ISLAMABAD (January 02 2003) : The dawn of the New Year witnessed the scaling down of the profits on the National Saving Certificates schemes.
According to the decision, the return on Defence Savings Certificates, Regular Income Certificates, Special Savings Certificates (Regd)/Special Savings Accounts and Savings Accounts have been fixed at 10.03 percent, 9.12 percent, 8.67 percent and 5 percent per annum, respectively, for the certificates issued/accounts opened on or after January 1, 2003.
The announcement made on Wednesday says that the certificates purchased and accounts opened prior to January 1, 2003, shall earn profit at the rates prevailing on the respective dates of purchases.
To take care of the well-being of pensioners, the government has developed an exclusive scheme which will be announced by the Advisor to Prime Minister on Finance, Shaukat Aziz, very soon.
Needless to say, despite reduction in rates of return, the real rates of return (adjusted for rate of inflation) on various instruments of the NSS range from 2 to 7 percent which are much higher than the rates of return offered by commercial banks.
The statement by Finance Ministry says that interest rate policy is an important instrument of macroeconomic management.
The rate of interest performs several functions in an economy. It affects the savings-investment processes and through it on the development and diversification of financial assets, the capital intensity of production, and the rate of growth of output.
Interest rate policy is, therefore, the cornerstone of any government's policy to influence business conditions and economic activity.
According to Finance Ministry, the objective of the monetary and fiscal policy around the world is to keep inflation rate low so that interest rate can be kept low as well.
Low interest rate encourages investment and, accordingly, promotes growth.
Many countries around the world have pursued prudent monetary and fiscal policy and have succeeded in keeping inflation rate low.
Accordingly, interest rates all over the world have declined in recent years.
For example, LIBOR is currently ranging from 1.0 to 1.5 percent, against 5.0 to 5.5 percent some 2 years ago.
The statement by Finance Ministry says that in Pakistan, the government has succeeded in reducing inflation through the pursuance of prudent monetary and fiscal policy.
Currently, the rate of inflation is about 3.1 percent.
In order to bring the entire structure of interest rate down, with a view to promoting investment and growth, the SBP recently reduced the discount rate as well as the Treasury Bills rates through market mechanism.
Finance Ministry said that it is in this background that the Government of Pakistan reviews the rates of return on various instruments of the National Savings Schemes biannually.
Rationalising the rates of return on NSS is also part of the Government's debt reduction strategy.
The Government of Pakistan, Finance Division, has reviewed the rates of return on various National Savings Schemes and has rationalised them in the context of recent decline in various interest rates in the banking and financial sector.