The Asian Development Bank (ADB) on Monday approved a $300 million loan to help strengthen Pakistan’s struggling finance sector.

The fresh loan, according to an official of the bank, will be used to support measures to develop competitive capital markets and encourage private sector investment in the country.

“The reforms proposed under this programme will lower the cost of financial intermediation and facilitate private sector investment to generate sustainable growth and job opportunities," said Sana Masood, a senior project officer at the bank.

"It will also mitigate the negative impact of capital market instability on the economy and help to diversify Pakistan’s financial system," Masood said in a statement.

Currently, Pakistan’s capital markets play a limited role in financial intermediation and resource mobilisation.

The Pakistan Stock Exchange, she added, lacks depth in terms of the number of investors and the number of companies raising capital.

Fewer than 250,000 individual investors, or less than 0.1 per cent of the population, she went on to say, have a stock investing account, and the PSX lags most of its regional peers on market capitalisation as a percentage of gross domestic product.

ADB has supported the development of Pakistan’s financial markets through three policy-based loans over the past two decades.

Islamabad and the bank have agreed to anchor the program to the design of a long-term national capital market master plan to build strong government ownership and coordination across the agencies.

The bank will also provide an $800,000 technical assistance to support the implementation of key reform actions under the programme.

In June, the ADB, and the World Bank each lent $500m to cash-strapped Pakistan to prop up its struggling economy that has taken a hit from global coronavirus restrictions.

On May 19, the ADB approved a separate $300m emergency assistance loan to strengthen Pakistan’s public health response to Covid-19 and help meet the basic needs of vulnerable and poor segments of the society.

Established in 1966, the Manila-based lending agency is owned by 68 members — 49 from the region.