Financial Markets of Pakistan

“Capital Market and

Impact on Economy of
Pakistan:"
Pakistan’s fixed-income securities markets are only partly developed by
developed country standards. They currently comprise markets in
government securities and corporate bonds. There are no real markets for
short-term bank bills, certificates of
deposit, or commercial paper in Pakistan. Nor are there any futures
exchanges. Furthermore, the government securities market does not
provide efficient market signals for pricing corporate debt securities.
Hence the challenge for policymakers is to provide a more supportive and
consistent economic policy environment, improve
governance standards, improve the rule of law as it applies to the capital
markets, introduce new debt instruments and improved market
practices, establish real-time market infrastructure, and improve
education services for debt market participants.

The capital market in Pakistan consists of three stock exchanges located in three
major cities, i.e.

• Karachi.(KSE),

• Lahore(LSE)

• Islamabad(ISE).

The principal securities traded on these exchanges are ordinary shares.

However, other securities such as mutualfund certificates, modaraba
certificates, government and corporate bonds, are also being traded. A
number of listed companies have also offered TFC’s.666 companies were listed
at KSE (which is the main Stock Exchange) as at 30 June 2004.In order to
th

facilitate corporate debt financing, the Government has taken a number of

measures. Amongst them, the foremost being the framing of rules for the
establishment of Credit Rating Agencies. The rules have facilitated the
establishment of Credit Rating Agencies and presently, there are following two
credit rating agencies in the country:
Pakistan Credit Rating Agency (PACRA)
 JCR-VIS Credit Rating Company Limited
A company intending to issue any debt instrument to general public is required to
obtain a credit rating from one of the approved credit rating companies.

“DEBT MARKET IN PAKISTAN”

In recent years, the economies of the Asian region have been growing rapidly, at about
twice the global average. International cash generation and commercial banks have
traditionally financed most of this growth, but the equity markets have developed to a
stage where they now provide significant sources of financing as well. In fact, several
Asian markets despite the current crisis are now among the largest in the world.

The bond market in Pakistan: covers debt and debt like securities
issued by the government, statutory corporations and corporate entities. As of June 30,
1995, the size of the Pakistani bond market was approximately Rs. 811.3 billion, the
equivalent to US$ 26.2 billion or about 43% of the country's GDP. While this may seem a
fairly large amount, its size largely reflects the cumulative effects of financing Pakistan's
continuing budget deficits, as government securities are auctioned, they have not yet
emerged as effective benchmarks.
Pakistan economy has been growing at a steady rate. Starting at a low level of
development, the equity market in Pakistan has registered phenomenal growth in terms
of the size of the market and institutional development but the fixed income securities
market has not developed as quickly. At around 15 percent of GDP, Pakistan's savings
rate is one of the lowest among developing Asian economies

Impact on Economy of
Pakistan:

• In spite of this, domestic capital markets do not yet play a significant role
in economy. In 2005, for instance, Pakistan companies issued about $68
million equivalent in new capital. This compares to $3.7 billion in Thailand,
$2 billion in Malaysia and $1 billion in Indonesia.
• The major developments of the capital market in Pakistan are: Karachi
Stock Exchange has introduced a state-of-the-art computerized trading
system known as KATS, abolishing the open-cry out system, to provide a
fair, transparent, efficient and cost effective market for the investors.
• KSE has been well into the 3rd year of being one of the Best Performing
Markets of the world as declared by the international magazine ‘Business
Week’. According to its website, the US newspaper, USA Today, termed
KSE as one of the best performing bourses in the world.

• To Strengthen Pakistan’s Economy SECP has decided to constitute an

Expert Committee comprising of national and international securities
market experts with the object of formulating a comprehensive plan for
demutualization and integration of the three stock exchanges in Pakistan

HOW to improve Capital Market of Pakistan:

• Improve the efficiency of the capital market based on solid

governance standards by undertaking a comprehensive review of
the current system and recommending strategic changes;
• Enhance stakeholders' understanding of the dynamics of
corporate governance through exposure to international best
practices and knowledge sharing .
• Strengthen the capacity of the regulator to promote good
corporate governance in the capital market.
 “Comparison between Pakistan and India’s Economy”
Pakistan
Pakistan is a nation with a diverse economy that
include textiles, chemicals, food processing,
agriculture and other industries. It is the 25th largest
economy in the world and is currently on the verge of
getting default.
The basic unit of currency is the Rupee
1 Pakistani Rupee (PKR) = 100 Paise
Inflation by 2008, following the surge in global
petrol prices inflation in Pakistan has reached as high
as 25.0%.
Pakistan government spent over 1 trillion Rupees
(about $16.7 billion) on poverty alleviation
programs during the past four years, cutting poverty
from 35 percent in 2000-01 to 24 percent in 2006.[14]
Rural poverty remains a pressing issue, as
development there has been far slower then in the
major urban areas
Opportunities and threats for
foreign investors:
India
The economy of India, measured in USD exchange-
rate terms, is the twelfth largest in the world, with a
GDP of around $1 trillion (2008).[3] It recorded a
GDP growth rate of 9.1% for the fiscal year 2007–
2008 which makes its growth the second fastest
among emerging economies in the world, after China
The basic unit of currency is the Indian Rupee
1 Indian Rupee = 100 Paise
Inflation by 2008 is 12.01%
According to the new World Bank's estimates on
poverty based on 2005 data, India has 256 million
people, 21.6% of its population, down from 60% in
1981 living below the new international poverty line
of $1.25 (PPP) per day
• Opportunities:
• Pakistan's money and bond markets and making them more attractive to
foreign investors. debt management policies were formulated in 1991 and
debt management through the use of indirect monetary tools was
introduced. The TAP system was removed and the debt auction
programme was introduced.

• Govt. Support
• Easy to get License
• Pakistan is the Member of WTO
• The participants in the interbank market are commercial banks and Development
Financial Institutions (DFIs) while the participants in the open market are
commercial banks, Development Financial Institutions (DFIs), regional banks,
corporate bodies, securities houses, leasing companies, insurance companies,
investment companies and individuals

• Threats for foreign

investors:
• The biggest risk factor for foreign investors is the foreign exchange rate
risk

• Then there is inflationary pressure. A rise in inflation erodes the

purchasing power of the PKR, leading to the scenario where more rupees
would have to be invested to reap the same amount of profit.

• leading to upward revision of prices

• Uncertainty

• No checks on petroleum prices according to world’s market

• Threat of terrorism