The government of Pakistan borrows inthe domestic market through a range of instruments, and thismarket is a critical source of funding for both shorter-termcash management and longer-term deficit-financing. Thegovernment has taken actions over the past 18 months thathave enhanced the effectiveness of the market as a source offunding, as well as its efficiency. These include themovement toward more predictable, volume-based,market-determined pricing of government securities. Takingaccount of the dynamics of demand will be important as thegovernment continues to develop its medium-term debtmanagement strategy. Doing so will help identify potentialconstraints that may impede the implementation of the chosenstrategy. Specific actions that the government isrecommended to take include: a) reducing the number oftenors issued, b) consolidating the debt stock so as toimprove liquidity in individual bonds, c) reducing timedelays in auction processing, and d) developing andinvestor-relations function, with readily accessibleinformation on the operation of the government securities market.
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