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Efforts needed to encourage personal financing

With a population of over 200 million, Pakistan is the second largest economy of South Asia. The soaring inflation and rising unemployment rate demands promotion of savings culture in the country. The various saving schemes offered by the government or semi-government or private organizations helped an individual to manage hard-earned money. In broader sense, such schemes help in management of personal finance. The saving starts from an individual’s personal finance. The government needs to introduce attractive saving schemes with handsome profits to promote a savings culture in Pakistan.

Pakistan’s gross savings rate was measured at 5.2 percent in June 2019, compared with 5.8 percent in the previous year, according to the CEIC Data. Its gross savings rate is with an average rate of 9.6 percent. The data reached an all-time high of 17.4 percent in June 2004 and a record low of 5.2 percent in June 2019. CEIC calculates annual Gross Domestic Savings Rate from annual Gross Domestic savings and annual Nominal GDP. Gross domestic savings is calculated as Nominal GDP less consumption expenditure. The Pakistan Bureau of Statistics provides final consumption expenditure in local currency and nominal GDP in local currency. As per the latest reports, the country’s GDP expanded 3.3 percent year on year basis in June 2019. Its nominal GDP reached $315.2 billion in June 2018. Its GDP deflator (implicit price deflator) increased 7.8 percent in June 2019. The country’s GDP per capita reached $1,480.9 in June 2018.

Personal finance

In finance, the term personal finance covers management of an individual’s money through saving and investing. Personal finance covers all areas including budgeting, banking, insurance, mortgages, investments, retirement planning, tax and housebuilding planning. Financial planning is the key of financial management determines an individual’s short and long-term financial goals and create a balanced plan to meet those goals. The biggest goal could be the family’s financial security. Usually, the financial goals in a family life consist of things such as buying a new car, a new home, enhanced career training, a long travelling vacation and most importantly self-dependency during working or after retirement. The efficient management will also take into account various financial risks and future life events.

Financial planning continues to guide an individual towards making sensible decisions about spending his earnings. It helps achieve the goals through adequate management of personal finances. The people in Pakistan need to handle their finances to get the maximum out of their hard-earned money. The government and the private organizations could play an important part in dissemination of essential information that might lead to efficient management of personal finances.

Sources of personal finance may include personal savings, credit cards and mortgages. It may be in the form of a bank balance, personal assets such as properties and vehicles. In Islamic banking the term personal financing is widely used for ‘personal loan’, which is used in conventional banking. Islamic personal financing usually involves selling and buying back an asset by a seller or the bank on a deferred payment basis.


National savings schemes

This month, the government increased profit margins on all national savings schemes (NSS) by up to 2.3 percent. The move is aimed at bringing the NSS rates in line with recent hike in the central bank’s interest rate. The government announced the NSS rates after every two months. It was the sixth raise since June 2018. The NSS rates are connected to the central bank benchmark interest rate and its subsequent impact on the long-term Pakistan Investment Bonds. This move is expected to improve the domestic savings rate and inflows due to attractive returns.

The State Bank of Pakistan has increased its interest rate by 150 basis points to 12.25 percent back. The rise in discount rate is attributed to the inflationary pressures from higher month-on-month headline and core inflation outturns and rupee depreciation.

The government has also increased return on Regular Income Certificates by 96 basis points, with the new rate of profit standing at 12.96 percent from 12.0 percent previously. This will translate into a payable profit of Rs540/month on Rs50,000 denomination. Average profit payable on Special Savings Certificates (Registered)/Accounts went up by 1.33 percent to 12.90 percent from 11.57 percent (average) at the start of the calendar year. Also, the return on Short-Term Savings Certificates with 3-12 month tenure was increased by 2.3 percent to 12.08 percent from 9.80 percent.

Net receipts of NSS surged more than three-fold to Rs225.3 billion during the last fiscal year of 2018/19 owing to higher rates offered on different instruments, according to the central bank. The NSS’s net receipts amounted to Rs48.7 billion a year earlier. The defence saving certificates’ receipts increased to Rs44.6 billion in FY2019 from Rs8.3 billion in FY2018, showing an increase of Rs36.3 billion. Receipts of special savings certificates rose to Rs33.1 billion from minus Rs38.5 billion, showing a growth of Rs71.6 billion. Net receipts of regular income certificates increased to Rs102.9 billion from Rs1.9 billion, showing a growth of Rs100.9 billion. Likewise, receipts of Behbood saving certificate increased to Rs89.5 billion from Rs32.1 billion, depicting an increase of Rs57.5 billion.

The increase was due to higher rates offered on the saving instruments as the Central Directorate of National Savings (CDNS) increased profit rates on the saving instruments with effect from January 2019, according to the central bank. Saving and special saving accounts recorded a decline during the July-March period of last fiscal year. Receipts are expected to grow further as the CDNS further raised rates on various savings certificates with effect from current fiscal year started from July 1, 2019.

The CDNS has actually increased the profit rates in order to encourage people to invest in various schemes. The rate for defense savings certificate was increased to 13.01 percent from 12.47 percent, while the rate of special saving certificate rose to 12.90 percent from 11.57 percent, and rate of regular income certificate was pushed up to 12.96 percent from 12 percent.

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