What Are The Merits And Demerits Of The Pakistan Government’s Decision To Reallow The Institutional Investment In NSS From October 2006?

The major reason behind the government's decision to lift the ban on the institutional investment in the National Saving Scheme was to shift its borrowing pattern from the central bank (State Bank of Pakistan) to some non-bank sources. This was a major factor that espoused the government's decision. In addition to this reason, another factor that actually advocates this decision on behalf of the government of Pakistan is the fact that there is no arbitrage between the National Saving Scheme and the borrowing of institutions from banks, as some officials of the Ministry of Finance claim. As for the demerits of this decision by the Pakistan government, the first criticism comes from the central bank that is the State Bank of Pakistan that speaks on behalf of all banks, private or public, in Pakistan. According to the State Bank, this decision to empower the investment of institutions in the National Saving Scheme is a definite setback in the prospect of the financial sector reforms. As its is, this decision would contribute towards shifting the medium-term funds from the banks, which, in turn, will incorporate an additional pressure on market interest rates.

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