Karachi: 30 September 2024, In an unprecedented move, the Government of Pakistan has initiated today a T-Bill buyback program, repurchasing PKR 351bn worth of T-bills against a target of PKR 500bn. This bold move is expected to strategically reprofile the government’s debt, transitioning towards longer maturities while lowering the burden of debt servicing costs.
While global debt buyback programs typically focus on “off-the-run” bonds with lower liquidity, Pakistan has opted to repurchase shorter-term instruments in its first buyback. Notably, these T-bills being repurchased are set to mature in Dec’24, a period marked by significant maturities, totalling ~PKR 4.6trn in T-bills. We believe the impetus for this timing is a recent liquidity boost, courtesy of a PKR 2.7trn transfer from the SBP.
Prudent debt management: A new chapter for Pakistan
o Today’s buyback reflects a wise approach to managing Pakistan’s overall debt.
o By retiring debt (T-Bill) ahead of its maturity, the government is not only adjusting the debt profile from short to long tenors but also securing potential savings by reducing interest costs.
o Our preliminary estimates suggest that this buyback could save the government ~PKR 11.6bn, while also easing the Dec’24 debt obligations.
Post-buyback options for banks
o By repurchasing these T-Bills, the gov’t will ease liquidity conditions for investors (read banks, which are the largest holders of gov’t securities).
o This influx of liquidity is expected to lead to more aggressive bidding in future government auctions, potentially pushing yields even lower and encouraging banks to transition their portfolios from shorter to longer tenors.
