ISLAMABAD The government borrowed Rs 150 billion from the Central Directorate of National Savings (CDNS) during 2008-09 as part of its commitment to the International Monetary Fund (IMF) in its Letter of Intent (LOI) dated November 20, 2008 to "limiting State Bank of Pakistan financing of the budget to zero on a cumulative basis during October 1, 2008-June 30, 2009."
Sources told Business Recorder on Friday that the net investment target of Rs 150 billion has been successfully met by the CDNS during current fiscal year through existing saving schemes. This target of Rs 150 billion has been surpassed during current fiscal year against the upward revised target of Rs 80 billion during 2007-08.
Total net investment in the national saving schemes stood at Rs 89 billion during previous fiscal year, reflecting small investors confidence in these schemes. In 2007-08, the target of Rs 40 billion was substantially enhanced to Rs 80 billion, reflecting 100 percent increase.
Sources said that the CDNS cost of funding is comparatively very low as compared to SBP borrowing. The NSS has played a key role in providing domestic sources financing by narrowing gaps between the deposits and borrowing. The national saving schemes have helped in moving away from inflationary borrowings from central bank to non-inflationary instruments such as NSS.
They said that the surpassing of ambitious target of Rs 150 billion in 2008-09 reflected common mans confidence in the savings schemes. The CNDS is working out modalities to issue new saving schemes for the general public. So far, the CDNS has shown good performance in view of existing schemes and there is a proposal to expand the scope of national saving schemes.
Sources said that there is minimal reduction in the profit rates of the pensioners certificates and Bahbood Certificates. To provide social security to the pensioners and widows, there is only 0.7 percent decrease in the interest rates. It is worth mentioning that the rates of the Pensioners certificates and Bahbood Certificates have been reduced from 16.80 percent to 16.10 percent from April 5, 2009.
The March 16, 2009 supplementary LOI to IMF states that the government will use non-SBP domestic sources to meet its financing needs. This approach is based on careful advance planning of quarterly budgetary borrowing requirements. Moreover, the Ministry of Finance (MoF) has taken several measures, in co-ordination with the SBP, to expand and enhance available financing options for the budget.
To this end, the MoF also successfully issued three Ijara Sukuks, 3 to 30 year Pakistan Investment Bond, and interest rates on National Savings Scheme instruments have been increased, which have resulted in significant increase in demand. In addition, T-bill auctions have been successful with significant reductions in the cut-off yields, the LOI added.