The Asian Development Bank (ADB) has granted approval for a $300 million policy-based loan aimed at fortifying Pakistan’s finance sector.
The loan is intended to support measures that will enhance the competitiveness of capital markets and encourage private sector investment in the country.
Capital markets play a pivotal role in transforming the economy into a more efficient, innovative, and competitive marketplace, according to ADB Senior Project Officer Sana Masood. The proposed reforms under this program aim to lower the cost of financial intermediation, facilitate private sector investment, generate sustainable growth, create job opportunities, and mitigate the negative impact of capital market instability on the economy.
Currently, Pakistan’s capital markets have a limited role in financial intermediation and resource mobilization. The Pakistan Stock Exchange faces challenges such as a lack of depth in terms of the number of investors and companies raising capital. With fewer than 250,000 individual investors, constituting less than 0.1 percent of the population, and lagging behind regional peers in market capitalization as a percentage of GDP, there is a need for significant improvements.
ADB Principal Financial Sector Specialist Syed Ali-Mumtaz H. Shah emphasized that institutional strengthening of the debt management office will contribute to the development of the government bond market on a sustainable basis. Additionally, the establishment of a special tribunal for capital market-related cases is expected to enhance investor confidence in the equity market.
This marks the fourth instance where ADB has supported the development of Pakistan’s financial markets through policy-based loans over the past two decades. The Third Capital Market Development Program is designed to augment the size and capacity of capital markets, supporting reforms to enhance the institutional and regulatory capacity of relevant government bodies. The program will diversify the investor base, develop critical market infrastructure such as surveillance systems, and improve the supply of alternative financial instruments. Furthermore, it aims to strengthen the government’s debt management proficiency.
The government and ADB have agreed to anchor the program to the design of a long-term national capital market master plan to ensure strong government ownership and coordination across agencies. As part of its commitment to supporting the implementation of key reform actions under the program, ADB will provide an $800,000 technical assistance.
ADB, established in 1966 and owned by 68 members—49 from the region, is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific. The organization continues its efforts to eradicate extreme poverty while facilitating economic growth and development in the region.
