ISLAMABAD: The government is set to roll out a new private equity policy framework covering enhanced risk portfolios, targeting $10 to $15 billion in tax-neutral investment from domestic and international players in the private equity market.
The government aims to finalise the policy framework within the next two weeks, which would entail policy actions to be introduced through the finance bill for the next fiscal year (FY27-28).
Regulatory actions would follow immediately after the finalisation of the framework without waiting for the next year’s budget, an official told Dawn.
The framework is based on models such as those in the United Kingdom, the Middle East and India, which are estimated to have attracted $100-150bn. This was conveyed to Finance Minister Muhammad Aurangzeb during a meeting of the prime minister’s committee for developing the National Private Equity Framework.
The meeting reviewed progress on regulatory and tax reforms, domestic capital mobilisation and the development of investment opportunities to support a robust private equity ecosystem in Pakistan.
It also reviewed the potential of Pakistan’s private equity market, including opportunities arising from acquisitions, business consolidation, new projects and exits by existing investors.
The introduction of regulatory changes for banks enhancing their exposures to real estate investment trusts (REITs) had increased the portfolio from Rs22bn in 2021 to over Rs280bn now, a participant said, adding that the potential for private equity investments had no limits, provided a conducive environment was created.
Additionally, the meeting focused on the mobilisation of domestic institutional capital, including resources available with banks, insurance companies, mutual funds, pension schemes and development finance institutions, alongside potential participation from local corporations and family offices.
The committee also discussed various investment structures and mechanisms to facilitate the deployment of these resources into private equity funds and commercially viable businesses and projects.
Informed sources said foreign investors and institutional funds, particularly those from friendly nations, always sought a proper policy framework with rules-based exit and entry facilitations to secure their investments whenever top government Pakistani delegations sought investments or presented various investment opportunities, including in minerals, real estate, agriculture, oil and gas, tourism or manufacturing.
The prospects of developing a substantial pipeline of investable opportunities over the next five to 10 years were also discussed, supported by significant domestic liquidity that could be channelled towards productive economic activity through an effective private equity ecosystem.
Aurangzeb appreciated the progress achieved across key workstreams and underscored the importance of translating regulatory and policy reforms into practical investment opportunities.
He emphasised the need for a transparent, commercially viable and investor-friendly framework that would help mobilise domestic savings, attract institutional investment and support private-sector-led economic growth.
Moreover, he noted that mobilising domestic capital should be the immediate priority, providing the foundation for a credible and functioning private equity market capable of subsequently attracting foreign institutional investors and facilitating international co-investment.
Reviewing progress on regulatory reforms, the committee discussed measures concerning fund structures, transparency, investment arrangements and the participation of financial institutions in private equity funds.
The State Bank of Pakistan (SBP) briefed participants on recent regulatory changes, including the enhancement of the permissible investment limit for banks in a single private equity fund from 10 per cent to 20pc.
On taxation, the meeting reviewed recommendations for establishing a clear, competitive and predictable tax framework for private equity funds. Discussions included the proposed treatment of private equity funds as pass-through vehicles, with taxation applied at the investor level, as part of efforts to develop a globally competitive private equity ecosystem.
The finance minister stressed the importance of comprehensively evaluating relevant international taxation models and adapting them to Pakistan’s economic and regulatory environment.
He directed that any proposed tax arrangements must support legitimate investment activity while preventing opportunities for tax arbitrage, unintended distortions or regulatory inconsistencies.
The committee also underscored the need for a coordinated approach across regulatory and taxation authorities to ensure consistency in the treatment of different investment vehicles and facilitate the development of a well-functioning private equity market.
The finance minister directed relevant stakeholders to build on the progress achieved, address outstanding regulatory and taxation issues, and advance work on domestic capital mobilisation and the identification of viable investment opportunities to move the National Private Equity Framework towards implementation.
Reiterating the government’s broader reform priorities, the minister advised that the development of a robust private equity ecosystem should contribute to deeper domestic capital markets, improved access to long-term risk capital, greater private-sector investment and sustainable economic growth.