ADB is helping Pakistan develop well-functioning capital markets, particularly in equity and long-term debt. The program includes a range of policy and regulatory reforms to increase the supply of and demand for securities, such as shares and bonds, and strengthen securities market oversight.
| Project Name | Second Generation of Capital Market Reform Program | ||||||||
| Project Number | 41108-013 | ||||||||
| Country | Pakistan |
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| Project Status | Closed | ||||||||
| Project Type / Modality of Assistance | Loan |
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| Source of Funding / Amount |
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| Strategic Agendas | Inclusive economic growth |
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| Drivers of Change | Governance and capacity development |
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| Sector / Subsector | Finance - Money and capital markets |
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| Gender Equity and Mainstreaming | No gender elements | ||||||||
| Description | The impact of the proposed Program will be enhanced economic growth through a more efficient and balanced financial system. The Program_s outcome will be increased resource mobilization through the capital market for productive investment and employment generation by providing efficient savings vehicles for retail and institutional investors and diversify funding sources for enterprises. This diversification of funding sources will also make the corporate and financial sector more resilient to shocks. The Program will: (i) support the development of institutional investors to facilitate long-term capital formation and increase the demand for securities, (ii) improve the efficiency of securities markets to increase the supply of corporate securities and optimize the allocation of financial resources into productive investment, and (iii) strengthen the governance of capital markets to improve market transparency and protect investors. |
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| Project Rationale and Linkage to Country/Regional Strategy | ADB has been supporting financial sector development in Pakistan since 1995 when the Financial Sector Intermediation Loan (FSIL) was approved. While this loan included a small capital market component (it focused on banking), only the Capital Market Development Program (CMDP), approved in 1997 together with a TA loan for capacity building, initiated comprehensive capital market reforms. CMDP was broad based and touched on all integral components of the capital market. According to its Performance Audit Report, CMDP was successfully implemented and produced concrete results. This included (i) establishment of SECP, (ii) modernized stock exchange infrastructure, (iii) full operationalization of automated trading and the central depositary system, (iv) establishment of a national clearing and settlement system, (v) liberalization of mutual fund investment policies and harmonization of taxation for private and state-owned mutual funds, and (vi) establishment of basic regulatory frameworks for insurance, leasing, and asset backed securities. Building on the CMDP agenda, ADB approved the Financial (Nonbank) Markets and Governance Program (FMGP) in 2002. The Program consisted of a program loan, a political risk guarantee facility, and two TA loans aimed at strengthening (i) pension, insurance, and savings systems and (ii) regulation, enforcement, and governance of nonbank financial markets. Key achievements of FMGP include: (i) improved SECP capacity in the area of on-site and off-site inspections; (ii) establishment of regulatory frameworks for money markets and futures; (iii) strengthened disclosure and governance requirements for listed companies and nonbank financial institutions (iv) establishment of professional standards for accountants and auditors, (v) establishment of a legal framework for demutualization of stock exchanges (v) harmonization of the tax treatment of government and corporate bonds; and (vi) privatization of state-owned enterprises through the stock exchange. However, the FMGP had a number of complex amendments to financial sector laws, which have been considerably delayed, and covered a broad range of issues in various subsectors. The Government has proposed to ADB that the remaining amount under the second tranche of FMGP following release of the incentive tranche in September 2005 be cancelled, and key reform measures included under FMGP be pursued through the proposed Program. In line with the request, ADB cancelled the pending tranche of $80 million in May 2007. This approach takes into account the significant changes that occurred in the Pakistan's financial sector since FMPG was approved in 2002 and focused on addressing a smaller number of key binding constraints for capital market development. The Program supports a second generation of capital market reforms, building on key achievements made under CMDP and FMGP. |
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| Impact | More sustainable economic growth through improved financial sector intermediation | ||||||||
| Project Outcome | |
|---|---|
| Description of Outcome | A more efficient and more balanced financial sector |
| Progress Toward Outcome | second tranche release towards achieving the outcome |
| Implementation Progress | |
| Description of Project Outputs | Enabling environment for private pension funds established Development of domestic institutional investors supported Corporate bond market development facilitated Increased equity market breadth and reduced volatility Institutional framework for sector supervision strengthened Governance of securities markets, market professionals, and issuers strengthened |
| Status of Implementation Progress (Outputs, Activities, and Issues) | Second tranche released 30 June 2011. Loan is financially closed. |
| Geographical Location | Pakistan |
| Safeguard Categories | |
|---|---|
| Environment | C |
| Involuntary Resettlement | C |
| Indigenous Peoples | C |
| Summary of Environmental and Social Aspects | |
|---|---|
| Environmental Aspects | |
| Involuntary Resettlement | |
| Indigenous Peoples | |
| Stakeholder Communication, Participation, and Consultation | |
| During Project Design | The Government requested ADB to support its renewed capital market development initiative in continuation of past assistance provided by ADB. |
| During Project Implementation | The Government has established the Program Coordination Unit in the Ministry of Finance to coordinate program implementation. The Program Coordination Unit will cooperate closely with the Securities and Exchange Commission of Pakistan (SECP) and the Ministry of Privatization, which are the implementing agencies. |
| Business Opportunities | |
|---|---|
| Consulting Services | n/a |
| Procurement | The loan proceeds will be used to finance the foreign exchange cost of items produced and procured in ADB member countries, other than the items specified in the negative list of ineligible items and imports financed by other bilateral and multilateral sources. |
| Responsible ADB Officer | Conrad, Jurgen F. |
| Responsible ADB Department | Central and West Asia Department |
| Responsible ADB Division | Public Management, Financial Sector and Trade Division, CWRD |
| Executing Agencies |
Ministry of Economic Affairs and Statistics Room 316, Block C Secretariat Building Islamabad, Pakistan |
| Timetable | |
|---|---|
| Concept Clearance | 02 Aug 2005 |
| Fact Finding | 06 Mar 2007 to 19 Mar 2007 |
| MRM | 20 Apr 2007 |
| Approval | 31 Jul 2007 |
| Last Review Mission | - |
| PDS Creation Date | 15 May 2007 |
| Last PDS Update | 26 Sep 2011 |
Loan 2340-PAK
| Milestones | |||||
|---|---|---|---|---|---|
| Approval | Signing Date | Effectivity Date | Closing | ||
| Original | Revised | Actual | |||
| 31 Jul 2007 | 15 May 2008 | 13 Jun 2008 | 30 Jun 2009 | 30 Jun 2011 | 12 Jul 2011 |
| Financing Plan | Loan Utilization | ||||
|---|---|---|---|---|---|
| Total (Amount in US$ million) | Date | ADB | Others | Net Percentage | |
| Project Cost | 400.00 | Cumulative Contract Awards | |||
| ADB | 400.00 | 31 Jul 2007 | 400.00 | 0.00 | 100% |
| Counterpart | 0.00 | Cumulative Disbursements | |||
| Cofinancing | 0.00 | 31 Jul 2007 | 400.00 | 0.00 | 100% |
TA 4956-PAK
| Milestones | |||||
|---|---|---|---|---|---|
| Approval | Signing Date | Effectivity Date | Closing | ||
| Original | Revised | Actual | |||
| 31 Jul 2007 | 06 Sep 2007 | 06 Sep 2007 | 31 Jan 2010 | 30 Sep 2010 | - |
| Financing Plan/TA Utilization | Cumulative Disbursements | |||||||
|---|---|---|---|---|---|---|---|---|
| ADB | Cofinancing | Counterpart | Total | Date | Amount | |||
| Gov | Beneficiaries | Project Sponsor | Others | |||||
| 1,000,000.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 1,000,000.00 | 31 Jul 2007 | 283,658.77 |
Project Data Sheets (PDS) contain summary information on the project or program. Because the PDS is a work in progress, some information may not be included in its initial version but will be added as it becomes available. Information about proposed projects is tentative and indicative.
The Public Communications Policy (PCP) recognizes that transparency and accountability are essential to development effectiveness. It establishes the disclosure requirements for documents and information ADB produces or requires to be produced.
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| Title | Document Type | Document Date |
|---|---|---|
| Second Generation of Capital Market Reform Program | Project/Program Completion Reports | Nov 2012 |
| Second Generation of Capital Market Reform Program (Second Tranche) | Progress Reports on Tranche Releases | Jun 2011 |
| Loan Agreement for Second Generation of Capital Market Reform Program between Islamic Republic of Pakistan and Asian Development Bank dated 15 May 2008 | Loan Agreement (Ordinary Resources) | May 2008 |
| Second Generation of Capital Market Reform Program | Reports and Recommendations of the President | Jul 2007 |
Safeguard Documents See also: Safeguards
Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.
None currently available.
Evaluation Documents See also: Independent Evaluation
| Title | Document Type | Document Date |
|---|---|---|
| Pakistan: Second Generation of Capital Market Reform Program | Validations of Project Completion Reports | May 2014 |
Related Publications
None currently available.
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