2010年-世界发展银行全球_Pakistan___Issues_Related_to_the_Government_Securities_Market_and_Government_Debt_Management_14页_612kb

Summary of PAKISTAN: Issues Related to the Government Securities Market and Government Debt Management

Core Content

This policy note outlines the current state and challenges of the government securities market in Pakistan, focusing on the primary market for wholesale instruments. It highlights the importance of the domestic market in funding both short-term and long-term government needs and discusses recommendations for improving market efficiency and effectiveness. The analysis covers key aspects such as issuance calendars, tenors, auction practices, secondary market dynamics, non-resident participation, and Islamic securities. Additionally, it provides an overview of the steps involved in formulating a medium-term debt management strategy.

Main Points and Key Information

I. Domestic Government Securities Market Overview

• The government borrows through various instruments: Market Treasury Bills (MTBs), Pakistan Investment Bonds (PIBs), and shariah-compliant sukuk.
• Non-market retail debt, such as National Savings Scheme (NSS) instruments, dominates the portfolio, though National Savings Bonds (NSBs) were introduced in 2010.
• The government has improved its market-based pricing and predictability in the past 18 months.
• The State Bank of Pakistan (SBP) plays a key role in auction processes, although recent changes have shifted auction decision-making to the Budget Wing in the Finance Division.

II. Key Issues in the Market

A. Issuance Calendar, Volumes, and Frequency

• The government has adopted a structured auction calendar for MTBs and PIBs, which improves planning and absorption of funding needs.
• The 7-year tenor for PIBs is recommended to be discontinued.
• The 15-, 20-, and 30-year tenors should be collapsed into a single point, such as 20 years.
• The government should re-open existing securities rather than launching new ones annually to improve liquidity and reduce fragmentation.

B. Tenors and Fragmentation of the Debt Stock

• The wide range of tenors leads to fragmentation of the debt stock, especially with PIBs.
• The secondary market for PIBs is thin, with limited outright sales and low turnover ratios.
• The relative weighting of MTBs and PIBs is skewed toward the short end of the yield curve, increasing interest-rate risk.
• A gradual reallocation from MTBs to PIBs is recommended to reduce risk while ensuring liquidity needs for commercial banks.

C. Auction Disclosure and Market Information

• Pakistan's auction disclosure practice is unique, with full transparency of bids, which is not common in other markets.
• Transparency is generally preferred, as it enhances market confidence and facilitates price discovery.
• There is a need for faster release of auction results to improve market efficiency.
• A government securities market handbook is being developed to consolidate information and improve accessibility.

D. Secondary Market

• The Bloomberg platform has improved price discovery and post-trade transparency.
• Despite these improvements, the secondary market remains thin, especially for PIBs.
• Repo transactions dominate, with MTBs accounting for the majority of trading volumes.
• Non-resident participation is negligible, due to macroeconomic instability and lack of promotion to non-residents.

E. Non-Resident Participation

• Non-resident investors are disinclined to participate due to economic uncertainty and currency exposure.
• The government should consider developing an investor-relations function to promote securities to both resident and non-resident investors.
• The taxation treatment for non-resident investors has been improved with a 10% withholding tax introduced in 2010/11.

F. Islamic Securities

• There is strong demand for shariah-compliant sukuk, though the Islamic banking sector is still small.
• The government should gradually increase the volume of Islamic securities to minimize fragmentation.
• Suitable assets for hypothecation are needed to support future issuance.
• Currently, there is no primary dealer system for sukuk, and secondary trading is minimal.

Recommendations

• Continue the practice of publishing and adhering to an auction calendar for MTBs and PIBs.
• Introduce an auction calendar for sukuk to improve predictability.
• Issue to pre-announced target volumes to enhance credibility and efficiency.
• Discontinue the 7-year tenor and collapse the 15-, 20-, and 30-year tenors into one.
• Re-open existing securities rather than launching new ones annually.
• Gradually reallocate issuance from MTBs to PIBs to reduce interest-rate risk.
• Streamline the approval process for auction results to be released within one hour.
• Transfer auction coordination to the Debt Policy Coordination Office (DPCO).
• Complete the preparation of the government securities market handbook.
• Develop an investor-relations function to coordinate communication and promote government securities.
• Continue to identify suitable hypothecated assets for future Islamic securities issuance.
• Increase the volume of shariah-compliant issuance gradually to avoid market fragmentation.

Medium-Term Debt Management Strategy

The preparation of a medium-term debt management strategy involves eight key steps:

1. Define objectives and scope of the strategy, including minimizing cost, managing risk, and developing the domestic market.
2. Identify current strategy and analyze the cost and risk of existing debt.
3. Analyze potential funding sources, including their cost and risk characteristics.
4. Identify baseline projections for fiscal, monetary, external, and market conditions.
5. Review long-term structural factors such as exchange rates, inflation, and access to financing.
6. Assess and rank strategies based on cost/risk trade-offs.
7. Review implications of candidate strategies with fiscal and monetary authorities and assess their impact on market development.
8. Finalize the strategy and implement it in a structured and transparent manner.

Conclusion

The government securities market in Pakistan has made progress in becoming more market-driven and predictable. However, challenges remain in terms of market liquidity, secondary trading, non-resident participation, and tenor fragmentation. Implementing the recommendations would help improve the efficiency and effectiveness of the market, leading to better debt management outcomes.