ISLAMABAD: Amid an unprecedented Rs3.4 trillion profit of the central bank on the back of unprecedented 22 per cent policy rate, the government on Thursday amended rules for buyback in government securities and exchange programme to reduce debt servicing cost by end-December this year.

The “scope (of Government Securities Buyback & Exchange Programme) has been enhanced from existing “Buyback Programme” to “Buyback & Exchange Programme” as per International best practices” with the approval of the competent authority, said notification issued by the Debt Management Office (DMO) of the Ministry of Finance.

Informed sources said a number of maturities were becoming due in December this year and the change would help the government buyback Rs300 to Rs500bn of these securities or exchange them and reduce its some financing pressure.

The State Bank of Pakistan (SBP) earned a windfall profit of about Rs3.4tr in 2023-24 and is required to transfer 80pc about Rs2.7tr to the federal government.

Taking benefit from this excess cash and reduce the cost of capital, the government would be buyback or exchanging expensive securities with cheaper ones as overall interest rates have dropped in the range of 3.75pc to 4.5pc in the shape of government papers that were issued to the banking sector at rates higher than 21pc which are now down to around 16pc.

In its notification, the debt management official said the revised eligibility criteria and auction criteria had also been approved to provide flexibility and in line with market practices. Under the revised criteria, “any maturity securities issued by the GOP is eligible for buyback” and “DMO can execute either buyback transaction or buyback & exchange transaction (partial or full)”.

Published in Dawn, September 27th, 2024