NATIONAL SAVINGS SCHEMES
Low returns may lead to withdrawals
SHAMIM AHMED RIZVI,
BUREAU CHIEF, ISLAMABAD
July 30 - Aug 05, 2007
Both the investors as well as the management of National Savings Schemes (NSS) received a big shock when the long awaited increase in the rate of return on NSS was announced last month. It ranged from 0.08 to 0.30 percent on investment in various type of schemes effective from July 1, 2007 against 0.5 to 1 percent recommended by the Director General national Savings which was also supported by the Ministry of Finance.
Most of investors in the NSS are pensioners, widows senior citizen and self employed small savors who cannot afford to take any risk by investing their life long savings in other lucrative schemes offered by mutual funds and investment companies in the private sector as their livelihood depended on returns from their savings. But all owing an increase of Rs.10 per month on an investment of Rs.100,000 was nothing more then a cruel joke.
Senior citizens Association of Pakistan with its head off in Islamabad has registered a strong protest against government total apathy to this class of people who are, throughout the world shown special regard & consideration to allow them an increase of rate of about 10 percent in prices of kitchen items is worst then a cruel joke. It is humiliating and insulting said the Secretary General of the Association Mr. Hafeezuddin Ahmed, a retired Additional Secretary of the Government of Pakistan adding that the government knew that this poor and neglected class cannot withdraw their investment for reasons of security and thus they could be exploited to any extent. Senior citizen are most hit by food inflation running around 10 percent per annum. Many of them are pensioners. They are running from pillar to post complaining about their fate. But the overall situation for middle class senior citizens, pensioners and self employed is bad increase they have insufficient income both from their official pension and form what they had saved earlier, said Hafeezuddin demanding that return on NSS should be linked with inflation.
Confirming that the Directorate of National Savings had recommended an increase from half to one percent on various types of investment the Director General said t hat although the investors had been highly disappointed by-too meager a rise in the rates of profits there has been no withdrawals. But there has been no increase either. He also confirmed that one percent increase was recommended in case of Behbood and pensioners, which were for pensioners, senior citizens and widows. The government has allowed an increase of .01 percent that comes to Rs.10 per month on an investment of one hundred thousand.
According to inquiries made by Page the State Bank of Pakistan was opposed to any upward revision of rate of profit. The World Bank, the IMF and the Asian Development Bank are also opposing any upward revision. They have reportedly offered CDNS loan on easy terms to improve its financial position. The proposal of CDNS was also being opposed by commercial banks in Pakistan to serve their vested interest.
The CNDS had refused the offer of loan and was insisting to offer market-based profits to its customer like other banks on 3 to 5 years maturity deposits. They contend, and rightly so, that banks were earning unprecedented profits but were opposing other organizations like CDNS to follow the same practice because of their vested interest. Similarly a summary submitted to the Prime Minister on the corporatisation and restructuring of CNDS was still awaiting approval. A high level official told this correspondent that almost six months back, Prime Minister Shaukat Aziz approved a restructuring plan for CNDS but the Ministry of Finance remained unable to move a summary before the cabinet for obtaining its formal approval. The proposed restructuring plan aims to promote investments in the country, as Pakistan is lowest in the region in regards to savings to GDP ratio. "There is a dire need to promote the habit of savings among Pakistanis and institutions like CDSN require strength", added the official. The trend of domestic savings does not exit in the country and there is need to take steps in terms of offering new products order to lure potential investors.
The draft law, which was vetted by State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Establishment Division and finally Ministry of Law, was sent to Ministry of Finance after obtaining approval from Prime minister Shaukat Aziz but there was no progress on it since the last six months.
In the proposed law, the upcoming savings organization has been given administrative and financial powers in order to take decisions independently without prior approval of Ministry of Finance under an independent Board, which will be headed by Secretary Finance. The composition of the board will be headed by Secretary Finance as its head and its other members will comprise Additional Secretary Finance, Deputy Governor State Bank of Pakistan, Chief Executive of proposed restructured Pakistan Savings Corporations and three members to be nominated form the private sector.
Besides improving the professional standard of CDNS official automation in the department is being delayed due to resource constrains and inadequate administrative and operational powers of the department. ì It was the dream of he prime minister to have the Pakistan Savings which is being opposed by the people within the ministry", a source in the finance ministry said. He said that six million beneficiaries of the CDNS could easily be expanded to 18 million provided it was corporatised as had been originally planned and approved by the prime minister. "It is not known why some people are opposing the conversion of CDNS into Pakistan Savings as finance Secretary, Additional Finance Secretary and the Chief Executive of proposed body will be members of the new board of directors, besides three other members from the private sector", another source said. This would be a balance board, which can look after the interest of the government and the investors, he said. Earlier this year, the finance ministry had decided to convert the CDNS into an autonomous Pakistan Savings, to be formally approved by the federal cabinet before June this year with a view to expanding its functions and offering increased salaries to its employees. The complete restructuring of CDNS had also been proposed to be achieved by June 30 for which consultants of the organization Ms. Sadat Haider Murshad of Karachi were asked to put up their plan. However the matter is being delayed under one pretext or the other.
According to DG National Savings the Government has linked the rate of return on NS with the yield on Pakistan Investment Board (PIB) to ensure cost effectiveness fundraising for bridging the government budget deficit. According to independent economist, however, it is not fair to link the return on NSS with the yield on PIBs because of the marked fundamental difference in the character and nature of assets in the two categories. Mostly individuals hold NSS with a view to earning income, which may serve as a means of sustenance and the rate of return is thus their primary interest. In contrast, PIBs are mainly held by financial institutions in a compliance with the statutory requirements of minimum liquidity ratio and that become more important than the return. For want of eligible private sector instruments, these institutions have to rely mainly on government securities.
On return from some NSS makes a mockery of equity and is a patent. Anti poor act. For income tax for individuals, there is the condition of annual income of Rs.150 thousand and the rate in the first slab is five percent. In sharp contrast, for return on some NSS there is no threshold and rate of tax is 10 percent or twice the rate in the first income tax slab. For instance, in case of Special Savings Certificates, a person investing the minimum amount of Rs.1 thousand will get Rs. 92.5 per annum, at the new enhanced rate, but the withholding tax will reduce it to Rs.83.25.
As regards the need to avoid distortion in he financial sector, the State Bank has identified institutional investment in NSS as a possible element and repeatedly stressed this in its publications. This is certainly a valid concern. It may be recalled that government had banned institutional investment in NSS some year back.
However, when confronted with net withdrawals from NSS which was as much as Rs.44 billion in FY 05 as against an increase of Rs.3 billion in the preceding year and RS. 36 billion a year earlier, the government again allowed institutions to make investment in NSS.
Government should, as a matter policy, decide how much real return is to be given and this should reflect the existing scarcity cost of capital in a very low saving economy. In this case, the need for measures to encourage domestic saving cannot be over emphasized. Small investors of NSS should be spared the withholding tax b y taking a declaration from all investors of NSS whether they are otherwise liable for income tax. Those whose answer is in the affirmative should be subjected to he withholding tax, which they an adjust in their returns.
ATLAS ASSET MANAGEMENT POSTS IMPRESSIVE RETURNS; ANNOUNCES DIVIDENDS
The Board of Directors of Atlas Asset Management Limited (AAML), an Atlas Group Company, having technical collaboration with ING — Netherlands, approved the financial results for the year ended June 30th, 2007 and announced pay-outs for its three open end funds and one closed end fund.
Atlas Income Fund (AIF) declared a bonus of 10 percent of the par value of units, equivalent to 9.9707 bonus units on the ex-bonus value of Rs. 501.47 per unit for every 100 units held as on June 30, 2007. Atlas Stock Market Fund (ASMF) declared a bonus of 20 percent of the par value of units, equivalent to 16.7830 bonus units on the ex-bonus value of Rs. 595.84 per unit for every 100 units held as on June 30, 2007. Atlas Islamic Fund (AISF) declared a bonus of 3 percent of the par value of units for the period January 15, 2007 to June 30, 2007, equivalent to 2.9833 bonus units on the ex-bonus value of Rs. 502.79 per unit for every 100 units held as on June 30, 2007. Atlas Fund of Funds (ATFF) declared a cash dividend of 16 percent on the par value of the certificates of Rs. 10 each.
The return on the funds for the year ended June 30, 2007 on the basis of their opening net asset values (NAVs) was 10.23 percent for AIF, 29.39 percent for ASMF, 3.56 per cent for AISF for a period of January 15, 2007 to June 30, 2007 and 17.57 per cent for ATFF.
The annualized return on the two open end funds since inception is 10.13 per cent for AIF for the period March 22, 2004 to June 30, 2007 and 28.97 per cent for ASMF for the period November 23, 2004 to June 30, 2007.
Currently all rating eligible Atlas Funds ñ AIF, ASMF and ATFF are rated 5 Star by PACRA, which denotes superior performance relative to peers. AAML has recently launched the Atlas Pension Fund (APF), under VPS Rules to offer investors a savings product for their retirement.