KARACHI: The National Saving Schemes (NSS) witnessed a massive outflow of investment during the nine months of the current fiscal year compared to large accumulation of funds by the government during previous years.

Latest data released by the State Bank of Pakistan on May 21 showed that the net mobilisation of funds through the NSS was an outflow of Rs86.3 billion during the nine months of FY21 against a net inflow Rs258bn in the same period of last fiscal year.

During the entire FY20, the net inflow of fund in the NSS was Rs371bn.

While the government borrows through the NSS to meet its expenses, the scheme was originally started to support the general public, particularly pensioners and widows.

The higher rates of return were also attractive for financial institutions and other investors, whose investments created large funds for the government. However, such funds turned out to be costlier compared to other sources of funds for the government.

Institutions barred from investing in NSS

In view of this, the government restricted institutions from making fresh investment in the NSS from July 1, 2020. However, the institutions were allowed to stay in the scheme till the maturity of their already made investments.

The finance division had issued a notification just before the beginning of the current fiscal year asking financial institutions to stop investing in the NSS from July 1.

“In the light of decision of the committee constituted to finalise a plan for elimination of institutional investors from NSS products and recommendation of the State Bank of Pakistan, the competent authority has been pleased to direct that institutional investment in NSS shall be discontinued with effect from July 1,” said the official notification of finance division.

With the issuance of the notification, the NSS witnessed an outflow of Rs149.5 million compared to Rs72bn outflow in the same month of previous fiscal year. The huge outflow in July FY20 was due to maturity of products.

However, in the next four months — August to November — the inflows were positive and collectively added Rs28bn for the scheme.

Investors started withdrawing their money from December 2020 and continued till March causing Rs86.3bn total net outflow in the nine months.

Financial analysts said the outflow from NSS was due to maturity of investment mainly by the financial institutions and others.

“The intuitions were the largest investors in NSS, which is reflected from the latest data of the central bank. The outflows will continue till the maturity of [their] major investment in the coming years,” said S.S. Iqbal, a fund manager in a large company.

Rs7.29tr investment in PIBs

The restriction on financial institutions was a move to discourage them to use liquidity for the NSS products.

After barring the financial institutions from making investment in NSS, the government started receiving much more bids for the Pakistan Investment Bonds (PIBs) and treasury bills — the two instruments being used by the government for borrowing from financial institutions.

Institutional funds like provident and pension funds now have options to invest in domestic bonds or capital market.

New figures released by the SBP showed that banks, insurance, funds, corporate and others collectively invested Rs7.299 trillion (stock) in PIBs till Jan 31, 2021.

They also invested Rs5.424tr in market treasury bills during the same period. The total investment of financial institutions and others were Rs13.359tr till Jan 31, 2021.

Published in Dawn, May 23rd, 2021