Widening the coverage of NSS

The government seems set to raise more funds from non-banking sources to finance its budget deficit. On 25th June, 2007, it had raised profit rates on NSS to attract a higher level of investment from this source and reduce dependence on bank borrowings to fund its development and non-development expenditures.
According to a news item, the State Bank has now allowed the Central Directorate of National Savings (CDNS) to offer its saving schemes to the overseas Pakistanis living in Saudi Arabia and other Middle Eastern countries. Pakistanis living in the United Arab Emirates, Qatar and Oman already had access to this facility, but the CDNS is now interested to go to other countries of the Middle East, for which the central bank is now reported to have given a go ahead signal.
According to official sources, initially Pakistani banks operating in Saudi Arabia, were being authorised to sell different saving products on behalf of the CDNS, but negotiations were now in progress with other banks in the kingdom for striking an early deal with a view to selling different saving instruments to expatriates from the next financial year.
Some new instruments could also be launched soon and the design of these products was in final stage. So far as launching of NSS in Europe and the United States is concerned, it needs clearance from their regulatory authorities and this option is also likely to be explored. CDNS is doing all this to raise more money by increasing or initiating its operations in different countries.
Although final features of the proposal have yet to be decided and announced by the government, a few comments may be in order to enhance the usefulness of the plan to widen the geographical coverage of the NSS.
To start with, it may be mentioned that NSS were introduced by the government to inculcate saving habit, largely among the ordinary people of the country by offering them risk-free avenues of investment at a rate generally higher than that of the bank deposits. However, as it turned out later, the NSS were also being increasingly utilised by the government to finance its budget deficit through domestic non-bank sources.
The cost of such borrowings was high but it remained within manageable limits. The increase in the popularity of NSS was due to certain reasons. Unlike bank deposits and other investments, people had a lot of confidence in government securities because it was a sovereign debt and their yield was generally higher compared to the deposits of banks and other financial institutions.
Also, since CDNS did not have any kind of hidden charges and penalties in case of premature enactment, depositors felt more comfortable in investing in various national saving schemes depending on their requirements.
Venturing into the foreign markets on a large scale, however, is not without risks. Obviously, if the right kinds of products are offered to the expatriates and made easily available through a wider network, there would be a good chance of attracting a huge amount of savings because the earnings of the expatriates are generally much higher and they are looking for safe avenues of investment to secure their future. As such, they could take an active part in the progress of their motherland by buying various government securities and participating in the development process.
Who is going to hedge the currencies and bear its cost is, of course, another problem which would need to be decided in order to reasonably protect the interests of both the expatriates and the government. However, there is one big question mark on the whole exercise. If the funds so mobilised could solely be utilised for development purposes, particularly for effectively upgrading of the infrastructure of the country, only then would the country really be able to benefit from extending the coverage of the NSS in foreign countries.
Such a wise investment then will not only increase the growth momentum, create employment and reduce poverty but the country will also not face any problem in repaying the invested funds/debt with interest when the repayment is due.
However, if the funds so generated are used to finance the current expenditures of the government and narrow the widening gap in the external sector of the country, then it will be another way to tide over the deteriorating domestic situation in certain areas of the economy and postpone the needed harsh decisions for political expediency.
Although the record of the past governments is not so encouraging in this regard, we can only hope that the present government would act more wisely and in the long term interest of the country. We would also like to add that there would be no harm for the CDNS to widen its network to rural and unbanked areas of the country where NSS could be hugely popular and attract a lot of investment.