Pakistan: Third Capital Market Development Program (Subprogram 2)

Sovereign Project | 53221-003

The program supports the design and implementation of structural reforms necessary to create a competitive capital market and promote private investment in the country and is anchored in an overall government approved Capital Market Development Plan and Vision 2025 government agenda for Pakistan. The program is in line with the Asian Development Bank (ADB) Strategy 2030 and country partnership strategy for Pakistan, 2021 2025. The program will (i) strengthen market stability, (ii) enhance market facilitation, (iii) enhance supply-based measures, and (iv) improve demand-based measures for capital market development. It also fits in the framework of the $6 billion International Monetary Fund (IMF) Extended Fund Facility (EFF) program approved on 3 July 2019 to facilitate improved macroeconomic management. The EFF program includes recommendations for finance sector reforms that focus on deepening access to finance, implementing a sound debt management strategy, and supporting private sector development.

Project Details

  • Project Officer
    McCartney, Andrew C.
    Central and West Asia Department
    Request for information
  • Country/Economy
    Pakistan
  • Sector
    • Finance
Project Name Third Capital Market Development Program (Subprogram 2)
Project Number 53221-003
Country / Economy Pakistan
Project Status Closed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 4176-PAK: Third Capital Market Development Program (Subprogram 2)
Concessional ordinary capital resources lending US$ 300.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Sector / Subsector

Finance / Finance sector development

Gender Equity and Mainstreaming Effective gender mainstreaming
Description The program supports the design and implementation of structural reforms necessary to create a competitive capital market and promote private investment in the country and is anchored in an overall government approved Capital Market Development Plan and Vision 2025 government agenda for Pakistan. The program is in line with the Asian Development Bank (ADB) Strategy 2030 and country partnership strategy for Pakistan, 2021 2025. The program will (i) strengthen market stability, (ii) enhance market facilitation, (iii) enhance supply-based measures, and (iv) improve demand-based measures for capital market development. It also fits in the framework of the $6 billion International Monetary Fund (IMF) Extended Fund Facility (EFF) program approved on 3 July 2019 to facilitate improved macroeconomic management. The EFF program includes recommendations for finance sector reforms that focus on deepening access to finance, implementing a sound debt management strategy, and supporting private sector development. The program also contributes to EFF implementation and sustainability since it develops alternative sources of access to finance (i.e., capital markets), supports sound debt management and government bond market development, and helps mobilize financial resources to private investment.
Project Rationale and Linkage to Country/Regional Strategy The Pakistan economy has started to show signs of recovery, posting a gross domestic product (GDP) growth rate of 3.94% in fiscal year (FY) 2021. The coronavirus disease (COVID-19) pandemic adversely impacted the economy in 2020, prompting a revision of the GDP forecast from a pre-pandemic growth projection of 2.6% to a contraction of 0.5% in FY2020. The government managed the pandemic response by enhancing the disease surveillance and response system, designating health facilities for COVID-19 patients, and initially imposing a partial lockdown in March 2020, which was gradually eased from May 2020 and replaced with localized lockdowns. The Ministry of National Health Services, Regulations, and Coordination also developed the National Deployment and Vaccination Plan with an implementation cost of $1,950 million. As of 28 August 2021, 39.95 million persons had been vaccinated, including 15.27 million fully vaccinated. On the back of this recovery, the government is targeting 4.8% growth in FY2022. To support this, the federal budget for FY2022 includes measures to revive industrial growth and engage the private sector through fiscal and other incentives to support higher economic growth. The budget also introduces tax reforms rationalizing a series of withholding taxes and capital gains tax as well as promoting digital transactions. ADB is satisfied with the direction of macroeconomic conditions and policies, because the government continues to advance the reform agenda in key areas, including central bank autonomy and capital markets, taxation, management of state-owned enterprises (SOEs), and the power sector. Both demand and supply side have contributed to economic growth, and the debt outlook remains stable. However, the economy remains vulnerable, and investment rates have remained very low (an estimated 15.2% of GDP in FY2021). Underdeveloped capital markets have contributed to the ineffective mobilization of savings, leading to a wide saving investment gap. Banks' own credit origination capacity was hampered by ineffective role of Pakistan's capital markets, and the economy remained dependent on volatile foreign capital. The development of domestic capital markets can have the benefit of increasing the government's access to local currency financing by issuing debt through domestic open-market operations and thereby help manage foreign exchange risk and inflation better.
Impact
Project Outcome
Description of Outcome
Progress Toward Outcome
Implementation Progress
Description of Project Outputs
Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location Nation-wide
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
During Project Implementation
Responsible ADB Officer McCartney, Andrew C.
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
Ministry of Finance
Q-Block, Finance Division,
Pak Secretariat, Red Zone, Islamabad,
Pakistan
Timetable
Concept Clearance 11 Dec 2022
Fact Finding 01 Jul 2021 to 29 Jul 2021
MRM 20 Sep 2021
Approval 22 Mar 2022
Last Review Mission -
Last PDS Update 22 Mar 2022

Loan 4176-PAK

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
22 Mar 2022 25 Mar 2022 25 Mar 2022 30 Jun 2022 - 30 Jun 2022
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 300.00 Cumulative Contract Awards
ADB 300.00 14 Jul 2022 300.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 14 Jul 2022 300.00 0.00 100%

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