Dynamic debt market crucial to financial stability: SBP

January 20, 2023

Ayesha Saba

The State Bank of Pakistan (SBP) is launching a web portal to promote a local bond market and address the issue of asymmetry information in the debt market, WealthPK reports. The SBP’s initiative will help investors to invest and trade in lucrative government debt securities, which will increase national saving and investment rates.

SBP Governor Jameel Ahmad told WealthPK that some investors had more access to information as compared to others. He said that investors would benefit from the portal as it would improve their access to the debt market and provide them with meaningful information.

“As Pakistan’s debt market is relatively small and has limited market depth, it is more vulnerable to market volatility. Many companies in Pakistan have limited access to capital markets, which makes it difficult for them to raise funds and expand their operations,” he said.

The SBP governor said that Pakistan had a high level of government debt, which led to concerns about the country’s ability to maintain stability in its financial markets. The rupee has been subject to significant fluctuations, which has affected the country’s ability to repay its debt and has also led to inflation.

“We need to create a dynamic domestic debt market if we are to achieve high and sustainable economic growth. As we know, the current economic climate is characterised by tight global financial markets,” said Jameel Ahmad. The lack of investors’ confidence in the debt market of Pakistan has led to a decrease in foreign investment. It has further affected economic growth. The country is stuck in a low-saving, low-investment, and low-growth vicious cycle.

The SBP governor said that it was a fact that Pakistan’s equity market was not developed to the desired level as it was supposed to grow. “Our total registered financial activity towards the equity market is 5%, which is very low. As of right now, it is the banking sector that holds the largest share of the equity market. Capital market and non-banking sectors are still at a nascent stage of development,” he added.

He said that it was imperative to give fresh thought to developing the capital market. He said that strengthening and turning the local debt market into a deep and well-functioning one was important for increasing and channelising long-term domestic savings. He added that there should be an increase in the number of market participants.

“Pakistan has a thriving financial and banking system. The domestic markets should be able to fill this gap and encourage the mobilisation of private capital into a number of key priority areas such as infrastructure, corporate investment, small and medium enterprises and projects related to climate change,” the SBP governor told WealthPK.

Credit : Independent News Pakistan-WealthPk