ADB to Release $300 Million Loan to Develop Capital Markets in Pakistan

The Concept Clearance Proposal of ‘Third Capital Market Development Program (CMD)(Subprogram-2),’ funded by Asian Development Bank(ADB), has received the approval of the Planning Commission, paving the way for the disbursement of the second tranche of the $300 million loan from the Bank.

According to the program documents available with ProPakistani, the entire cost of the program will be funded by the Asian Development Bank’s loan, amounting to $300 million. The programmatic approach was approved in 2020, covering subprogram-1 and indicative actions for subprogram-2.

The program supports the design and implementation of structural reforms necessary to create a competitive capital market and promote private investment in the country.

The program will strengthen market stability, enhance market facilitation and supply-based measures, and improve demand-based measures, for capital market development.

The concept of the Third Capital Market Development Program (CMD) (Subprogram-1) was cleared by the concept clearance committee in its meeting held on 20th May 2020 at an estimated cost of $300 million as a loan from the Asian Development Bank for budgetary support to enable the Government of Pakistan to finance critical COVID-19 related expenditure.

The third Capital Market Development Program consists of a sovereign Stand-Alone Policy-Based loan from ADB’s ordinary capital resources amounting to $600 million and is divided into two subprograms each, comprising $300 million. The loan amount of $300 million under subprogram-1 has already been disbursed.

Under the first phase of the program, the Government has introduced a number of reforms, i.e., approval of the amended SECP Act, 1997, by the Cabinet to enhance SECP’s operational efficiency, and establishment of the National Finance Stability Council to improve inter-agency policy coordination. The proposed second subprogram is part of the “Third Capital Market Development Program” policy-based loan of ADB amounting to $300 million.

The objectives and results targeted by the project state that under the phase-I of the program, a programmatic approach was adopted that deepens and broadens Pakistan’s capital market by developing the government yield curve and promoting a more liquid government bond market, enhancing institutional investor demand by boarding, deepening and diversifying the investor base, strengthening of the institutional and regulatory capacity of the SECP, the DMO, and the Audit Oversight Board, developing important market infrastructure, such as a new surveillance system and a trading system for bonds, and enhancing the supply of alternative financing instruments such as derivatives and gender bonds.

Subprogram-2 will broaden and deepen Pakistan’s Capital market through reform and policy interventions. It is a continuation of subprogram-1. Subprogram-1 had 16 policy actions, which were achieved. The program builds on these lessons to introduce a holistic set of sequenced reform measures through a programmatic approach that deepens and broadens Pakistan’s capital markets, the documents reveal.

The program is based on a 40-month payback plan (September 2020 to December 2023). As per the estimated cost, the documents reveal that the sovereign Stand-Alone Policy-Based loan from ADB’s ordinary capital amounting to $300 million equates to Rs. 51.123 billion (i.e., $1=Rs. 170.41) .

The loan from ADB’s ordinary capital resources is in concessional terms, with an interest charge at the rate of 2 percent per year and a term of 25 years, including a grace period of 5 years. The repayment schedule is bi-annual at principle payments of $7.5 million every six months.

The proposal is submitted for the consideration of the CDWP/CCC.