March 26, 2007	Monday	Rabi-ul-Awwal 6, 1428

THE Asian Development Bank (ADB) is expected to offer $150-200 million "multi-tranche facility" to help improve financial management that includes the insurance, pension and savings systems.

The government has formally sought the ADB facility, for which initial discussions were held between Prime Minister Shaukat Aziz and bank's director-general Mr Juan Miranda when he visited Pakistan last month.

According to an ADB official working in the local office, the details of the loan are still to be worked out but the bank has agreed to offer funding for bringing improvements in the insurance, pension and savings systems.

The government anticipates that new tranche facility could be up to $200 million as the bank was ready to fund the programme preferably during 2007.

Initially the bank will provide $3 million technical assistance (TA) to fund a study.

According to the ADB, the “governance" issues in the pension, insurance and savings systems needed to be sorted out to make it efficient.

The country’s pension system is "fragmented" and without a central framework for regulation or supervision, to encourage retirement savings and protection for beneficiaries. It is, therefore felt appropriate to support development of a programme that will encourage retirement savings through appropriate regulation and incentives.

The proposed study will examine the constraints on the National Savings Scheme (NSS) and the merits and feasibility of moving towards a funded scheme managed with a well-conceived investment policy in government securities. The ADB will also support streamlining, modernisation and computerisation of operations already initiated by Central Directorate of National Savings (CDNS).

The objective is to assess key issues in managing pension and saving liabilities, recommend solutions to improve sustainability, and strengthen key public sector institutions involved in pensions, insurance and savings mobilisation.

The study will focus on setting up of an overall policy framework for pension provision, financial assessment of civil and military pension schemes, institutional reform and strengthening of Employee's Old-age Benefits Institution (EOBI), capacity building for investment management of State Life Insurance Corporation (SLIC),institutional reform and strengthening of the Central Directorate of National Savings (CDNS).

The ADB maintains that the country/sector strategy and well as the government's development agenda has accorded high priority to poverty reduction through private sector-led pro-poor economic growth, social sector development and improved governance.

Within this framework, the bank believes, the financial sector has an important role to play to increase resource mobilization, improve efficiency of allocation, enhance access to financial products and services, contribute to the sustainability of social safety nets and safeguard economic stability.

Given the critical importance of SECP for capital and non-bank financial markets, it is important that it has adequate capacity — skills, systems, and procedures — to effectively discharge its functions. The ADB helped SECP put in place the basic strategic, management, and administrative foundations. It also helped to raise prudential standards of key market participants and develop a national clearing and settlement system.

Despite these positive developments, the bank believes, the regulatory framework and institutional structure require flexibility to adapt rapidly to changing circumstances and emerging challenges. Given the fast changing nature and increasing complexity of modern financial markets, there is a need to further support the industry regulator and market participants by upgrading its skill base.

The objective is to support the sound and sustainable development of non-bank financial markets, application of proper risk management practices and protection of investors and policyholders.

The study will include a review and update of the legal and regulatory framework as required, and building capacity within SECP for effective regulation though advice and training for on site and off-site surveillance, including Non-Bank Financial Institutions (NBFIs), supervision of the reformed and new exchanges, insurance and pension industry and the derivatives market.

In addition, there is also bank's assistance available to SECP and the stock exchanges in developing and implementing a plan for demutualisation of the exchanges, and support measures to upgrade skills of market participants.

The programme comprises four components: Upgrading of the legal and regulatory framework, capacity building of SECP with particular attention to its enlarged mandate for regulation and supervision of non-bank financial institutions, insurance and pensions, support for restructuring of stock exchanges; and establishment of sustainable mechanisms for skills development and training.