Pakistan’s Capital Markets are not fully developed due to ineffective mobilisation of savings, which leads to a wide saving-investment gap. There is a lack of depth in the market. Also, the number of listed companies is low, causing too many investors to chase too few stocks that produce consistent dividends. Such an ineffective role of capital markets hampers the banks’ credit origination capacity, making the economy dependent on volatile foreign capital. In this regard, the ADB’s support will increase capital investment, boost investor and business confidence and enhance future growth.
As of December 2020, bank assets accounted for almost 75.5% of the country’s total financial assets, whereas non-bank financial institutions accounted for only 5%. Such a bank-dominated finance sector reflects a lack of capacity in the non-banking sectors and capital markets, making the financial sector unable to deal with financial shocks and periods of uncertainty. However, the government and federal institutions are taking measures to reduce the cost of financial intermediation and stabilise systemic vulnerabilities in the bank-dominated finance system.
The Asian Development Bank (ADB) has approved a $300 million loan to develop Pakistan’s capital markets further, promote private investment, and help mobilise domestic resources to finance sustainable growth. The second subprogram of ADB’s Third Capital Market Development Program builds on institutional and regulatory reforms and aims to strengthen market stability and attract investor capital to Pakistan. This program encourages an enabling environment to enhance the growth of financing companies and state-owned enterprises. ADB has been a leading development partner of Pakistan that supports the evolution of the country’s capital market.
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