KARACHI: State Bank of Pakistan (SBP) Governor Jameel Ahmad said on Tuesday that the central bank is currently working on a debt market web portal, which is expected to be launched within the next two months.
This decision will help improve investors’ access to the debt market and provide them with relevant information. It will also help participants access the Principal Trader (PD) system and facilitate the development of internal market infrastructure.
Addressing as a chief guest at the 19th Annual CFA Society of Pakistan Excellence Awards at a local hotel, Jameel Ahmad said that currently the higher cost of commerce and information platforms international organizations prevents profitable and broad participation in the market. He hopes the portal, once launched, will help reduce costs and increase investors’ access to capital markets.
He said SBP has overhauled its primary dealer system to allow more capital market officials such as brokerages, clearinghouses and custodians to participate in the primary government securities market. Under the revised PD system, NCCPL and CDC were granted special purpose primary dealer status for fiscal year 2023, allowing them to participate directly in primary auctions on behalf of their clients.
Recognizing the need to promote and protect micro-savings through better investment opportunities, we have expanded the scope of Investor Portfolio Securities Accounts (IPS) to micro-finance banks, he said. declared. “Similarly, CDC and NCCPL being specialized primary traders can also open their customers’ IPS accounts.”
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 the attractive yields offered by government securities, he said.
SBP will further simplify the IPS account opening process by removing unnecessary fractions from the investment process. Bank account holders can also open investment accounts in PSX based on their existing KYC bank.
He also called for the need to develop a diverse and functional local debt market. A well-developed local bond market is essential for the efficiency and stability of the country’s financial system and for fostering economic growth.
It enables both government and businesses to access the promotion of financial savings by creating alternative savings pathways, and reduces reliance on foreign currency borrowing to finance development needs, strengthens monetary policy transmission mechanism, reduces overreliance on banks and vulnerabilities within the banking system and also exposes banks to competition, which improves their efficiency and reduces intermediation costs, said the 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 generally constrained to lend for long-term terms, as their liabilities are short-term in nature while their lending sometimes also involves financing long-term projects.
The role of local bond and equity markets is growing in importance in the current environment where global financial conditions have tightened and capital flows are moving away from emerging economies, he said. Domestic markets must fill this gap and facilitate the mobilization of domestic private capital in key priority areas such as business investment in infrastructure, SMEs and climate-focused projects.
The 1997 Asian financial crisis reminds policymakers in developing countries that overreliance on foreign capital can make a country vulnerable to external shocks.
The global financial crisis of 2007 had a significant impact on developing countries. Emerging markets in East Asia showed remarkable resilience and were able to recover quickly. This was due to their efforts to develop local bond markets, thereby reducing currency and maturity mismatches in sovereign and corporate balance sheets.
Low savings and investment in Pakistan has been a major impediment to sustaining the country’s strong economic growth. Pakistan’s national savings to GDP ratio is 11.1% and the investment to GDP ratio is only 15.1%.
“We are stuck in a vicious circle of low savings, low investment and low growth,” he said. Consequently, our dependence on external financing to support high economic growth has increased over time. Not surprisingly, Pakistan’s periods of strong growth have mostly coincided with abandoned inflows of foreign savings in the form of external loans, grants and remittances. Whenever these inflows dried up, economic growth slowed, as domestic savings and investment proved insufficient to sustain the growth momentum.
The development of a diverse and functional local debt market would play an important role in increasing and channeling long-term domestic savings towards the county’s growing investment needs. Pakistan has a thriving financial and banking system, but there are areas that need attention and further development. The financial sector remains dominated mainly by banks while the capital market and non-banks are still at a nascent stage of development.
Issuance of corporate debt securities has been permitted since 1995; however, only a handful of borrowers in Pakistan used the corporate bond market as a source of funding and even this issuance remained biased in favor of financial institutions. The corporate debt market in Pakistan requires greater attention from industry and regulators. The government bond market has undergone a gradual but significant evolution over the past 20 years. The market now offers a diverse set of financial instruments. Fixed-rate, floating-rate, and Shariah-compliant instruments meet the needs of various investor segments.
Pakistan has 67.5 million formal bank accounts at the end of June 2022. The number of investor portfolio securities accounts that allow banks to invest in government securities with primary dealers has only reached 23,000 in June 2022; this highlights our weakness in our reach and also represents a huge untapped market.
CFA Society President Abdul Rehman Warraich in his welcome address said the annual awards of excellence are one of the signature events. The purpose of these awards is to recognize and celebrate professional excellence and innovation in the financial markets. The purpose is to assess the contributions that have been made by various people and organizations over the year and to celebrate by announcing awards in a number of categories. This aims to promote healthy completion in the financial sector and motivates us all to achieve more in our professions.
Margaret Franklin CFA President and CEO CFA Institute gave a video message on this occasion.
Copyright Business Recorder, 2022
