KARACHI: Governor State Bank of Pakistan (SBP) Jameel Ahmad on Tuesday said that the central bank is currently working on a debt market web portal, which is expected to be launched in the next couple of months.
This move will help improve investors’ access to debt market, and provide them relevant information. It will also help participants with access to primary dealer (PD) system, and facilitate development of domestic market infrastructure
Addressing as the chief guest at CFA Society of Pakistan’s 19th Annual Excellence Awards at a local hotel, Jameel Ahmad said currently, the higher cost of international trading and informational platforms prevents cost-effective and broad-based participation in the market. He hoped that the portal, once launched, will assist in reducing cost and increasing access of the investors to the capital markets.
He said the SBP has revised its primary dealer system to allow more capital market functionaries like brokerage houses, clearing houses and depositories to participate in the primary market of government securities. Under the revised PD system, NCCPL and CDC have secured the status of special purpose primary dealers for Fiscal Year 2023 that enabled them to directly participate in primary auction on behalf of their customers.
Recognizing the need to promote and protect micro savings through better investment opportunities, we have expended the scope of investor portfolio securities (IPS) accounts to micro finance banks, he said.
“Similarly CDC and NCCPL being specialized primary dealers can also open the IPS accounts of their customers.”
Previously only commercial banks were specifically allowed to open IPS accounts. This step will enable more than 85 million branchless and mobile banking operators to take advantage of attractive returns offered by government securities, he said.
SBP will further simplify the process of IPS account opening by removing unnecessary fractions from the investment process. Bank account holders can also open investment accounts in PSX based on their existing Banks KYC.
He also called for the need to develop a deep diverse and well-functioning local debt market. A well developed local bond market is essential for the efficiency and stability of the country’s financial system and to foster the economic growth.
It allows both government and business to access promote financial savings by creating alternative saving avenues, and reduces reliance on foreign currency borrowing to fund the development needs, strengthens transmission mechanism of monetary policy, lessen excessive dependence on banks, and vulnerabilities within the banking system and also exposes banks to competition which in turn improve their efficiencies and lower intermediation cost, said SBP governor.
From a macro financial sustainability perspective, he said a well developed bond market serves to mitigate risks within the banking system. Banks are typically constrained in lending for long term tenures, because their liabilities of short term nature whereas their lending also sometime involves in long term project financing also.
The role of local bond and equity markets takes significance in the current context when the global financial conditions have tightened and capital flows are moving away from emerging economies, he said. Domestic markets need to fill this gap and facilitate mobilization of domestic private capital to key priority areas such as infrastructure corporate investment, SME and climate focused projects.
The Asian financial crisis of 1997 is the stalk reminder for the policymakers in developing countries that over dependence on foreign capital can make a country vulnerable to the external shocks.
Global financial crisis of 2007 have significant impact on the developing countries. The East Asian emerging markets showed remarkable resilience and were able to recover quickly. This was due to their efforts to develop local bond markets, thereby reducing the currency and maturity mismatches on sovereign and corporate balance sheets.
Low saving and investment in Pakistan have been major obstacles in sustaining the high economic growth in the country. Pakistan National Saving to GDP ratio is 11.1 percent and investment to GDO ratio is only 15.1 percent.
“We are stuck in a low saving low investment and low growth vicious cycle,” he said. Consequently our dependence over external financing to support high economic growth has increasingly grown over time. Not surprisingly, Pakistan’s high growth periods have mostly coincided with abandoned inflows of foreign savings in the form of external loans grants and remittances. Whenever such inflows dried up, economic growth slowed down, as the domestic savings and investment proved insufficient to maintain the growth momentum.
Developing deep diverse and well-functioning local debt market would play an important role in increasing and channelling the domestic long-term savings towards the growing needs of investment in the county. Pakistan has a thriving financial and banking system, yet there are areas that need attention and further development. The financial sector remains dominated primarily by banks while capital market and non banks are still at nascent stage of development.
Issuance of corporate debt has been allowed from 1995 onwards; however, only a handful of borrowers in Pakistan have utilized the corporate bond market as funding source and even this issuance remained skewed towards financial institutions. The corporate debt market in Pakistan needs further attention of the industry and regulators. Government bond market has seen a gradual yet considerable evolution over the past 20 years. The market now offers a diverse set of financial instruments. Fixed rate, floating rate, Shariah competent instruments cater the needs for various segments of investors.
Pakistan has 67.5 million formal bank accounts by the end of June 2022. The number of investor portfolio securities accounts that allows banks to invest in government securities with primary dealers has only reached to 23,000 by June 2022; this highlights our weakness in our outreach and also represents huge untapped market.
CFA Society President Abdul Rehman Warraich in his welcome address said the Annual Excellence Awards is one of flagships events. Purpose of these awards is to acknowledge and celebrate professional excellence and innovations in the financial markets. The purpose is to evaluate the contributions that have been made by various individuals and organizations during the year and to celebrate by announcing awards in a number of categories. This is aimed at promoting healthy completion in the financial sector and creates motivation among all of us to do more in our professions.
Margaret Franklin CFA President and CEO CFA Institute gave a video message on this occasion.
Copyright Business Recorder, 2022