December 6, 2002	Friday	Shawwal 1,1423

MANILA, Dec 5: The Asian Development Bank (ADB) said on Thursday it had approved three loans totalling $266 million for Pakistan to help investor confidence and strengthen the country’s financial system.

The multilateral lending agency also said it approved two political risk guarantee facilities totalling up to $200 million.

The Financial Markets and Governance Programme is aimed at supporting the government in improving governance and operational efficiency in financial markets that offer a wide range of non-bank products and instruments for savings and investment.

“This programme is very innovative as it builds on ADB’s unique capacity among international development agencies to combine public and private sector instruments and integrate non-lending assistance,” Werner Liepach, ADB Principal Financial and Capital Market Specialist, said in a statement.

“Through the political risk guarantee facilities, ADB will increase and sustain private sector flows into the country and support Pakistan’s access to international capital flows and integration with the world’s financial markets.”

Pakistan has embarked on a wide range of financial sector reforms since the mid-1990s, backed by ADB, but the investor base has remained narrow and the supply of instruments limited.

According to ADB country director for Pakistan Marshuk Ali Shah, the loan will be given under the ADB’s Financial (Nonbank) Markets and Governance Programme, the bank said.

“The overall outcome of the programme will be a vibrant, diversified and efficient nonbank financial market offering a wide range of products and instruments for saving and investment,” the statement added.

It said the loan will have a 15-year re-payment term including a grace period of three years while the programme period extends to December 2005.

The Securities and Exchange Commission of Pakistan (SECP), will implement the programme, the statement said.

Islamabad initiated the first phase of its capital markets reforms in 1997 under an ADB-sponsored $250 million package.

Under the previous package the market regulator, the Corporate Law Authority, was restructured and renamed SECP.

In the last three years, Pakistan’s capital market has established a Central Depository Company (CDC) and switched to a computerised share trading system. It has also implemented a T+3 settlement system, where settlement takes place within three days after the day of trading, and begun futures trading.

Under the last programme, the board of Karachi Stock Exchange was also reorganized and an independent managing director was put in place to help create greater transparency and efficiency.—Reuters

Our Reporter adds from Islamabad: Explaining objectives of the Financial (Nonbank) Markets and governance Programme, the Country Director ADB, stated that the Programme seeks to strengthen investor confidence through improved governance, transparency and investor protection; increase depth and diversity of financial intermediation through new capital issues for saving and investment; improve operational efficiency and risk management of intermediaries; reduce financial sector vulnerabilities.

The reform agenda is structured around five components: (i) improvement of the fiscal, interest rate and investment policy environment; (ii) improvement of governance of market participants and transparency in information disclosure; (iii) increase in supply of financial instruments and improvements in market infrastructure; (iv) increase in demand for financial instruments through promotion of contractual savings and institutional investment; and (v) development of complementary financial services and institutions.

The Programme will include a $260 million loan from ADB‘s ordinary capital resources provided under ADB‘s London interbank offered rate (LIBOR) based lending facility. The loan will have a 15-year including a grace period of three years; an interest rate determined in accordance with ADB‘s LIBOR-based lending facility; a front-end fee of 1 per cent and a commitment charge of 0.75 per cent per annum.

The Programme is also supported by two technical assistance (TA) loans for a total $6 million. The TA loans will be from the ADB‘s soft-term ADF resources with a term 32 years, including a grace period of 8 years; an interest rate of 1 per cent per annum during the grace and 1.5 per cent per annum thereafter.

The Ministry of Finance will be the Executing Agency for the Programme. The Securities and Exchange Commission of Pakistan (SECP) will be the implementing agency with full responsibility for implementation of all actions within its regulatory and development mandate. The Programme period extends to December 2005