Govt Expands Debt Management Strategy With Changes in Buyback Program

The government has notified changes in the existing Buyback Program and enhanced its scope from the existing “Buyback Program” to “Buyback & Exchange Program” as per international best practices. Finance Division issued a notification that stated that the Buyback & Exchange of government securities is an important contemporary tool of a country’s debt management strategy and especially has gained more attention in the prevailing economic challenging conditions to achieve pro-active debt management targets i.e., utilization of surplus cash, removal of illiquid and expensive debt securities (off-the-run issues) to direct market liquidity into newer issuances (on the run issues) for improvement in system liquidity, for fiscal account management of ongoing financial year through reprofiling of debt maturities, etc. By repurchasing its own outstanding securities from the market before they mature, the government aims to reduce its liabilities and strengthens its fiscal position. The process involves using either government funds to buyback these bonds/securities (which stands retired) and transpires to decrease the overall outstanding debt (simple Buyback strategy), or, exchange the securities of specific maturity with another security of a different maturity (Buyback & Exchange strategy) to manage cash positions and address refinancing or rollover risks, by creation of maturity pockets at longer-end of the debt profile. It stated; With the approval of competent authority, the subject program’s scope has been enhanced from the existing “Buyback Program” to “Buyback & Exchange Program” as per international best practices To provide flexibility and in line with market practices, following eligibility criteria and auction criteria has been approved (as a replacement to previous criteria): Special auctions can be conducted, as deemed necessary by DMO, through a competitive bidding process against pre-auction announced targets. The notification issued in October 2021, Buyback of government securities enables the issuer to retire a portion of its outstanding debt before its maturity. These transactions are categorized as liability management operations.