ISLAMABAD: The government has unveiled a strategic action plan to strengthen Pakistan’s local currency bond market as part of reforms linked to the ongoing International Monetary Fund (IMF) programme.
The plan aims to develop a deeper, more liquid and diversified market for government securities and eventually corporate securities denominated in Pakistani rupees.
The announcement came after Finance Minister Muhammad Aurangzeb held a kick-off meeting with an IMF staff mission led by Iva Petrova. The mission is reviewing Pakistan’s progress under the IMF programmes, with successful completion potentially paving the way for around $1.2 billion in financing.
The amount includes about $1 billion under the Extended Fund Facility (EFF) and $200 million under the Resilience and Sustainability Facility (RSF).
Under the new plan, the general public would be allowed to trade exchange-listed government securities, including treasury bills and bonds, through banks. The trading mechanism will operate under the supervision of the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Pakistan Stock Exchange (PSX) and Central Depository Company (CDC).
According to the government, commercial banks currently hold around 78% of government securities, while sovereign paper represents nearly 62% of banking-sector assets. The heavy concentration limits market trading and reduces banks’ capacity and incentives to provide financing to the private sector.
The IMF-World Bank diagnostic study found that Pakistan has established much of the institutional framework needed for a local currency bond market, but market performance remains weaker than that of larger emerging economies.
The strategic plan focuses on improving primary-market predictability, increasing secondary-market liquidity and expanding the investor base. It also seeks to strengthen market infrastructure and remove legal and tax barriers affecting securities trading and secured financing.
The government will work on a benchmark issuance policy and improve its medium-term debt strategy to make government borrowing more predictable and market-based.
The plan also includes developing a functioning repo market, broadening participation among institutional, retail and foreign investors, and introducing a securities-lending facility for primary dealers.
The Ministry of Finance and SBP will review the primary dealer framework for fiscal year 2027-28, with secondary-market performance to be considered in the evaluation.
