The Asian Development Bank (ADB) on Tuesday approved a $300-million loan to further develop Pakistan’s capital markets, and promote private investment in the country.

The latest funding is part of the second sub-programme of ADB’s Third Capital Market Development initiative, and aims to catalyse institutional investor demand and increase the range of alternative financial instruments such as derivatives and commodity futures that are available to investors, accoriding to the ADB statement.

“For several years, ADB has been Pakistan’s lead development partner in supporting the evolution of its capital markets,” said ADB Director General for Central and West Asia Yevgeniy Zhukov.

“By making the country’s capital markets more robust and strengthening government debt management, this new program will also help to mobilise more domestic resources which support the government’s efforts to finance sustainable growth and respond effectively to crises.”

ADB said that the programme support will strengthen market stability and attract investor capital to Pakistan.

ADB mission to hold talks with finance minister

“These include structural reforms within the Securities and Exchange Commission of Pakistan (SECP) that will improve governance and regulatory capacity. It supports measures that will strengthen the government debt market and enhance market surveillance systems that facilitate information exchange,” read the statement.

ADB was of the view that Pakistan’s finance sector, which is dominated by banks lacks diversification which increases the risk of the country not being able to withstand financial shocks and periods of uncertainty.

It added that the country’s equity markets, that is the Pakistan Stock Exchange (PSX), lack depth in terms of the number of investors that access it and the number of companies raising capital, while Pakistan’s bond market is almost completely dominated by government borrowing.

“These reforms will help to mobilise financial resources for productive investment, especially by the private sector, and help facilitate economic growth by developing the bond and equity capital markets,” said ADB economist Sana Masood.

“This will help reduce the cost of financial intermediation and help stabilize systemic vulnerabilities in the bank-dominated finance system.”

Days ago, ADB Vice-President Shixin Chen concluded a five-day visit to Pakistan during which he met with Prime Minister Imran Khan, key ministers, and other senior government officials.

Official sources, who attended these high-level engagements, informed Business Recorder that financial assistance to the tune of $8.7 billion from the ADB is in the pipeline during the next three years.

The story was originally published in Business Recorder on March 22, 2022.