The govt is making changes to how it raises debt. Here’s why

The cabinet has approved agreements with Capital Market Infrastructure Institutions to change the government's approach to debt management.  

ISLAMABAD: The federal government is planning on fundamentally changing how it raises money. The caretaker cabinet has circulated a summary that has approved agreements that will allow the government to raise public debt with the assistance of what are known as Capital Market Infrastructure Institutions (CMIIs). 

So what does this mean exactly? Very simply put, the government is regularly in need of money. Every year the federal budget sets a target for how much the government needs to spend and how it can raise that money through taxation. But because Pakistan has a very poor tax collection system the government often needs to borrow this money to complete their spending. 

For this purpose the federal government borrows money. For example, one of the sources is that the government raises debt from the public through processes such as T-bill auctions. The government securities include Treasury Bills (T-bills) – Market T-bills (issued to commercial banks) and Market Related T-bills (government borrowing directly from SBP), Government of Pakistan Ijarah Sukuk and Pakistan Investment Bonds. 

Now many of these processes to raise debt happen through what are known as Capital Market Infrastructure Institutions (CMMIs). 

These are entities that run and operate the country’s capital markets. For example, the Pakistan Stock Exchange is a CMMI where shares of publicly listed companies are traded. Similarly the Central Depository Company (CDC) serves as the sole securities depository in the country as far as the capital market is concerned. CDC handles the transactions like deposit of securities, transfer of securities, pledging of securities, pledge release, pledge call, withdrawal of securities and corporate actions. 

In the same way the National Clearing Company of Pakistan Limited (NCCPL) provides clearing and settlement services to the Pakistan Stock Exchange Limited (PSX) through fully automated National Clearing and Settlement Services (NCSS). The current government’s idea is to sign agreements with these entities to boost the investors base and change the dynamics of debt management. 

The agreements include the Agency Agreement between the Government of Pakistan (GoP) and CMIIs, designating them as agents for providing support and ancillary services such as issuance, registration, settlement, and transfer of Government Debt Securities (GDS). 

Moreover, the issuance of an Issuer Agreement between GoP or Pakistan Domestic Sukuk Company Limited (PDSCL) and Central Depository Company (CDC) will render GDS eligible for the Central Depository System of CDC for custody purposes.

This strategic move follows the Ministry of Finance’s recent notification of the Rules for amending the Government of Pakistan Ijarah Rules, 2008, and Market Treasury Bills Rules, 1998. The amendments, dated November 17, 2023, empower the ministry to engage institutions beyond the State Bank of Pakistan (SBP) for raising domestic debt instruments.

The engagement of CMIIs, including PSX, NCCPL, and CDC, aligns with the government’s vision to enhance efficiency and inclusivity in the financial market. These agreements, vetted by the Ministry of Law, mark a significant step toward national financial empowerment.

The procurement of CMIIs’ services for this purpose falls within the framework of Rule 42(c) of the Public Procurement Regulatory Authority Rules, 2004, reflecting the unique and strategic nature of the services.

Ahmad Ahmadani
Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected].



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