ISLAMABAD: The Asian Development Bank (ADB) approved a $300 million policy-based loan to help strengthen Pakistan's finance sector by supporting measures to develop competitive capital markets, and encourage private sector investment in the country.
The ADB official told Business Recorder that out of $300 million, $290.204 million was concessional at the rate of two percent, and $9.796 million was Ordinary Capital Resources (OCR).
"Capital markets act as a major catalyst in transforming the economy into a more efficient, innovative, and competitive marketplace," said ADB Senior Project Officer Sana Masood.
"The reforms proposed under this programme will lower the cost of financial intermediation and facilitate private sector investment to generate sustainable growth and job opportunities. It will also mitigate the negative impact of capital market instability on the economy and help to diversify Pakistan's financial system."
The ADB official statement added that currently, Pakistan's capital markets play a limited role in financial intermediation and resource mobilization.
The Pakistan Stock Exchange lacks depth in terms of the number of investors and the number of companies raising capital.
Fewer than 250,000 individual investors, or less than 0.1 percent of the population, have a stock investing account, and the Pakistan Stock Exchange lags most of its regional peers on market capitalization as a percentage of gross domestic product.
"Institutional strengthening of the debt management office will develop the government bond market on a sustainable basis," said ADB Principal Financial Sector Specialist Syed Ali-Mumtaz H Shah.
"Establishing a special tribunal for capital market-related cases would significantly enhance investor confidence in the equity market."
The ADB has supported the development of Pakistan's financial markets through three policy-based loans over the past two decades.
The Third Capital Market Development Programme will augment the size and capacity of capital markets and support reforms that enhance the institutional and regulatory capacity of relevant government bodies.
It will also diversify the investor base, develop important market infrastructure such as surveillance systems, and improve the supply of alternative financial instruments.
Additionally, the programme will help the government to strengthen its debt management proficiency, the statement added. The government and the ADB have agreed to anchor the programme to the design of a long-term national capital market master plan to build strong government ownership and coordination across the agencies. The ADB will also provide an $800,000 technical assistance to support the implementation of key reform actions under the programme.
Copyright Business Recorder, 2020
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