Karachi, September 27, 2024 – In a significant move aimed at managing public debt and liquidity in the financial markets, the State Bank of Pakistan (SBP) has announced its decision to conduct an auction for the buyback of Market Treasury Bills (MTBs).
This step aligns with the Market Treasury Bills (MTBs) Rules of 1998, which provide the Government of Pakistan with the ability to buy back these short-term debt instruments.
The decision was outlined in a circular issued by the SBP, which provided detailed guidelines for the execution of buyback transactions. According to the central bank, this procedure is part of its broader strategy to regulate liquidity in the money market and support the government’s debt management operations.
Procedure for MTB Buyback Auctions
The SBP will manage the auction on behalf of the Government of Pakistan, following a structured procedure for the buyback of MTBs. The key elements of this procedure are:
1. Auction Announcements: The SBP will disclose crucial details of the buyback auction, including the security type, target amount, auction schedule, and auction results. These announcements will be made on multiple platforms, such as Refinitiv, Bloomberg, SBPK pages, and the SBP website.
2. Buyback Pricing: The buyback price will be determined through a competitive multiple-price auction. This method allows for market-driven pricing, ensuring that bids reflect current market conditions and expectations.
3. Eligibility to Participate: All Primary Dealers, typically large financial institutions authorized to trade government securities, will be eligible to submit competitive bids in the auction. Additionally, non-competitive bids, which are open to smaller institutions or individual investors, can also be submitted in line with existing SBP guidelines.
4. Bidding Process: Eligible participants will submit their bids through the Bloomberg Auction Module (AUPD) within the stipulated timeframe. Each bid must include a specific price (per Rs.100 of face value) to four decimal places, along with the face value amount of the securities they intend to sell back to the government.
5. Settlement: Upon successful bids, the securities will be debited from the Subsidiary General Ledger Account (SGLA) of the bidders, and their current accounts will be credited with the accepted buyback price on the settlement date.
Broader Implications
This buyback auction marks a crucial tool for managing public debt by allowing the government to retire its short-term obligations efficiently. It also aids in liquidity management, providing flexibility to the SBP in regulating the money supply. The buyback of MTBs is a standard practice in many economies to ensure smooth operations of debt markets and maintain market confidence.
By streamlining this process, the SBP reinforces its role in stabilizing financial markets while supporting the government in its fiscal management efforts.
