Finance Minister Chairs a Meeting at FBR to remove discrepancies in the Finance Bill-2023

Federal Finance Minister Mr. Mohammad Ishaq Dar visited the Federal Board of Revenue Headquarters today and chaired a meeting to review the suggestions submitted by the Anomaly Committee-Business and Anomaly Committee-Technical to remove discrepancies identified in the Finance Bill-2023.

It may be noted that Chairman FBR Mr. Asim Ahmad constituted the two Committees on June 13, 2023, to identify and remove the business and technical-related anomalies identified in the Finance Bill-2023 and present recommendations to FBR for removal of the same.

The meeting was also attended by Special Assistant to the PM on Finance Mr. Tariq Bajwa, Chairman FBR, and senior officials from the Revenue Division and Finance Ministry.

The Finance Minister reviewed the suggestions given by both Committees and said that practicable recommendations will be incorporated into the Finance Bill-2023.

Dr Reza Baqir unveils Asaan Mobile Account to enable opening of branchless banking accounts

Governor State Bank of Pakistan, Dr. Reza Baqir, unveiled the Asaan Mobile Account (AMA) today in a launch ceremony held at SBP headquarters Karachi. AMA allows opening of a branchless banking account by dialing a simple code *2262# on a mobile phone. The account holder can then deposit money in his or her account at any branchless banking agent and use the same for transactions through mobile phone. AMA is an initiative of State Bank of Pakistan (SBP) to achieve National Financial Inclusion Strategy (NFIS) target of promoting digital financial inclusion in the country. AMA has been launched with the key support of various stakeholders including PTA, NADRA, Branchless Banking (BB) Providers, Cellular Mobile Operators (CMOs) and Virtual Remittance Gateway (VRG). VRG has been licensed jointly by SBP and PTA under the regulations for mobile banking interoperability. The launch ceremony was chaired by Dr. Reza Baqir, Governor SBP and addressed by Ms. Sima Kamil, Deputy Governor SBP, Chairman PTA Major General (R) Amir Azeem Bajwa HI (M), Chairman NADRA Mr. Muhammad Tariq Malik and Mr. Ikram Sehgal, Chairman VRG. The ceremony also witnessed signing of a Memorandum of Understanding (MoU) among 13 branchless banking service providers. The MoU was signed to affirm their commitment in facilitating customers through continued collaboration for more innovations in line with NFIS vision.

While speaking on the occasion, Dr. Reza Baqir thanked the stakeholders for their contributions that culminated into the successful launch of the AMA initiative. He said that AMA is expected to bring a significant increase in bank account opening and the lack of internet access or proximity to branchless banking outlets/bank branches would no longer be barriers for Pakistanis to access financial services. Accounts can now be opened simply by dialing a USSD code *2262# from any mobile phone (smart or simple feature phone) through any mobile network, without requiring internet connectivity. Customers will have the choice to choose from any of the 13 branchless banking service providers that are currently offering AMA. 

Governor Baqir highlighted that the AMA would play an important role in enhancing digital access and use of formal financial services in the country. He added that Pakistan has over 187 million biometrically verified mobile subscribers with Tele-density of around 85%, however; there are only 106 million 3G/4G subscribers with mobile internet penetration standing at 48%. This gives us the potential market of around 81 million mobile subscribers which don’t have access to internet and could become users of AMA if provided with the right value proposition. 

AMA will particularly help low income segments with non-digital phones and no access to internet to enjoy banking as it offers a simpler process, such as dialing a code, to avail financial services. Moreover, AMA will be a highly suitable platform to onboard Pakistani women customer segments as well since they face greater obstacles in accessing formal financial services due to mobility, cultural and documentation issues. AMA with its ease of use will be instrumental in bringing the next 50 million Pakistanis under the banking ambit. 

This initiative is also in line with Government of Pakistan’s holistic approach of “Digital Pakistan” initiative to enhance access & connectivity, digital infrastructure, and innovation. Now, the Government will also have the option to use this channel for disbursing money under the flagship poverty alleviation Ehsaas Program to reach 15 million beneficiaries.

FATF keeps Pakistan on grey list

The Financial Action Task Force (FATF) has decided to keep Pakistan on its grey list until February 2021 despite complying successfully with 21 out of 27 points of action.

The decision was made by the global watchdog for curbing terror financing and money laundering in its virtual plenary session from October 21 to 23. It reviewed Pakistan’s progress on the 27-point action plan.

FATF President Marcus Pleyer announced the decision after the three-day session came to an end on Friday. Pakistan has been on the watchdog’s grey list since June 2018.

Federal Minister of Industries and Production Hammad Azhar, in a series of tweets after the decision, said that Pakistan has achieved impressive progress on its FATF action plan. He said that 21 out of 27 action items now stand cleared while remaining six items have been rated as partially complete.

He said that within a year, the government progressed from 5/27 to 21/27 completed items. “FATF acknowledged that any blacklisting is off the table now,” added the minister of industries and production.

Hammad said that instead of the current action plan, discussions remained focused on how Pakistan can be facilitated for its upcoming second evaluation (MER), which is due by the mid of the next year. “I congratulate our Federal and Provincial Teams who have worked day and night even during the pandemic to ensure this turn around,” he added.

Before the decision was announced, Foreign Minister Shah Mahmood Qureshi, while talking to the media on Friday, said that India’s nefarious designs to push Pakistan into the blacklist of the FATF will fail because the world has recognised Pakistan’s measures against terror financing and money laundering.

The foreign minister said that out of 27 actionable points, Pakistan has shown 100 per cent progress on 21 and progress has also been made to meet the remaining six points.

FM Qureshi asked the FATF forum to positively respond to the significant progress made by Pakistan to comply with its action plan.

The global financial watchdog had in 2018 placed Pakistan on its gray list of countries with inadequate controls over money laundering, a potential source of terror financing, and gave it the action plan to implement.

In February this year, the country won a four-month grace period, until June this year, to meet the international anti-terrorism financing norms. That deadline was extended to October due to the coronavirus pandemic.

“The FATF strongly urges Pakistan to swiftly complete its full action plan by June 2020,” the FATF had said in a statement issued after a meeting in Paris in February. “Otherwise, should significant and sustainable progress especially in prosecuting and penalising TF (terrorism financing) not be made by the next Plenary, the FATF will take action.”

In February, the FATF had noted that Pakistan had delivered on 14 points but missed 13 other targets. On July 28, the government reported to Parliament compliance with 14 points of the 27-point action plan and with 10 of the 40 recommendations.

By September 16, however, the joint session of the parliament amended about 15 laws to upgrade its legal system matching international standards as required by the agency.

Officials have been hopeful of a positive outcome, especially after the recent legislation by parliament on counter-terror financing and money laundering.

However, being placed on the black list would put Pakistan in company with Iran and North Korea and see it shunned by international financial institutions. (PT)

Jubilee Life Insurance announces financial results for the first quarter

Jubilee Life Insurance Company, the largest insurance company from the private sector, announced an impressive batch of results for the financial quarter ending on 31 March 2014. The results were declared by the Board of Directors who met under the chairmanship of Mr. Kamal A. Chinoy to review the performance of the company.

The company reported a pre-tax profit of Rs295 million for the first quarter of 2014, up 45% from Rs 204 million for the same quarter in the preceding year. With after-tax profit of Rs 202 million, the earnings per share (EPS) stood atRs2.80.

Jubilee Life has further strengthened its position by registering 34% increase in net premium income over the same period of last year.

Mr. Javed Ahmed, Managing Director & CEO Jubilee Life, commented, “Our results reflect our strategy of robust business growth, together with sustainable profitability.” He also added that Jubilee Life has a strong focus on customer servicewhich is the lifeblood of our business.

Jubilee Insurance is a global brand of Aga Khan Fund for Economic Development (AKFED) that offers diverse insurance solutions (life, health and general) in the Asian and East African markets. Jubilee Life in Pakistan offers uniquely designed range of life and health insurance plans, catering to various customer segments and needs. These include retirement, child education, marriage, saving & protection, wealth accumulation, life insurance plans for women, rural insurance plans and life and health insurance solutions for the less privileged of our country.

Central Bank reduces policy rate by 50 basis points to nine percent

Yaseen Anwar, Governor SBP

By Mohammad Nazakat Ali

(Pakistan News & Features Services)

The State Bank of Pakistan (SBP) has decided to reduce the policy rate by 50 basis points to bring it down to 9 percent with effect from June 24, 2013.

This was decided by the Central Board of Directors of the State Bank of Pakistan at its meeting held under the chairmanship of SBP Governor, Yaseen Anwar, in Karachi on June 21.

According to the Monetary Policy Decision, the SBP has decided to place a higher weight to declining inflation and low private sector credit relative to risks to the balance of payments position.

Following is the complete text of the Monetary Policy decision:

“There has been a discernible positive change in sentiments post May 2013 elections because of clarity on the political front. The change in the behavior of banks in auctions of government securities and reaction of stock market are two examples. Importantly, there has been a considerable improvement in SBP conducted surveys of consumer confidence, expected economic conditions, and inflation expectations. The absence of foreign financial inflows and high fiscal borrowings from the banking system, however, remain formidable economic challenges, especially for monetary policy. Similarly, power shortages and security conditions continue to be strong impediments to growth.”

“An almost continuous and broad based deceleration in inflation over the last year has had a favorable impact on inflation outlook – a key variable in monetary policy decisions.  In May 2013, the year-on-year CPI inflation was 5.1 percent while trimmed measure of core inflation was 6.7 percent; the lowest levels since October 2009. The average CPI inflation for FY13 is expected to be at least two percentage points below the target of 9.5 percent.”

“However, in the latest budget the government has announced an increase of 1 percentage point in the General Sales Tax (GST), from 16 percent to 17 percent, and changes in the tax structure for some goods and services. In addition, the government is considering a phase-wise upward adjustment in electricity tariff. The exact magnitude and timing of this adjustment is yet to be decided. Therefore, there is a risk that average inflation for FY14 could exceed the announced target of 8 percent for the year. However, aggregate demand in the economy is expected to remain moderate, which could have a dampening effect on inflation.”

“A reflection of the current declining trend in inflation can be seen in the muted real economic activity, especially private investment expenditures. Beset by energy shortages and law and order conditions, the GDP growth has struggled to ameliorate in the last few years and this year was no exception. The provisional estimate of GDP growth for FY13 is 3.6 percent, which is lower than the 4.3 percent target for the year. Similarly, private fixed capital formation has decreased by 1.8 percent – the fifth consecutive year of a declining trend. Although there has been an encouraging uptick in the growth of Large Scale Manufacturing (LSM) sector, 4.8 percent in April 2013, it is too early to term it as an emerging trend.”

“A declining inflation trend and below potential GDP growth make a case for further reduction in the policy rate. The argument is twofold. First, the SBP has been giving a relatively high priority to inflation in its monetary policy decisions over the last few years. Thus, continuing to do so would indicate consistency in the monetary policy stance. Second, without further reduction in the policy rate, the real interest rate – policy rate minus expected inflation – would increase due to declining inflation. High real interest rates are not helpful for supporting private investment in the economy.”

“However, as indicated in the last monetary policy decision, the current balance of payments position and a structural imbalance in fiscal accounts suggest vigilance. The stress in the balance of payments position was a prime consideration in maintaining the policy rate at 9.5 percent in the last two monetary policy decisions. The basic argument has been that the return on rupee denominated assets needs to be sufficiently attractive to discourage speculative demand for dollars.”

“There is no significant revision in the assessment of the balance of payments position since the last monetary policy decision. The external current account deficit is expected to remain manageable, around 1 percent of GDP for FY13, signifying very low risk from this source for the external accounts. The real challenge continues to emanate from the lack of financial inflows. Let alone finance the small current account deficit, there has been a cumulative net capital and financial outflow of $143 million during the first eleven months of the current fiscal year. Add to this the on-going payments of IMF loans and it becomes clear that the pressure on foreign exchange reserves has not abated. As of 14th June 2013, SBP’s foreign exchange reserves stand at $6.2 billion.”

“There are two developments, however, that are worth highlighting. First, there has been a noticeable change in sentiments, as highlighted above, that can potentially have a favorable influence on private financial inflows. Other than the overall economic outlook, investment decisions do take into account the relative political certainty that determines the continuation of economic policies for some time in the future. Second, declining inflation has increased the relative real return on rupee denominated assets. This could provide some room for downward adjustment in nominal returns to cater to broad macroeconomic considerations despite external account concerns.”

“In this context, a lot depends on the fiscal outlook. The fiscal deficit for FY13 has been estimated to reach 8.8 percent of GDP, which is considerably higher than earlier projections. The source of deviation is structural and well known – low tax revenues due to absence of meaningful tax reforms and continuation of untargeted subsidies without comprehensively addressing the energy sector problems. For FY14, the federal government has announced a provisional estimate of 6.3 percent of GDP. “

“From the monetary policy perspective, it is the financing pressure of the fiscal position that is the source of stress. Due to almost zero net external financing in FY13, the burden of financing the sizeable deficit of 8.8 percent has fallen disproportionately on domestic sources, in particular the banking system. During 1st July – 7th June, FY13, fiscal borrowings from the banking system for budgetary support were Rs1230 billion, including Rs413 billion from the SBP. The high level of these borrowings has kept an upward pressure on the system’s liquidity and thus short term market interest rates and is restraining growth in the private sector credit.”

“If the economy is to reap the benefits of evolving positive sentiments and lure the domestic as well as foreign investors then implementation of a reform oriented and credible medium term fiscal outlook is essential. On its part, the Central Board of Directors of SBP has decided to place a higher weight to declining inflation and low private sector credit relative to risks to the balance of payments position. Therefore, the policy rate is being reduced by 50 basis points, to 9 percent, with effect from 24th June 2013.”

Pakistan Deep Water Container Port to create employment opportunities young workforce

By Abdul Qadir Qureshi

(Pakistan News & Features Services)

The Federal Minister for Ports and Shipping, Senator Kamran Michael, visited the Karachi Port Trust (KPT) where he took round various maritime installations and the ongoing development projects. He was accompanied by the KPT Chairman and other high port officials. 

The Minister visited all the operational berths including the three oil piers and during his three-hour visit and he also inspected the newly laid out breakwaters that will streamline the channels of Karachi Port. 

He visited the deepened length of the approach channel while the Chairman explained the desirability of deeper access for berthing of large post-panamax carriers.

During inspection of  under construction Pakistan Deep Water Container Port, the Minister directed the KPT to bring all the issues related to delay caused in its completion so that action could be taken at the appropriate forum for their resolution. 

He said that PDWCP will create much needed employment opportunities for the young workforce of Pakistan.

While having an appraisal of current state of operations at Karachi Port the Minister raised many pertinent queries about various operational practices. 

He conveyed the vision of the present government and asked the officers  to implement it transparently to ensure greater performance  efficiency and made the same a role model for others to follow.  

He stressed on having strategic priorities for the Port to bring them in an alignment with international maritime requirements. He pointed out that Karachi Port, being the largest recipient of Pakistan’s national maritime trade, is expected to perform the assigned tasks  with diligence and devotion.

On the occasion he listened to the issues raised by port workforce and issued on the spot orders for solving them. He promised to look into their long term problems and assured their representatives that he will try utmost to find solution to them. 

He said he will  visit Karachi Port regularly and monitor its activities personally. He directed the management to provide his detail appraisal of all port activities to enable him to take appropriate steps thereof.

Pak Railways promote 500 ticket examiners

By Abdul Qadir Qureshi
(Pakistan News & Features Services)

The General Manager Pakistan Railways, Junaid Qureshi, has promoted over 500 Special Ticket Examiners, Special Ticket Examiner Group Inspectors and Divisional Inspectors to the next grade.

He signed the summary of promotion of the Railways employees on March 1 and the notification in this regard was also issued later in the day, sending a wave of delight among the staff. 

As per notification the Grade 11 Special Ticket Examiners have been promoted to Grade 14, Grade 12 Special Ticket Examiners Group Inspectors to Grade 15 and Grade 14 Divisional Inspectors to Grade 16. 

It may be mentioned here that a Special Ticket Examiner Mohammed Suleman had moved to court a couple of years ago seeking promotions which was allowed by the court with the order for carrying out the required promotions. 

However, the implementation of the court order was delayed because of ongoing financial crisis in the railway which led to protests and strike by railway employees. 

Meanwhile the leaders of Railway’s Special Ticket Examiners Group Association, Shahabuddin Lakho, Haji Naimuddin Abbasi, Abdul Majeed Abbasi, Syed Asif Ali Shah and Al-haj Liaquat Ali Khilji have expressed their gratitude to the GM Railway, Junaid Qureshi, and other senior railway officials for issuance of notification of their promotions having described the issuance of notification the victory of righteousness.

Blair suggests study for education pattern suiting Pakistan

By Abdul Qadir Qureshi
(Pakistan News & Features Services)

Former British Prime Minister Tony Blair has suggested that a study be conducted to evaluate the type of education that would be effectively suited for Pakistan and an urgent action be taken to implement it.

He made the suggestion in a meeting with Arif Ali Shah Bukhari, Chancellor of KASBIT and Chairman of KASB Foundation, on the sidelines of the recently held YPO-WPO Global Leadership Conference in Istanbul, Turkey. 

Arif Bukhari, who attended the conference as Member MENA Regional Board of YPO-WPO, revealed that in the meeting with Tony Blair the geo-Political issues of Pakistan also came under discussion and he explained to the former British Prime Minister that there was great potential for improvement and modernization in Pakistan for which the way forward was through the prioritized provision of education to its masses through which the evils of illiteracy and violence would gradually be overcome. 

The former British Prime Minister agreed with the viewpoints of the KASBIT Chancellor having remarked there was also an urgent need to develop direct people to people contact for which finding of right partners between Pakistan and Britain was must to achieve real and sustainable growth. 

He also stated that the world’s growth and prosperity had always come through the private sector and that the government’s work was to give the right policies and to create conducive environments for educational growth. 

Tony Blair also informed Arif Bukhari that the British High Commission was trying its best to implement several programs that would directly benefit the people of Pakistan for which he look forward to the support of Pakistani business community to play a positive role for the realization of these programs.

CENTRAL BANK LEAVES POLICY RATE UNCHANGED AT 12 PERCENT;INCREASES MINIMUM PROFIT RATE ON SAVING DEPOSITS FROM 5 TO 6 PERCENT

The Central Board of Directors of the State Bank of Pakistan at its meeting held under the Chairmanship of SBP Governor, Mr. Yaseen Anwar in Karachi today has decided to keep the policy rate unchanged at 12 percent. The State Bank has also decided to raise the minimum Profit Rate on PKR Saving/PLS Saving Products from 5.0 to 6.0 percent.

‘It was the expectation of SBP that these deposits will respond to market forces and adjust accordingly. The rigidity of the deposit rates, especially for small savers, is adversely impacting the savings-investment ratio of the economy, the State Bank of Pakistan said in its Monetary Policy Decision.

It said that a more balanced risk-reward incentive structure is warranted in the shape of appropriate deposit rate structure, as the savers, especially the smaller ones, need to be adequately compensated. ‘Therefore, it has been decided that, effective May 1st, 2012, all Banks are required to pay a minimum Profit Rate of 6.0 percent on PKR Saving/PLS Saving Products,’ it added.

Following is the complete text of the Monetary Policy Decision:

‘As the economy begins the last quarter of current fiscal year, SBP’s monetary management continues to play its part in balancing the implications of multiple challenges faced by the economy. The primary consideration remains bringing inflation further down as it has persistently remained in double digits in the last few years. Ensuring smooth functioning of the payment system and financial stability is also important given the current stressed liquidity conditions in the market. Similarly, elevated international oil prices, weak quantum of exports, and insufficient foreign financial flows require careful management of the external position. Last but not least, the consistent decline in private investment is also an important factor in formulating the monetary policy strategy as it impacts both the medium term inflation, growth and employment prospects.

Given limited set of instruments, not all these challenges can be effectively tackled by monetary policy alone. There are bound to be tradeoffs involved among these competing considerations. A supporting fiscal strategy and an active economic reform agenda is critical to deal with some of the structural  issues,  in  particular,  low  tax  to  GDP  ratio  and  energy  shortages.  Most  importantly,  the economy needs a forward-looking approach to policy making with strict adherence to rules laid out in the legal frameworks, be it the State Bank of Pakistan (Amendment) Act (2012) or Fiscal Responsibility and Debt Limitation (FRDL) Act (2005).

Following this approach is crucial in anchoring inflation expectations around the medium term targets of 9.5 percent for FY13 and 8 percent for FY14 as envisaged in the Medium Term Budgetary Framework (MTBF) of the government. In March 2012 the year-on-year CPI inflation was 10.8 percent and, given the current economic conditions, is projected to remain in double digits during FY13. Consistently growing government borrowing requirement from the banking system is a key variable that is adversely affecting the inflation outlook. Weak private demand, on the other hand, is one reason why inflation is not increasing sharply. Nonetheless, the size of fiscal borrowings and lack of investment is eroding the medium term productive capacity of the economy, contributing towards persistence of inflation in early double digits. Another risk factor that needs to be monitored closely for assessing inflationary pressures is the behaviour of international oil prices.

The current year government borrowings for budgetary support have been Rs373 billion from the scheduled banks and Rs218 billion from the SBP during 1 July – 30 March, FY12. The year-on-year growth in these borrowings turns out to be 56.5 percent and 18.5 percent respectively. The year-on- year growth in the private sector credit, on the other hand, was only 4.2 percent and that in total deposits of the banking system was 17.4 percent during the same period. Thus, despite a decent growth in deposits, the banks continue to prefer financing the fiscal deficit as opposed to searching avenues, taking risk, and building partnerships to facilitate credit to the private sector. The cost to the economy is visible in terms of a decline in investment to GDP ratio to historically low levels and stagnant economic growth that is considerably lower than the economy’s potential.

If a revival in private sector credit and growth prospects is to take place, a pertinent question in the current circumstances is: how would the government rollover its maturing short-term debt and raise additional  financing  while  simultaneously  retiring  its  borrowings  from  the  SBP?  With  shortfalls  in external sources, the most likely avenue will be more borrowings from the SBP. The inflationary implications of this scenario should not be underestimated. However, according to the recent State Bank of Pakistan (Amendment) Act (2012), government borrowing from the SBP is required to be repaid at the end of each quarter and the existing stock is to be retired within eight years. In case of not observing these provisions, the Act also stipulates that the federal government will submit a statement to the Parliament giving detailed justification.

Adherence to this legal requirement, without serious adjustment in the fiscal position, would lead to significant injections of liquidity by the SBP to keep the payment system functioning and financial markets stable. But, SBP is already injecting substantial short term liquidity in the system, Rs200 billion as of 13 April 2012, which is being continuously rolled over. The permanent nature of these injections also potentially carries inflationary risks. Thus, simultaneously meeting the legal requirement of zero quarterly borrowings from SBP, scaling back liquidity injections, effectively anchoring inflation expectations, and creating space for the private sector, could prove to be a much more difficult task than appreciated.

Government borrowing requirements are not the only source of liquidity pressures. With a gradually rising external current account deficit and consistently declining foreign inflows, the SBP’s foreign exchange reserves are on a declining path. During the first eight months of FY12, the external current account deficit was $3 billion while the net capital and financial account receipts were only $187 million. Not surprisingly, SBP’s liquid foreign exchange reserves have declined to $11.8 billion by end- March 2012 from $14.8 billion at end-June 2011. These external sector developments are exerting downward pressure on rupee liquidity as indicated by a 21.4 percent year-on year decline in Net Foreign Assets  (NFA)  of  the  banking  system  by  end-March 2012.  Thus,  some  rupee  liquidity  injection  and increase in reserve money is required to facilitate normal transactions taking place in the economy.

Further, SBP’s operational monetary management framework sets the short term interest rate or the price of liquidity based on broad macroeconomic considerations such as likely inflation path relative to the announced target. The requirement of liquidity and thus growth in reserve money is residually determined and provided to ensure smooth functioning of financial markets. The SBP cannot simultaneously  set  both  the  interest  rates  and  money  growth.  The  challenge  is  if  the  underlying behaviour of a significant user of money does not respond to interest rate signals, then monetary policy would become ineffective in achieving its objectives.

Given substantial external debt payments, declining trend of export quantum, elevated international  oil  prices,  and weak  financial  inflows,  the  external  position is likely  to  remain under pressure in the remaining part of FY12 and FY13.  Similarly, provisional financing data indicate that the fiscal deficit may have reached 4.3 percent of GDP during the first nine months of FY12. Given the last quarter seasonality, a substantial slippage compared to the revised target of 4.7 of GDP cannot be ruled out. Both these developments would have implications for variables that concern monetary policy such as inflation expectations, liquidity pressures, and private investment. In terms of solutions, the economy needs deep and decisive fiscal and energy sector reforms and an early realization of planned foreign financial inflows to mitigate uncertainty.

Another  area  of  reform  is  to  improve  financial  deepening  and  competition in  the  banking system. In this vein, SBP has already been encouraging depositors to put their savings in government securities through Investor’s Portfolio Securities (IPS) accounts. Among other objectives, this is expected to lead to better returns on deposits over time. Moreover, in May 2008, SBP introduced a minimum 5 percent floor on all categories of Savings/PLS Saving Products. Consequently, average deposit rate of all saving  related  products  increased  from  2.1  percent  to  5.25  percent,  with  no  significant  change thereafter. The saving deposits category now account for 38 percent of all bank deposits and 52 percent of total number of deposit accounts.

It was the expectation of SBP that these deposits will respond to market forces and adjust accordingly. The rigidity of the deposit rates, especially for small savers, is adversely impacting the savings-investment ratio of the economy. A more balanced risk-reward incentive structure is warranted in the shape of appropriate deposit rate structure, as the savers, especially the smaller ones, need to be adequately compensated. Therefore, it has been decided that, effective May 1st, 2012, all Banks are required to pay a minimum Profit Rate of 6.0 percent on PKR Saving/PLS Saving Products. At the same time, given the overall macroeconomic conditions, the Central Board of Directors has decided to keep the policy rate unchanged at 12 percent.’