KARACHI: Federal Minister for Finance and Economic Affairs, Senator Muhammad Ishaq Dar on Tuesday launched the trading of Government debt securities at Stock Exchanges.
This is a first step in a long journey whose eventual destination is to develop deep and liquid bond markets to fund both public and private sector investment in Pakistan, he said.
The Minister was speaking at the ceremony of the formal lunching of listing of T-Bills on Karachi Stock Exchange (KSE) here at a local hotel.
He highlighted the importance of developing a strong and vibrant debt capital market in the country, he referred to a McKinsey’s study suggesting that Asian region as a whole must commit close to dollars eight trillion to infrastructure projects over the next decade to remedy historical under-investment and accommodate the explosion in demand.
He said the magnitude of under-investment in infrastructure and increase in demand is even higher in Pakistan and therefore we must prepare ourselves to mobilize the financing needed to close the widening gap.
Pakistan’s economic growth has remained below potential for more than a decade and that there is a need for sustainable economic growth in the country. He regretted that over the last decade, the past governments ignored the fundamental issue of investment in infrastructure needed to kick off and put the economy on the path of long-term sustainable economic growth. Instead, only consumption led growth was focused. ” In my opinion , sustainable economic growth can only be achieved when growth is investment led. That is the main focus of the present Government,” he remarked.
Investment led growth requires to first build up the basic infrastructure of the country. This includes development of the energy sector — from upstream oil , gas and coal exploration and production, hydel-power , alternative energy development to power generation and distribution-, transport sector covering land, air and sea transport, mineral resource development , information and telecommunications infrastructure , agricultural and rural development , urban renewal and industrial infrastructure.
These are mega-scale , core development initiatives that require large and long-term financing. For Pakistan to be on the path of sustainable economic growth , we will need to invest at average 6 to 7 percent of our GDP annually in infrastructure.
PML-N led Government is taking a number of steps to raise public revenues and curtail public expenditures so that increased funding is available for development projects. The quantum of required financial resources to actualize our vision for infrastructure development is very large.
The investment projects require both equity and debt. However , there is a need to diversify the investors base of both equity and debt capital markets.
He said his Government wants to diversify its development funding sources beyond the relatively narrow universe at present. It is a broad objective of the Government to improve the liquidity in the debt and capital markets and diversify the investors base of government and corporate debt markets.
This will further facilitate to channelize the savings of the end investor directly to debt instruments and may bring more efficiency in the process. In this context, several initiatives have been taken in the past.
The Federal Finance Minister said the launch of trading government securities on the stock exchanges is part of the strategy to diversify investor base and provide an additional platform to the small or retail investor to buy government securities in addition to other initiatives already underway.
The new trading platform of Government securities will operate alongside the existing OTC platforms in the interbank market. This would enable competitive pricing structure at the retail level and create greater transparency.
“We are mindful that adoption by the average saver and investor of this asset class will occur over time. It is now the responsibility of financial market participants – both banks and non-bank financial institutions and stock market brokers – to make this a success,” he said.
The equity markets in Pakistan have shown consistent superior performance in recent years. From May 2013 till now , the KSE-l00 index has shown an increase of over 35 percent from 19,916 to over 27,000. Market capitalization has risen from dollars 51.3 billion on May 11, 2013 to $ 64.1 billion. The equity market performance is reflective of how the listed companies are doing in terms of financial health and their future outlook. He strongly urged all financial market stakeholders including commercial banks , development finance institutions , the securities industry , insurance companies and pension funds and the asset management industry to help develop the Government securities segment of the debt capital market so that savers and investors both domestically and internationally can participate in it with ease and convenience.
For individual savers and investors, this is an excellent opportunity to invest in Government of Pakistan debt securities which provide both superior return as well as higher liquidity than many comparable maturity financial instruments. Inclusion of Government securities in the individual saver’s investment portfolio also reduces volatility in portfolio value.
He underlined the to find ways around the fundamental gaps in the capital markets such as the lack of full range of financial instruments for risk mitigation.
The trading or government bonds will address some of the issues such as limited market liquidity and development of derivate market to address some of the local currency risks.
Dar said that he was looking forward for the issuance of infrastructure bonds by private and public sectors – both in the conventional and Shariah compliant modes – through the capital market so that investors can participate in building up of Pakistan’s infrastructure backbone.
Chairman KSE, Muneer Kamal thanked the Finance Minister for his continued support in making wider trading of Government securities a reality.
He also appreciated that the guidance and support from Securities Exchange Commission of Pakistan (SECP) State Bank contributed in timely completion of this project.
Managing Director KSE , Nadeem Nqvi earlier gave a presentation on the benefits of investing in Government securities for the individual investor and highlighted the procedure for investing in Government securities.