Government cuts profit rates on national savings schemes

Pakistan’s investment ratio dropped to a 50-year low, standing at just 13.1% of GDP in FY24

Web Desk

14 Sep, 2024

Business & Economy

The government has lowered profit rates on various national savings schemes and certificates by up to 1.22 percentage points, which is likely to discourage savings further and exacerbate the already low domestic saving rate in the country, falling behind regional counterparts.

According to data from the Central Directorate of National Savings (CDNS), Topline Securities reported that the return on the Sarwa Islamic Term Account has decreased by 1.22 percentage points, from 17.58% to 16.36%.

This reduction in returns on savings products corresponded with the declining yields from government debt securities, including Treasury bills (T-bills), Pakistan Investment Bonds (PIBs), and Sukuk, as CDNS reinvests funds from national savings schemes into these debt instruments.

Pakistan’s investment ratio dropped to a 50-year low, now standing at just 13.1% of GDP in FY24, which is significantly lower than that of neighboring countries.

In another adjustment, CDNS reduced the profit rate on the Sarwa Islamic Saving Account by 1 percentage point, from 19% to 18%. The return on Short-Term Savings Certificates has been cut by 68 basis points, from 17.90% to 17.22%.

For Special Savings Accounts, the return rate lowered by 30 basis points to 15.20%, down from 15.50%. The profit rate on Special Savings Certificates was similarly reduced from 15.50% to 15.20%.

The rate of return on Regular Income Certificates reduced by 12 basis points, dropping from 14.64% to 14.52%. However, the CDNS has kept the profit rates for Behbood, Shuhda, and Defence savings products unchanged.

This decline in savings rates occurred alongside a downward trend in the yields from government debt instruments such as T-bills, PIBs, and Sukuk, which have experienced reduced returns following a series of interest rate cuts by the central bank.

The State Bank of Pakistan (SBP) decreased its key policy rate by a total of 4.50 percentage points over the last three months, bringing it down to the current rate of 17.5%.

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