A deeper bond market

October 1, 2026

The government’s plan to strengthen its local currency bond market can improve the country’s financial system. The proposed reforms could reduce the government’s heavy reliance on commercial banks, encourage private investment and create new opportunities for investors.

Under the new framework, eligible bank customers will be able to trade listed government securities through the stock market. The initiative is being introduced as Pakistan holds talks with an International Monetary Fund (IMF) mission over the next review of its economic programme. Successful completion of the review could unlock around $1.2 billion in financing under the Extended Fund Facility and Resilience and Sustainability Facility.

The need for reform is clear. Commercial banks currently hold about 78 per cent of government securities, while government debt accounts for nearly 62 per cent of banking-sector assets. This heavy dependence on banks has helped the government meet its borrowing needs but has also restricted the availability of credit for businesses and the private sector.

A deeper bond market could help change this situation by attracting more institutional, individual and foreign investors. It could also provide businesses with better access to financing and reduce pressure on banks.

The government plans to make the issuance of securities more predictable through a clearer benchmark policy and improved medium-term debt management. It also intends to improve secondary market trading, strengthen the repo market and introduce securities lending for primary dealers.

The reforms will be overseen by the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, the Pakistan Stock Exchange and the Central Depository Company.

However, announcing reforms is only the first step. Their success will depend on effective implementation, investor confidence, transparency and strong regulation. Ordinary investors will also need clear information and protection against market risks.

Pakistan needs a financial market that serves both the government and the productive economy. A stronger bond market could reduce borrowing risks, improve monetary policy and encourage private-sector growth. But the real test will be whether these reforms translate into lower financing costs, greater investment and sustainable economic development.