Saving our fiscal soul


The recently concluded FY12 augured well for the country which saw the countrymen managing to save a huge sum of over Rs 242 billion despite a persistent backbreaking double-digit inflation.
This saved amount, however, may not seem to set well, in terms of economic soundness, with the cash-strapped government which would have to see this money as an “unfunded debt” to be repaid to the savers with heavy returns.
During July-June FY12, the cash-strapped government garnered Rs 242.168 billion through selling its risk-free saving certificates under the head of National Savings Schemes (NSS). This amount shows an upsurge of 3 percent or Rs 7.22 billion when compared with Rs 234.943 billion the government had raised in FY11.
This means, during the year in review, the savers lent over Rs 242 billion to the funds-starved government which would be paid with a 20-43 basis points increase announced by the Central Directorate of National Savings (CDNS) on March 30. The current rate of return on NSS instruments stands at 11.87 percent on Special Saving Certificates (SSC), 12.12 percent on Regular Income Certificates (RIC), 14.28 percent on Behbood Saving Certificates (BSC) and Pensioners Benefit scheme, 12.33 percent on Defense Saving Certificates (DSC) and 8.40 percent on the NSS savings accounts.
The analysts believe that these savings could have been a very positive and most useful economic indicator for developing Pakistan, had the government not been using the saved money under the non-development heads, such as running of the government. The economic observers, though positive towards the current upward trend in national savings, are critical of piling up of the heavily indebted government’s liabilities for the retirement of which the latter was doing no provisioning.
A recent history of the government borrowings through NSS instruments shows that the risk-free and heavily-weighted saving certificates had fetched the government over Rs 224.767 billion in FY10, Rs 267.223 billion in FY09, Rs 86.639 billion in FY08, Rs 67.651 billion in FY07 and Rs 6 billion in FY06. The investments in NSSs, which amounted to a meager Rs 6 billion in FY06, ballooned by over 1000 percent in FY07, over 28 percent in FY08 and over 208 percent in the recession-hit FY09 and then dipped by 15.8 percent in FY10.
But, finally, in FY12 a recovering global economy seems to have restored the investors’ confidence who bought saving certificates worth Rs 242 billion. “The money that come to the government through saving schemes is a liability and is called unfunded debts,” views a senior analyst Asfar Bin Shahid,.
But, the analyst believes, worrisome was the fact that the government was using these debts without creating a separate fund that could ensure retirement of the borrowed money. “Spending these unfunded debts without doing provisioning is going to be a dangerous thing,” Shahid warned. He says setting a sort of collateral for these unfunded debts by the government would also provide the investors with a confidence against his/her money. “It’s a kind of confidence building measure that we are apportioning a certain amount to retire your debt,” said the analyst. The provisioning against the unfunded loans, he suggested becomes easier when the maturity periods have 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.