The resource-constrained government as of last financial year, FY2010-11, saw its “unfunded debts” ballooning by 13.5 per cent or Rs197.2 billion to over Rs1.654 trillion from Rs1.457 trillion of Fiscal Year 2009-10.
Increasing liabilities without provisioning
The cash-strapped government raised these huge “unfunded debts” through selling its risk-free saving certificates under the head of National Savings Schemes (NSS) that helped the government garner over Rs234.943 billion during last year. This amount shows an upsurge of 4.5 per cent or over Rs10.175 billion when compared with FY10’s Rs224.767 billion savings mobilised by the NSS. The economic observers, though positive towards the current upward trend in national savings, are critical of piling up of the cash-starved government’s liabilities, without “provisioning” for the retirement of these debts.
Increasing trend
According to State Bank of Pakistan (SBP) data, by FY11 the government’s unfunded debts under the heads of saving schemes (net of prize bonds), postal life insurance and general provident fund had accumulated to over Rs1.543 trillion, Rs67.1 billion and Rs44.3 billion, respectively. This increase was against Rs1.350 trillion, Rs67.1 billion and Rs39.9 billion the government had borrowed up to FY10. A five-year history of the government borrowings through NSS shows that the risk-free and heavily-weighted saving certificates have been mobilising huge investments over the years with FY2008-09’s Rs267.223 billion witnessing an exorbitant increase of 208.4 per cent over Rs86.639 billion of FY2007-08.
NSS investment upsurge
The investments in NSSs that stood at a meager Rs6 billion in FY2005-06 kept increasing by 1,027 per cent to Rs67.651 billion in FY2006-07, over 28 per cent to Rs86.639 billion in FY2007-08, over 208 per cent to Rs267.223 billion in the recession-hit FY2008-09 and then declined by 15.8 per cent to Rs224.767 billion in FY2009-10. And, finally, in FY11 a recovering global economy restored the investors’ confidence who bought saving certificates worth Rs235 billion. The first two months of FY12 also saw 14 per cent increase to Rs29.987 billion against Rs26.342 billion in the NSS mobilisations of July-August FY10. “The money that comes to the government through saving schemes is a liability and is called unfunded debts,” Asfar Bin Shahid told Profit. But, the analyst said that it was worrisome that the cash-strapped government was using these debts without creating a separate fund that could ensure retirement of the borrowed money. “Spending these unfunded debts without provisioning is a dangerous thing,” A.B Shahid warned. Setting collateral for these unfunded debts by the government would also provide investors with confidence against his/her money. “It’s a kind of confidence building measure that we are apportioning a certain amount to retire the debt,” the analyst said.
Cut in profit rate
The provisioning against unfunded loans, the analyst said, becomes easier when the maturity period has been set in advance for these credits. About usage of the NSS debts, the analyst said, ideally, every penny of the taxpayers’ money should be spent “optimally” for the development purposes, especially in the socio-physical infrastructure side. “Increase in savings is a positive sign no matter where the money is being preserved or channeled into those sectors where it could generate economic activity,” the economist opined. About recent cut in the profit rates for saving schemes, the analyst said that no major impact would be seen as the profit-conscious banks were also likely to slash the premiums on their deposits. The Central Directorate of National Savings (CDNS) recently reduced the annual profit rates on NSS by 0.5 to 0.95 per cent to 12.50 per cent with some analysts still terming the revised returns on saving certificates as higher compared to the banks’ mark ups. Director General CDNS Zafar Sheikh has, reportedly, said that the portfolio of CDNS had ballooned to Rs1.9 trillion that, A.B Shahid said, was a liability and not an asset for the troubled government. The NSS products include Defence Savings Certificates, Regular Income Certificates (RIC), Special Savings Certificates (SSC), prize bonds and others.
