Secondary market trading of govt debt securities through KSE

Wednesday, 19 February 2014

The Finance Minister Mohammad Ishaq Dar launched the secondary market trading of Government debt securities through Karachi Stock Exchange’s Bond Automated Trading System (BATS). The Finance minister stated that this is the first time investing and trading in Government securities through the capital market has been initiated.

Elaborating on the need for a deep capital market, he said that Pakistan’s economic growth has remained below potential for more than a decade because the focus of policies has been on consumption-led growth while sustainable high economic growth can only be achieved when it is investment-led growth. That is the focus of his Government. Mr. Ishaq Dar said that even when he was in the opposition he always voiced his concern that consumption led growth was unsustainable and it put even more burden on the economy.
The Finance Minister pointed out that investment-led growth entailed building up the basic infrastructure of the country, which was in dire need of improvement. Investment was essential for the development of the energy sector (from upstream oil, gas and coal exploration & production, hydel-power, alternative energy development to power generation & distribution), transport sector, (land, air & sea), mineral resource development, information and telecommunications infrastructure, agri & rural development, urban renewal and industrial infrastructure.

Ishaq Dar said that these are mega-scale, core development initiatives that required large, long term financing to the tune of US dollars 6-7billion per annum for the next ten years or so. It is therefore important to develop a broad spectrum of long-term funding sources. He noted that while the public equity market in Pakistan is reasonably well developed, the debt capital market is not.

The Finance Minister highlighted that the equity market in Pakistan has shown consistent superior performance in recent years. From May 2013 till now, the KSE-100 Index has increased by 30% while the market capitalization has risen from US$50.33bn on May 11, 2013 to US$61.32bn on February 14, 2014. The equity market performance is reflective of how the listed companies are doing in terms of financial health and their future outlook. On both counts the major listed companies’ performance underpins the stock market’s overall behavior.

Pointing out that several international agencies have noted Pakistan as the next most attractive investment destination despite the current problems actually reflected that the world viewed Pakistan’s potential positively. Looking forward, he said, that trading of Pakistan Investment Bonds (PIB’s) and Ijara Sukuks would be initiated soon and in the very future, the Government intended to issue infrastructure bonds – both in the conventional and Shariah compliance mode – through the capital market so that investors can participate in building up of Pakistan’s infrastructure backbone. In this regard he revealed that the Government is planning to set up a Pakistan Infrastructure Fund as a central point for future long term infrastructure funding.

Ishaq Dar stated that for individual savers and investors, this new venue to deploy savings is an excellent opportunity to invest in Government of Pakistan debt securities which provide both superior return as well as high liquidity than many comparable maturity financial instruments. Inclusion of Government securities in the individual saver’s investment portfolio also reduces volatility in portfolio value.

The Finance Minister congratulated everyone who worked so hard to make this project a reality. He greatly appreciated the role of the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan who supported the regulatory framework approval in a timely manner and especially noted with thanks the support and efforts that Bank Al-Falah provided to the implementation team in terms of technical aspects of the project. The Finance Minister thanked the Chairmen and Board of Directors of the Karachi Stock Exchange and the Central Depository Company as well as their respective managements for undertaking and successfully implementing this project