Independent Evaluation

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Evaluation on the Capital Market Development Program Loan in Pakistan
Completed: 2005

Economic instability characterized by balance of payment and fiscal imbalances marked the economy of Pakistan in early 1990s and remained unabated until 1996. Following the dismissal of former Prime Minister Benazir Bhutto in November of that year, the new Government quickly prepared a comprehensive stabilization and structural adjustment program that included banking and capital market reform.

The Capital Market Development Program (for $250 million approved in November 1997) supported the capital market reforms pursued by the Government at that time. The Program was designed to develop the securities market that would facilitate the efficient allocation of resources in the economy and help broaden and deepen the financial sector, besides providing alternative sources of funding to the industry, which had traditionally relied on Government directed credit. It was in line with ADB's country operational strategy of which supporting capital market reform was one.

The Program was evaluated against the outcome of accelerating the mobilization of long-term resources and improving the efficiency of its allocation through a diversified and competitive capital market encouraging broad-based participation of issuers and investors. The evaluation was carried out bearing in mind seven program components:

• Enabling policy environment
• Strengthened securities market governance, institutions, regulation and supervision
• Improved and modernized market infrastructure
• Developed corporate debt market
• Reformed mutual fund industry
• Developed leasing industry
• Contractual savings in the insurance sector, pension and provident funds

Summary of Findings

• Overall, the Program was rated successful on the basis of separate assessments made for each of the components. Five program components were rated satisfactory while two were rated partly satisfactory. These were the development of the corporate debt market and the promotion of contractual savings through reforms of the insurance sector, and pension and provident funds.



• The Program was rated 'highly relevant'. The key implementing agency had strong ownership of reforms, ADB processing missions had enough knowledge of the country and had extensive dialogues and broad consultations with the concerned agencies and stakeholders, program purpose was consistent with the country's development priorities, program loan was appropriate, and policy matrix was comprehensive, cohesive, and realistic containing appropriate number of program measures.



• The Program was rated 'efficacious' as the performance indicators suggested largely satisfactory achievement of the Program purpose. Forty-six out of 58 policy conditions were fully complied with.



• The Program was rated 'highly efficient' mainly because the program effects met the expectations of the Government and stakeholders, and that the interagency coordination, monitoring and reporting, policy dialogues and ADB disbursements were considered appropriate.



• The Program was rated 'likely sustainable' due to Government's continued commitment and stakeholders' support for the program achievements.

Lessons Identified

• Demutualization could apply to other developing countries pursuing capital market governance reforms depending on the ownership and management structure of their stock exchanges.



• Ownership and leadership of the key implementing agency supported by a favorable political economy and effective policy dialogues drove the Program to success.



• Realistic and consistent timelines best accompany complementing TAs/TA loans and programs/projects.