Pakistan’s new bond market strategy seeks to improve liquidity, diversify investors and reduce the concentration of government debt within commercial banks.
The government has unveiled a strategic plan to strengthen Pakistan’s local currency bond market, including a reform that would allow eligible bank customers to trade listed government securities through the stock market.
The initiative comes as Pakistan holds talks with an International Monetary Fund (IMF) mission over the next review of the country’s economic programme. Successful completion of the review could pave the way for around $1.2 billion in financing under the Extended Fund Facility and Resilience and Sustainability Facility.
The strategy aims to create a deeper, more liquid and diversified market for rupee-denominated government and corporate securities. It was developed following an IMF-World Bank assessment of Pakistan’s local currency bond market.
Commercial banks currently hold about 78% of government securities, while sovereign debt accounts for roughly 62% of banking-sector assets. The concentration of government debt within banks has supported public borrowing but has also limited the flow of credit to the private sector.
Under the proposed framework, eligible customers will be able to trade exchange-listed government securities through their banks. The process will operate under the oversight of the State Bank of Pakistan, Securities and Exchange Commission of Pakistan, Pakistan Stock Exchange and Central Depository Company.
The government also plans to make the issuance of government securities more predictable by introducing a clearer benchmark policy and strengthening medium-term debt management.
Improving secondary-market trading is another key component of the strategy. Authorities plan to enhance market liquidity, strengthen the repo market and introduce a securities-lending facility for primary dealers.
The strategy also seeks to broaden the investor base by encouraging greater participation from institutional, retail and foreign investors.
Officials expect the reforms to help reduce the costs and risks associated with government borrowing, improve monetary policy transmission and establish a more reliable benchmark for private-sector financing.
The IMF mission is also reviewing developments in the power, petroleum and automobile sectors, privatisation and tax administration as part of the ongoing assessment of Pakistan’s economic programme.
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