THE plan to deepen the domestic local currency bond market by allowing the public to trade government securities through the stock market should help address a weakness long concealed by the sovereign’s easy access to bank borrowings.
asserted
public → deepen → borrowings
Pakistan’s large government securities market lacks the depth and diversification needed to allow securities to be widely held, actively traded and efficiently priced.
asserted
securities → lack → depth
Banks, holding about 78pc of government securities with sovereign paper accounting for roughly 62pc of their assets, have therefore little reason to seek ‘riskier’ private borrowers.
asserted
Banks → hold → borrowers
Consequently, small firms, farmers and potential homebuyers struggle to obtain credit.
asserted
firms → struggle → credit
The proposed reforms recognise this structural weakness.
asserted
reforms → propose → weakness
More predictable and market-based issuance, greater secondary-market liquidity, a functioning repo market and a broader investor base are all necessary.
asserted
issuance → base → ?
Allowing individuals to trade exchange-listed government securities through their banks should also improve access and price discovery.
asserted
individuals → allow → access
But can the reforms change how the market works?
asserted
market → change → ?
That requires breaking the banks’ dominance.
asserted
That → require → dominance
Pension funds, insurance companies, mutual funds, retail investors, and eventually, foreign investors must become bigger participants.
asserted
investors → become → ?
They need both access and incentives to hold and trade rupee securities.
asserted
They → need → securities
Primary dealers should have incentives to make markets rather than merely participate in government auctions.
asserted
dealers → have → auctions
The proposed review of the primary-dealer framework and securities-lending facility could help.
uncertain
review → propose → framework
The IMF should push this logic further.
asserted
IMF → push → logic
The government must borrow less from commercial banks.
asserted
government → borrow → banks
Reducing bank borrowing would force greater reliance on actual market financing, creating room for banks to lend to productive private activity.
asserted
banks → reduce → activity
The market should also be broadened beyond government debt.
asserted
market → broaden → debt
The government could require SOEs to raise at least one-third of all future local currency borrowing through bonds.
uncertain
government → require → bonds
This would create more issuers, diversify instruments and maturities, and expose SOE borrowing to greater market scrutiny.
asserted
This → create → scrutiny
Demand can be boosted through targeted tax incentives for investors holding local currency bonds issued by SOEs and private companies.
asserted
Demand → boost → SOEs
Such incentives should encourage longer-term investment.
asserted
incentives → encourage → investment
Further, transparently priced government securities across maturities can provide benchmarks against which private companies price their own debt.
asserted
companies → price → debt
Over time, this could reduce the economy’s overreliance on bank lending.
uncertain
this → reduce → lending
That said, the government must avoid treating the bond market reform as a way to finance itself more easily.
asserted
government → say → itself
A deeper market should reduce refinancing risks, improve monetary policy transmission and redirect savings to productive investment.
asserted
market → reduce → investment
The measure of success cannot be the number of bonds issued.
asserted
measure → issue → bonds
It must be who buys them, how actively they trade, how liquid the market becomes and whether businesses have better access to long-term capital.
asserted
businesses → buy → capital
The Aporia
