ADB approves $300m loan to develop Pakistan’s capital markets

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

According to a statement, the second sub-programme of the ADB’s Third Capital Market Development Program builds on institutional and regulatory reforms put in place under the first sub-programme approved in 2020.

It 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.

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“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 programme will also help mobilize more domestic resources which support the government’s efforts to finance sustainable growth and respond effectively to crises," Director General Yevgeniy Zhukov added.

The statement underscored that Pakistan’s finance sector, dominated by banks and a lack of diversification, increases the risk of the country not being able to withstand financial shocks and periods of uncertainty.

Moreover, the Pakistan Stock Exchange (PSX) lacks depth in terms of the number of investors which access it and the number of companies raising capital, while Pakistan’s bond market is almost completely dominated by government borrowing.

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According to the ADB, the programme supports policy actions that will strengthen 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 programme supports measures that will strengthen the government debt market and enhance market surveillance systems that facilitate information exchange. It also aims to promote an enabling environment to expedite access to financing for the growth of companies and state-owned enterprises.