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Informist, Monday, Nov. 25, 2024

 

--Fin min source:Gilt buybacks to be regular in coming yrs on repayment hump

--Fin min source: Govt may go for gilt buyback whenever cash position allows

--Fin min source: Gilt buybacks may massively help lower upcoming redemption

 

By Krity Ambey and Sagar Sen 

 

NEW DELHI – The government's bond buybacks, which has made a reappearance in 2024-25 (Apr-Mar) after a gap of over six years, are set to be a regular affair for the next few years as the Centre faces record high debt repayments in coming years, a finance ministry official said. "Of course, buybacks depend on our cash position, but going ahead whenever we have a comfortable cash position, our first priority will be buying back old loans."

 

The government has bought back gilts worth about INR 800 billion so far in FY25, out of which, securities worth INR 493.87 billion were set to mature in the next financial year.

 

"It (buyback) should go on to become a more regular thing. It is a very good option to manage the redemptions," the official said. "Our redemptions are going to be huge in the next few years due to the COVID loans, so buybacks are a great option to smoothen that."

 

The government's bond redemptions are set to rise sharply from the next financial year beginning April as the debt raised by it during the COVID-19 pandemic starts turning up for repayment. In fact, the scale of government borrowing has durably increased since 2020-21 as it did away with off-budget financing, resulting in a sharp rise in the fiscal deficit. The Centre's borrowing had jumped to INR 12.60 trillion in FY21 from INR 7.10 trillion in FY20 as the fiscal deficit ballooned to 9.2% of GDP due to the COVID-19 pandemic.

 

In FY26, securities worth INR 4.34 trillion are due for redemption, which include up to INR 700 bln worth of loans related to goods and services tax compensation for states that will be funded from compensation cess collections. This means the government will have to repay around INR 3.79 trillion of debt from its own coffers next year. This is nearly 60% higher than its bond redemptions in the current year.

 

The bigger challenge for the government starts from FY27 when its redemption obligation is set to shoot to INR 7.11 trillion, nearly thrice of what it needs to repay in the current year. The redemption in FY27 includes INR 1.36 trillion of GST compensation bonds, which possibly includes GST compensation loan of INR 1.23 trillion that the government will clear this year, as there are no GST loans lined up for maturity in FY25.

 

A look at the government's redemption pattern in the upcoming years shows that the obligations are especially high for years when gilts issued in FY21 and FY22 are set to mature, as most such papers have an outstanding stock of over INR 1 trillion. It was during the pandemic that the government increased the informal ceiling for the amount outstanding on a single paper.

 

In FY27, two gilts issued in FY21 are due for maturity. Subsequently, there are no pandemic period loans maturing in FY28 and FY30 and the repayments are set to moderate to INR 5.79 trillion and INR 5.96 trillion, respectively. The redemptions are highest in FY31 at INR 7.89 trillion when three FY21 papers are set for maturity, each with an original outstanding stock of over INR 1 trillion.

   

With such huge repayments ahead, the government would like to retire some loans in advance through buybacks, said the finance ministry official. "Buybacks can massively help in lowering the burden," the official said.

 

The lumpy repayment obligations due to large amounts outstanding on individual papers suggests that the government may also have to buy back bonds maturing later within the same year.

 

In fact, the finance ministry, in its press release announcing the indicative borrowing calendar for Oct-Mar, has for the very first time mentioned that it will "carry out switching/buyback of securities to smoothen the redemption profile." In the previous years' releases, the ministry only mentioned switch operations as an option to manage redemptions.

 

Before this year, the government had last bought back gilts on March 2018 when it accepted bids worth INR 137.88 billion.  End

 

With input from Aaryan Khanna

Edited by Ashish Shirke

 

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