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Finance For Development

This report highlights key financial indicators and provides policy recommendations for sustainable growth in finance and development. It covers topics such as inflation, current account balance, currency-to-deposit ratio, savings, borrowing, SME financing, public debt management, and infrastructure development.

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Finance For Development

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  1. Finance For Development

  2. Fig 1: Consumer Price Inflation (Annual %) Source: World Development Indicators

  3. Fig 2: Current Account Balance (% GDP) Source: World Development Indicator

  4. Fig 3: Currency[1] to Deposit[2] ratio Back

  5. Fig 4: Currency-to-Deposit Ratio (6 Month Moving Average)

  6. Fig 5: Gross Domestic Savings (as % of GDP, 2017) Source: World development Indicators

  7. Fig 6: Bank deposits as a percentage of GDP (%) Source: Global Financial Development Back

  8. Fig 7: Pakistan’s Relative Standing in Credit-to-GDP ratio (2010-17 Average) Source: World Development Indicator

  9. Fig 8: Net Budgetary Borrowing from Sched. Banks (% - GDP)

  10. Fig 9: Shares of SME Financing in Total Financing Source: SBP

  11. Fig 10: Public Debt Management

  12. Fig 11: Corporate Bond Market Size (as % of GDP, 2018) Source: Asiabondonline.com

  13. Fig 12: Ownership Matters

  14. Suggestions for Government Policy priorities: 1. Restructure of GoPdomestic debt management and objectives, to widen distribution, and to develop liquid Sovereign yield curve. 2. Empower and facilitate current public sector development lenders – ZTBL, Housing, and SME – key aim is advisory effectiveness. 3. Mobilise apex Infrastructure lending organizations for raising Public/PPP debt in Project finance structure, versus issue of Government guarantees. 4. Facilitate financial inclusion via Digitization: digitize Government payments; licensing payment companies; fiscal concessions; permit use of global Cloud; crowd funding, etc. Fresh Spectrum auction must be at market clearing prices.

  15. Government Debt Management: DMO has been appointed, candidates sought for key supporting positions. DMOs operational targets should be to reduce reliance on Bank funding, from 82% to 50%; and increase debt maturity profile, from 1.6 to 3.5 years – within 2 years.

  16. Development sector (Agri, SME, Housing): International experience in major EMs shows that Public institutions lead, and private banks follow. The reason is - these segments handicapped by limitations in “soft” and “hard” infrastructural support - For example: + Product perishability, and distance from price discovery, for farmer reduces his ‘margin’ to subsistence level and reduces production efficiency; + SMEs need to be guided into clusters/supply chains, and partly be financed via factoring; + Mortgage finance requires clear title; repossession assurance; refinance and interest risk insurance etc.; Supporting effort is best led by Institutions with Public stakeholder interest, and capacity to influence needed changes in rules, regulations, and laws. Once development sectors enjoy this development and advisory support, Private banks will be willing to look at cash-flow based finance, and raise their lending profile.

  17. Infrastructure: Early establishment of Infrastructure Project Bank necessary: Key aims: + Redirect viable public sector projects into PPP mode, reduce expenditure loan of Government; + Project finance capability will spread to Private banks, deepening appetite for Industrial and private infrastructure lending; + Precondition for sustainability of long-term finance is existence of deep and liquid Sovereign yield curve, a core DMO responsibility.

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