THE DEVELOPMENT OF DEBT SECURITIES MARKET
COUNTRY EXPERIENCE OF PAKISTAN
MS. UZMA KHALIL
STATE BANK OF PAKISTAN
SEACEN-WORLD BANK SEMINAR ON STRENGTHENING THE DEVELOPMENT OF DEBT SECURITES MARKET
JUNE 08-JUNE 10, 2004
The bond market in Pakistan is comprised of debt and debt like securities issued by a) the Government; b) statutory corporations; and c) corporate entities. As of June 30th, 2003, the size of the Pakistan’s bond market was approximately Rs. 1,892 billion equivalent to USD 33billion. The bond market is clearly dominated by the Government, which accounted for Rs.1,852 billion (or 98%) of total bonds outstanding as of June 30th, 2003 followed by corporate entities Rs. 25 billion (1.32%) and statutory bodies Rs.15billion (0.79%). The following table shows the outstanding position of bond market during the period June 30th, 2003 as compared to June 30th, 1996. |Debt Instruments |FY2003 |FY1996 | | |Amt Rs. in mn |USD in mn |Amt Rs. in mn |USD in mn | |Government Debt |1,852,391 |31,938 |901,402 |15,541 | |Permanent Debt |427,908 | |223,788 | | |Floating Debt |516,268 | |421,742 | | |Un funded Debt |908,215 | |252,902 | | |Corporate Debt |25,000 |431.03 |1,000 |17.241 | |Statutory Corporation |15,000 |258.62 |13,400 |231.03 |
The secondary market trading volume in the Government bond market as measured by average daily turnover is approximately Rs. 20 bn which is 5% of the total outstanding debt.
Government Debt Securities
The Government of Pakistan has run large fiscal deficits over the last two decades. This has lead to the accumulation of a large domestic debt of Rs. 1,852 billion as at end June, 2003. Of this amount, permanent debt accounted for Rs. 427.908 bn (23 %), floating debt for Rs. 516.268 bn (28%) and un funded debt (the various saving schemes) for Rs. 908.215 bn.(49%) The large portion of floating and permanent debt has been raised through the auctions of short term Government of Pakistan Market Treasury Bills (MTBs) and long term Pakistan Investment Bonds (PIBs).
Characteristics of MTBs and PIBs
Market Treasury Bills (MTBs) are short-term instruments of Government borrowing having the following features: • Zero Coupon bonds sold at a discount to their face values • Issued in three tenors of 3-month, 6-month and 12-months maturity • Purchased by individuals, institutions and corporate bodies including banks irrespective of their residential status. • Can be traded freely in the country’s secondary market. The settlement is normally through a book entry system through Subsidiary General Ledger Accounts (SGLA) maintained by banks with State Bank of Pakistan (SBP). Physical delivery could be affected if required. • Profit is taxable at 20%
As at end June 2003, outstanding amount in MTBs was Rs 516.268 bn (USD 8.901bn) including MTBs created for replenishment of Govt. cash balances with SBP.
Pakistan Investment Bonds
After the suspension of auctions of the long term Federal Investment Bonds (FIBs) in June 1998, there was no long...
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