Govt saves Rs11.5bn in historic T-bills buyback

KARACHI: In a rare move, the government on Monday opted for a buyback of costly treasury bills worth Rs351 billion at a much lower rate, saving over Rs11.5bn in profit.

Bankers described it as a smart move by the government to save money. Through the buyback, the government repurchased six- and 12-month papers. These papers were originally sold at rates betw­een 20 and 21 per cent; the government bought them back at 16pc.

Banks agreed to sell at this rate as the secondary market was trading at 15.5pc, and returns are expected to fall further with the anticipated drop in inflation and interest rate cuts.

“The government would save around Rs11.5bn through the buyback,” said Tahir Abbas, head of research at Arif Habib Limited. He said the government is looking to extend the tenure from three-, six-, and 12-month papers to long-term Pakistan Investment Bonds.

Repurchases six- and 12-month papers worth Rs351bn at lower rate

The government has taken a significant step by initiating a buyback of short-term T-bills worth Rs351bn (against a target of Rs500 billion) set to mature in December 2024. This move is leveraging liquidity from the recent State Bank of Pakistan (SBP) profit transfer to finance the effort.

“We believe this initiative will play a crucial role in re-profiling the government’s debt, reducing interest costs, and improving overall market liquidity. By taking this proactive step, the government aims to strengthen its financial pos­i­tion while fostering a more stable economic environment,” Mr Abbas said.

This buyback also demonstrates that the government has sufficient liquidity, giving it the room to repurchase T-bills and re-profile domestic debt. In the previous auc­tion of T-bi­lls, all bids were reje­cted. Bankers said the SBP provided a profit of Rs2.7 trillion to the federal government for FY24, bolstering its liquidity position.

Banks were on alert for the government’s next move, noting that the rapid decline in inflation and the significant drop in interest rates during the last three monetary policies have shifted money market dynamics. The SBP cut the interest rate by 450 basis points to 17.5pc during this period, and further cuts are expected as inflation is projected to fall to 7.5-8pc in September.

All bids received for the buyback had a maturity date in December, with bids submitted for six- and 12-month papers.

Bankers noted that the government faces a substantial T-bill maturity in December, totalling around Rs4tr. Through the buyback, the government has reduced some of this maturity burden, and more such buybacks are likely.

Total bids for six- and 12-month T-bills amounted to Rs563bn, wh­ile the government repurcha­sed T-bills worth Rs351bn, including one billion in non-competitive bids.

The government repurchased Rs176bn and Rs24bn in six-month T-bills at cut-off yields of 16pc. Similarly, for 12-month papers, the government repurchased Rs90bn and Rs60bn at cut-off yields of 16pc.

Published in Dawn, October 1st, 2024