The government has amended the rules for buyback and exchange programs on government securities to lower debt servicing costs by December.
This decision came in the wake of an unprecedented Rs3.4 trillion profit by the State Bank of Pakistan (SBP), driven by a record-high 22% policy rate.
According to a notification issued by the Debt Management Office (DMO) of the Ministry of Finance, the scope of the Government Securities Buyback & Exchange Program has been expanded in line with international best practices.
The amended program now allows for the exchange of securities in addition to the existing buyback option, aimed at easing the government’s financing burden.
Sources indicate that several securities are due for maturity in December, and the government intends to buy back or exchange securities valued between Rs300 billion and Rs500 billion. This move is expected to reduce some of the financing pressures.
The SBP’s substantial Rs3.4 trillion profit in the fiscal year 2023-24, of which 80 per cent—around Rs2.7 trillion—must be transferred to the federal government, provides a timely opportunity to implement this debt reduction strategy. The excess cash will allow the government to repurchase or exchange high-interest securities issued earlier, at rates exceeding 21 per cent, with cheaper alternatives as interest rates have now dropped to around 16 per cent.
The updated rules also introduce revised eligibility and auction criteria to provide greater flexibility in line with market practices. As per the new criteria, any government-issued security that is due for maturity can be considered for buyback or exchange, allowing the DMO to execute either a full or partial buyback and exchange transaction.
