Attracting private investment is critical in ensuring sustainable growth: Aamir Khan

ISLAMABAD, March 25: In the developing world, one of the pivotal concerns remains the finite spending capability of governments to bridge the infrastructure financing gap. It is for this reason that attracting private investment is critical in ensuring the sustainable management of infrastructure, said SECP Chairman Aamir Khan.

Khan was delivering the keynote address at a Capacity Building Session for “Financing Infrastructure via Capital Markets, organized by the Infrazamin Pakistan to enhance outreach and understanding among all stakeholders about the role and importance of capital markets.

Aamir Khan gave examples where both sovereign and non-sovereign bonds have been issued to finance infrastructure projects, such as the Metro Manila Flood Management project in the Philippines, Mumbai urban transport project in India, or Izmir metro expansion project in Turkey.

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All of these projects have directly impacted and improved the lives of the masses, and have also contributed to the development of their respective bond markets, he added.

In Pakistan, public and private infrastructure development has made some progress over the last decade. Consequently, significant investments have taken place in road networks, urban transportation, and telecommunication sectors.

This progress has not only improved the mobility and connectivity of the general public but has also helped those at the bottom of the pyramid to improve their livelihoods.

Furthermore, he explained to participants, it has also brought financial inclusion to the under and un-served and created employment opportunities for the female population. And all of this has been achieved by investing a very small percentage of GDP.

It should be a matter of concern for all of us that Pakistan’s infrastructure spending is one of the lowest in the region and well below investment requirements of 8-10 % of GDP when we consider past and future demands.

And the problem gets exacerbated every year, as the infrastructure projects are financed either directly by the government or by commercial banks against government guarantees.

Given the limitation of financing from these sources, the investment gap shall continue to grow. Accordingly, all stakeholders need to sit together and map the obstacles that we face in adopting financing alternatives through the capital markets.

The SECP Chairman expressed his firm belief that Pakistan’s capital markets provide an untapped opportunity, and offer the most viable solution in bridging the gap in infrastructure financing needs that I touched upon.

It will also help address the very low savings rate in the country, a long-standing obstacle in the expansion of the economy. The PKR 200 billion transactions of Pakistan Energy Sukuk in 2020, is a testament to the potential of capital markets.

This significantly reduced the government’s cost of borrowing and allowed investors other than banks to participate directly.