The Asian Development Bank (AfDB) on Tuesday approved a $300 million loan to further develop Pakistan’s financial markets, promote private investment in the country and help mobilize domestic resources to finance sustainable growth.
According to a statement, the second sub-programme of the AfDB’s Third Capital Market Development Program builds on the institutional and regulatory reforms put in place under the first sub-programme approved in 2020.
It aims to catalyze demand from institutional investors and increase the range of alternative financial instruments, such as derivatives and commodity futures, that are available to investors.
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“For several years, the AfDB has been Pakistan’s main development partner supporting the evolution of its capital markets,” said AfDB Managing Director for Central and West Asia, Yevgeniy Zhukov.
“By making the country’s capital markets more robust and strengthening public debt management, this new program will also help mobilize more domestic resources that support the government’s efforts to finance sustainable growth and respond effectively to crises,” added general manager Yevgeniy Zhukov.
The statement pointed out that Pakistan’s financial sector, dominated by banks and a lack of diversification, increases the risk that the country will not be able to withstand financial shocks and periods of uncertainty.
Additionally, the Pakistan Stock Exchange (PSX) lacks depth in terms of the number of investors accessing it and the number of companies raising capital, while the Pakistani bond market is almost entirely dominated by government bonds.
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According to the AfDB, the program supports policy actions that will enhance market stability and attract investor capital to Pakistan. These include structural reforms within the Securities and Exchange Commission of Pakistan (SECP) that will improve governance and regulatory capacity.
The program supports measures that will strengthen the public debt market and improve market surveillance systems that facilitate the exchange of information. It also aims to promote an enabling environment to accelerate access to finance for the growth of enterprises and public enterprises.