Author: Shahnawaz Akhter

Karachi, April 28, 2025 – The State Bank of Pakistan (SBP) has reported that the federal government managed to save approximately Rs30 billion through successful buyback auctions of Market Treasury Bills (MTBs) during the first half of the fiscal year 2025.

In its half-yearly economic report, the SBP highlighted that the strategic use of buyback auctions allowed the government to lower its debt servicing costs significantly. “The estimates suggest the government saved a total of around Rs30 billion in debt servicing with these operations,” the SBP stated.

Understanding the Buyback Auctions

Buyback auctions involve the government repurchasing its own debt instruments, such as MTBs, from the secondary market before their maturity. The primary goals are to smooth the debt redemption profile, reduce refinancing risks, and potentially save on interest expenses if market conditions are favorable. While buyback mechanisms are common in developed economies, they are less frequently employed in developing countries due to liquidity constraints.

The motivation behind Pakistan’s decision to hold buyback auctions was fueled by improved fiscal liquidity, largely following a substantial profit transfer from the SBP in September 2024. This liquidity allowed the government to repurchase older MTBs issued at higher interest rates while simultaneously raising longer-term debt at lower rates amid a falling interest rate environment.

Details of the Recent Buyback Auctions

The government repurchased four issues of MTBs, maturing in December 2024, amounting to approximately Rs3.6 trillion at average yields exceeding 20%. These operations not only lowered immediate debt costs but also significantly mitigated rollover risk.

The buybacks were executed through special auctions, where specific securities and target amounts were announced for competitive bidding. Due to declining interest rates, the auctions were oversubscribed, and the government successfully bought back a total of Rs1.026 trillion—split between Rs566 billion in 6-month MTBs and Rs460 billion in 12-month MTBs.

However, acceptance rates varied: around 73% of targets were met for the 6-month tenor, while only 34% were accepted for the 12-month tenor. This discrepancy reflected higher pricing expectations from market participants in subsequent auctions.

Overall, the SBP noted that the buyback auctions accounted for 27% of the maturing MTBs, thereby easing the government’s future borrowing needs. Nevertheless, the SBP cautioned that frequent buybacks, if not carefully managed, could distort market signals, fuel inflationary expectations, and increase long-term borrowing costs. Effective communication of buyback objectives is crucial to avoid these risks.