastructure projects.


According to the data available on the website of the National Savings Center, it is the largest investment institution in the country with a total investment of over Rs. 3,000 billion at present. More than seven million. There are 376 branches of the National Savings Center across the country.


National savings schemes include Defense Savings Certificates, Welfare Savings Certificates, Regular Income Certificates, Special Savings Certificates, Prize Bonds and some other financial certificates. They offer a return on investment for a specific period of time at different rates on different certificates. Among them, widows and the elderly have special discounts and the rate of return on certificates issued to them is slightly higher than others.


National savings


Investment in National Savings Schemes


In the first two months of this financial year, the investment in national savings schemes was a little over Rs. 7 billion, which averages Rs. 3.5 billion a month. The average investment of Rs 3.5 billion in a month is much less than the average of Rs 30 billion in a month in the last financial year.


In the last financial year, a total of Rs 370 billion was invested in national savings schemes, while in the financial year 2018-19, a total of Rs 307 billion was invested in these schemes. The country's savings-to-GDP growth rate had risen to 13.9% in the last financial year due to higher investment in savings schemes, but this year due to lower investment in these schemes, the country's savings-to-GDP growth rate has increased. P rate is likely to go down.


Reasons for under-investment in national savings schemes


Talking about the reasons for low investment in National Savings Schemes, Dr. Shahid Hassan Siddiqui, an economist, said that one of the major reasons for this is the low rate of return on investment in these schemes due to which It is not very attractive to investors. The government had also reduced the return on investment in these schemes after lowering interest rates.


Dr. Siddiqui said that the overall rate of inflation in Pakistan is less than the rate of return on these schemes due to which investment in it is declining.


"People invest money to make a good profit, but when the government invests money in these schemes, it will inevitably discourage investment," he said. At the same time, the tax levied on profits is preventing people from investing in the fact that when you have to pay tax on profits, then very little investment will come in this sector.


He said that low investment in National Savings Schemes should be seen in the overall context of the economy. When all types of investment have stopped, then how is it possible to invest more in it. The economy is in a state of uncertainty that affects all sectors.


Yousuf Saeed, an economics analyst at Darson Securities, said one of the main reasons for the low investment in national savings schemes, among other reasons, is the recent ban on investing in institutions by the government.


Abdul Rehman Warraich, director general of the debit office at the finance ministry, said the government had banned institutions from investing in these schemes so that they could enter the bond market and invest in it.


He also mentioned the element of adjustment in this regard... This cannot be ruled out because earlier the rate of return on them was higher then more investment was coming which is now less. However, he said the trend seems temporary as the return on investment in savings schemes is still higher than in banks and elsewhere.



According to him, there was no such condition before that when investing, one would ask about these sources where the money came from. According to him, scrutiny of the money invested in these schemes under FATF rules has also led to low investment.


Abdul Rehman Warraich, director general of the finance ministry's debit office, confirmed that work had begun on auditing the money invested in the schemes under FTAF rules. According to him, these schemes were not previously monitored by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan.


He said that now if anyone is opening an account in National Savings, he will be asked what is his source of income. He said that a committee is also being formed in this regard which will make laws in this regard.


According to Warraich, overseeing national savings schemes under FTAF terms will temporarily discourage investment, but it is a good move for the future to prevent the use of dubious money.


What is the impact of low investment in savings schemes on the government?


The money raised through savings schemes is used by the government to meet its budgetary needs. Talking about the low investment in the next two months, Warraich said it did not make much difference as the government was borrowing money from the bond market to cover its expenses where cheap loans were available due to low interest rates. Is found.


Muzammil Aslam said that loans from banks are cheaper due to lower interest rates, so the government will not make much difference due to the low capital raised from savings schemes.

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