Karachi, October 1, 2024 – In a significant financial maneuver, the State Bank of Pakistan (SBP) has accepted bids totaling Rs 351 billion in a buyback auction of Market Treasury Bills (MTBs). This strategic move is seen as a vital step towards reprofiling the government’s short-term debt and bolstering liquidity within the financial system.
The government’s buyback of MTBs, set to mature in December 2024, follows a historic profit transfer from the SBP to the federal government. Analysts consider this a pivotal decision aimed at managing debt obligations more efficiently, reducing interest costs, and improving overall liquidity. Tahir Abbas, an analyst at AHL Research, remarked, “This initiative will play a critical role in reprofiling the government’s debt, reducing the cost of borrowing, and fostering a more liquid market.”
The auction was conducted by the SBP on behalf of the government, attracting bids totaling Rs 563.3 billion for 6- and 12-month MTBs. However, the government accepted bids worth Rs 351 billion, falling short of the initial target of Rs 500 billion. Specifically, Rs 176 billion was accepted for 6-month T-bills, while Rs 24.25 billion was secured for 12-month bills, both with a maturity date of December 12, 2024. Furthermore, Rs 90 billion for 6-month and Rs 60.75 billion for 12-month MTBs were accepted with a maturity date of December 26, 2024.
The buyback effort is being facilitated by an improved liquidity position following the SBP’s recent transfer of Rs 3 trillion in profits to the federal government. This transfer has alleviated fiscal pressure, providing the government with the resources necessary to repurchase these maturing T-bills.
According to analysts, this buyback will not only reduce the government’s interest payments on maturing debt but also stabilize the broader financial environment by injecting liquidity into the system. It is a proactive step towards managing the country’s debt portfolio more sustainably while also addressing short-term fiscal challenges.
The buyback is being executed under the framework provided by the MTBs Rules 1998, which permit the government to repurchase short-term debt instruments. Last week, the SBP outlined the procedural framework for conducting such buyback transactions, culminating in Monday’s auction.
This effort marks a strategic shift in how the government handles its debt obligations and could be a precursor to further actions aimed at improving the fiscal and financial stability of the country. The outcome of this auction is seen as a positive step in fostering a more robust and liquid market while ensuring a more manageable debt profile.
