In June 2006, the Dept Capital Market Committee (DCMC) was formed by the Securities and Exchange Commission

of Pakistan to help identify the major factors that have hindered the development of a comprehensive, broad based debt market in the country. While Pakistan has seen growth in the securities market, the debt market continues to be neglected. Our Financial Asset to GDP ratio stands at a mere 100 % as compared to the global average of 315%. This low level of leverage reflects poorly on the growth and vibrancy of our economy that needs an efficient debt market in order to flourish. For this purpose the DCMC was handed the task of coming up with a strategy to expand the debt market and make it the preferred choice for investors. One of the major reasons for the slow growth of the debt market is the absence of a fixed benchmark interest rate on standard, government issued debt securities. Without the existence of this rate, it is difficult for a long term debt market to function as interest rates on long term FAs are usually based on the risk free rate. The DCMC proposed that it be vital for the GOP to improve its debt management structure so that it can be viewed as a strong and frequent borrower. The basic requirements for this would be to stop the artificial suppression of government debt yield by increasing the supply of government bonds, making them more predictable and attracting a reliable network of institutional investors. This enhanced image would fuel growth on the supply side encouraging corporations to issue bonds and long term debt securities. Only when there are assets available to invest in can the institutional investor base (consisting of mutual funds, asset management companies, pension funds) be expanded. The National Saving Scheme is another factor that hampers the growth of an efficient debt market in Pakistan. The products that the NSS offers are at highly subsidized rates, making it difficult for comparable market securities to compete. Apart from this, the second biggest reason for the problem at hand is the minimal supply of corporate bonds. Corporations rely mostly on bank loans to meet their debt requirements. In order to encourage private investment, credit rating agencies need to be developed to provide confidence in the credit worthiness of corporate bonds and banks role as the intermediaries between investors and corporations should be eliminated. Corporations should also be encouraged to raise capital through the debt market and this can be done by improving the TFC pricing process and removing red tapism in the issuance process.