Islamabad: Consumer Rights Commission of Pakistan (CRCP) has expressed serious concerns over the reduction of profit rates on National Savings Schemes. It said the reduction would not only create sense of insecurity among pensioners and small savers, who intend to invest in the national saving schemes, but also add to the number of the poor. The real return on savings schemes is very low and insufficient for financial sustainability of the small investors in the schemes, it said.

While expressing his views on the reduction in profit rates, CRCP Secretary General Mian Abrar Hafeez said that the reduction will not apply to the existing depositors of the saving schemes, but it will undoubtedly affect the pensioners, salaried class and small savers who will invest in the schemes on and after January 1, 2003. He said that National Saving Schemes of the government have long provided financial sustainability to the poor. Especially, salaried class deposits its savings and pension in these schemes and sustains its needs on the money accumulated. National saving schemes are trustworthy because they are a government initiative. People invest in them despite the low profits offered as compared to the private saving schemes. The government has made cuts in returns on the schemes and fixed them at 8.67 percent, 9.12 percent, 10.03 percent and five percent per annum for Special Savings Certificates, Defense Savings Certificates, Special Savings Accounts and Savings Accounts respectively. He recalled that cuts had also been made during the second Nawaz Sharif government from 16 to 13 percent, which was further brought down to 11 percent in the Musharraf government.

Mr. Abrar Hafeez said that the reduction in profit on savings would directly hit a large number of retired people, both from the government and the private sector, widows and people belonging to low income groups because they mostly depend on profits from these schemes. Most of them generate their monthly income form these schemes by depositing their pension and savings in these schemes. He said that the viewpoint of officials that this decision will help in keeping the inflation rates low and boosting investment could not be accepted because the cuts in profit rates would reduce the opportunities of self-employment. Moreover, increased availability of money as perceived would be difficult to achieve in presence of continuing inefficiencies in the banking sector and flawed monetary policy.

He criticized the process of rationalization of banking sector and market reforms. He argued that in the wake of rationalization, the prices of goods and services such as food, water, gas and electricity have gone up, whereas the profit rates on saving schemes have reduced. This is resulting in less income generation by the poor and ultimately poverty, unemployment and food insecurity. He emphasized that only reduction in savings rates will not increase investment. For instance, despite reduction in saving interests twice, the investment declined from $ 360.5 million to $ 232.3 million in 1999 and 2000-01. He emphasized that the government should reconsider its decision about the reduction on the return of saving schemes to ensure financial sustainability of the poor households, which choose to invest in the schemes.