Govt revises securities buyback programme to ease debt burden

KARACHI: The government revised its securities repurchase programme on Thursday in an effort to lower its debt and improve its fiscal position.

“With the approval of competent authority, the subject programme’s scope has been enhanced from existing ‘Buyback Programme’ to ‘Buyback and Exchange Programme’ as per best international practices,” said a circular issued by Debt Management Office (DMO), Ministry of Finance.

Any government-issued maturity securities are eligible. The DMO can carry out exchange and buyback transactions (partial or complete). Every transaction needs to be carried out close to the market prices.

The previous buyback programme was launched in October 2021.

The government will be able to lessen its debt load, pay less in interest, and improve its debt profile, according to analysts, thanks to the modification made to the current buyback programme. Instead of raising money, the government will now be able to buy back bonds and bills from the market. Liquidity will be created in the debt markets by further exchanging run-down and dead instruments for run-up and liquid ones.

“If government borrowing needs are met through external sources, they can buy back debt securities from the market or switch between securities to manage debt duration,” said Awais Ashraf, the director research at AKD Securities Limited.

According to the DMO, buyback, and exchange of government securities is an important contemporary tool of a country’s debt management strategy and especially has gained more attention in the prevailing economic challenging conditions to achieve proactive debt management targets, i.e., utilisation of surplus cash, removal of illiquid and expensive debt securities to direct market liquidity into newer issuances for improvement in the system liquidity, for fiscal account management of ongoing financial year through reprofiling of debt maturities, etc.

“By repurchasing its own outstanding securities from the market before they mature, the government aims to reduce its liabilities and strengthen its fiscal position,” it said.

“The process involves using either government funds to buyback these bonds/securities and transpires to decrease the overall outstanding debt (simple Buyback strategy), or, exchange the securities of specific maturity with another security of a different maturity to manage cash positions and address refinancing or rollover risks, by creation of maturity pockets at longer-end of the debt profile,” it added. Through a circular, the State Bank of Pakistan published the process for carrying out these buyback transactions. The government may buy back T-bills under the terms of the Market Treasury Bills (MTBs) Rules of 1998.

“The SBP will conduct auctions for the buyback of MTBs on behalf of the Government of Pakistan,” it said.

“The buyback price of the security will be determined through the multiple-price competitive auction process,” it added.

“All Primary Dealers will be eligible to submit competitive bids in the auctions. Non-competitive bids can also be submitted as per existing instructions.”