Pakistan’s market reforms under spotlight as MSCI flags foreign exchange barriers

Pakistan’s equity market remains under scrutiny by global investors as MSCI’s 2025 Global Market Accessibility Review showed no upgrades in accessibility criteria this year. In fact, it registered a deterioration in its foreign exchange market liberalization level, reflecting the continued requirement that foreign exchange transactions be directly linked to securities trading.

Currency conversions must be routed through designated Special Convertible Rupee Accounts, MSCI noted.

The report cites ongoing consultations on a possible shift to a shorter settlement cycle.

The National Clearing Company of Pakistan Limited is currently assessing a transition from a T+2 to a T+1 settlement regime, though no definitive roadmap or pilot launch date has yet been finalized.

While digital onboarding for non-resident investors has been implemented, MSCI flagged that the account registration process can still take up to four days.

The report also underlined regulatory volatility, noting that frequent changes have challenged institutional confidence in the country’s "free-market" framework.

On the operational front, the absence of omnibus account structures and restrictions on direct overdraft facilities continue to hamper market efficiency. In terms of market practices, stock lending and short selling remain underdeveloped, with neither activity having established momentum despite being legally permitted.

The index provider reiterated that it is monitoring proposed reforms closely, particularly the settlement cycle transition, which many global investors view as critical for alignment with international standards.

MSCI’s annual review evaluates global markets on criteria including openness to foreign ownership, ease of capital flows, operational efficiency, and institutional stability.

Pakistan is currently classified as a Frontier Market, a tier characterized by relatively limited accessibility and market infrastructure. The country’s performance in the review comes amid broader reforms in regional peers. Markets such as Vietnam and Sri Lanka have implemented settlement cycle changes and regulatory overhauls in the past year, positioning themselves for enhanced investor confidence.

For Pakistan, a successful shift to T+1 and clearer foreign exchange rules could bolster its standing in future assessments — a development eagerly anticipated by market participants and international asset managers alike.