Qudsia Bano

Financial experts have stressed the urgent need to strengthen Pakistan’s capital markets, saying the country cannot afford to depend excessively on foreign inflows to meet its investment and development needs.

They said Pakistan’s domestic savings remained among the lowest in the region, creating a constant gap between savings and investment. “A weak savings culture keeps the economy dependent on external borrowing, which exposes us to exchange rate instability and recurring balance of payments pressures,” said Imran Khalid, Head of Research at Cedar Capital Pvt Limited.

He added that stronger capital markets could provide households and businesses with more channels to invest their money locally, reducing the pressure to seek funds from abroad. Industry specialists believe that Pakistan’s government bond market has gradually developed, but participation remains concentrated in banks.

“Expanding the investor base beyond commercial banks is crucial. Without broader access, we will continue to face liquidity bottlenecks,” said Khalid. He noted that the corporate bond market in particular is “almost non-existent,” leaving companies dependent on short-term bank financing.

Khalid highlighted that the equity market, despite recent improvements, still represents a very small share of the economy. With fewer than half a million active investors, the market capitalisation remains far below that of regional peers. This limited outreach, experts say, prevents the stock market from playing its true role in mobilising savings for long-term growth.

“Capital markets can play a complementary role to banks,” said Ali Raza, Portfolio Manager at Atlas Asset Management Limited. “If developed properly, they can provide businesses with access to long-term funds while giving savers more diverse and rewarding investment options. This would not only reduce reliance on foreign inflows but also create a healthier balance in the financial system.”

Raza agrees that improving financial literacy, encouraging household participation, and simplifying investment procedures are vital steps. “Stronger market infrastructure, transparency, and effective regulation will be necessary to build investor confidence.” Raza believes that unless Pakistan deepens its capital markets and creates a culture of domestic savings, the economy will remain stuck in a cycle of external dependence and financial instability.

Credit: INP-WealthPk