THE PAKISTAN DEVELOPMENT REVIEW
Accessing International Capital: Pakistan’s Experience, Prospects, and Policy Implications
In the 1990s accessing international capital markets has become a major source of external financing for many developing countries. The paper reviews Pakistan’s experience in tapping the global financial markets. We conduct a cross-sectional econometric analysis of the factors influencing the access to international equity and debt capital. Results indicate that the factors as suggested in the earlier literature do appear to be influential in determining the access to international capital. The study finds that the role of credit rating in attracting debt flows and of the local capital markets in attracting equity flows is prominent. The rate of economic growth is a major determinant of the access to foreign debt and equity funds. It also appears that the country rating which is based on a comprehensive set of variables indicating the financial health of the country subsumes the other proxies of economic stability and debt management. This study underscores the importance of institutional factors. Areas where improvement is possible to facilitate access to the international capital markets are identified as (1) political and legal environment, including improvements in the quality of the system of civil laws and its enforcement (2) private sector development through sustaining economic liberalisation and privatisation programmes (3) improvement in macro-economic management through a prudent internal and external debt management (4) development of capital markets through, improvements in market operations, enforcement of market regulations, strengthening of financial institutions and effective dissemination of market information.