State Bank of Pakistan buybacks  T-Bills worth PKR 1.0 trillion in 6 months

In the first six months of the current fiscal year, the Pakistan government bought back treasury bills worth PKR 1,000 billion, resulting in a savings of PKR 31 billion in interest payments.

This move helped improve the overall debt volume and reduced concentration risk in specific tenor maturities, ultimately enhancing both short-term and long-term borrowing costs for the government.

According to a report released by the Ministry of Finance, titled Semi-Annual Public Debt Bulletin, an essential objective of the debt management strategy is to reduce refinancing risk by lengthening the maturity profile.

Over the years, the government has introduced various new types of debt instruments with higher tenors to increase the average time to maturity (ATM) while diversifying the investor base.

The ATM of domestic debt increased from 3.0 years in December 2023 to 3.4 years in December 2024. Notably, ATM for domestic debt was recorded at 2.9 years as of June 2024.

To further extend the maturity profile, the government introduced new instruments such as 2-year Zero-Coupon and Variable-Rate Bonds, as well as 3-, 5-, and 10-year fixed and floating rate instruments, catering to both conventional and Sharia-compliant investors.

Importantly, the Debt Management Office (DMO) capitalized on the positive sentiment in debt markets, driven by stabilizing macroeconomic factors and an inverted yield curve.

By strategically shifting the portfolio from short-term Treasury Bills to long-term fixed and floating rate Pakistan Investment Bonds (PIBs), the government issued over PKR 3 trillion in long-term instruments—primarily 10-year bonds at competitive rates.

This transition brought multiple benefits, including an extension of the domestic debt portfolio’s maturity profile to 3.3 years, a reduction in short-term interest rates, and lower refinancing risks.

Additionally, the government initiated a Debt Buyback & Exchange Program, which resulted in a re-profiling of the debt portfolio while reducing borrowing costs.

Pakistan's external debt primarily consists of multilateral and bilateral loans. As of December 2024, the ATM of external debt stood at 6.2 years, remaining largely unchanged compared to June 2024, when it was at the same level, and slightly lower than December 2023’s 6.3 years.

The slight decline in ATM during the first half of FY-25 compared to the first half of FY-24 was due to net retirement during the period under review.

Given the increasing demand for Sharia-compliant investment instruments, enhancing the share of Sharia-compliant government securities remains a vital strategy for diversifying the investor base.

In this regard, new Sharia-compliant instruments with 10-year tenors, including Fixed Rental Rate (FRR) and Variable Rental Rate (VRR) instruments, were introduced. These efforts led to an increase in the share of Sharia-compliant financing in government securities to 12.6% as of December 2024, compared to 11.5% in December 2023.

The Medium-Term Debt Strategy (MTDS) has set a minimum threshold of 20% for the share of fixed-rate debt instruments in the domestic government securities portfolio. As of December 2024, the fixed-rate portfolio of domestic debt stood at 17.7%, compared to 18.7% in June 2024.

The slight decline in the share of fixed-rate debt was primarily due to the maturity of PKR 1,200 billion (approximately 18% of the outstanding fixed-rate debt) during the first half of FY-24.

The DMO had pursued a strategy of issuing fewer fixed-rate debt instruments in FY-24 due to higher secondary market rates. However, with a significant decline in market yields, the pace of fixed-rate debt issuance increased notably in the first half of FY-25. During this period, the average monthly issuance of fixed-rate debt instruments was recorded at PKR 213 billion.