April 8, 2002	Monday	Muharram 24, 1423

THE financially over-burdened and heavily debt-laden provincial governments are unanimous in their demand on the federal government to reduce their heavy debt, if that can’t be written off altogether, and cut the interest rate on the left-over loans.

While the federal government has been able to reduce its external debt burden in many ways, including outright debt reduction, interest rates cuts, re-scheduling the loans for long terms, as much as 38 years and debt for social development swaps, the provincial governments have received no such relief, while their administrative burdens are increasing. The federal government has also reduced the interest rates on domestic loan by about a third of the earlier cost.

The reason for the provincial finance ministers to be so agitated about the whole issue is the fact that this year alone they will be paying a total of Rs29.5 billion as interest alone to the federal government while they had paid Rs29.77 billion last year. And in 1999-2000 they had paid Rs27.27 billion making a total of Rs87 billion in three years. Such heavy annual payments go to meet the interest cost alone and do not reduce the very heavy principal sum.

The fact is the Centre has been trading on the loans it gets from foreign countries. While the interest rates it pays can be as low as 0.75 per cent for the loans and 2 to 4 per cent for other bi-lateral loans it had been charging the provincial government as much as 17 per cent. Hence the heavy payments which the provincial governments make annually go to meet only the interest cost. And they are in perennial debt.

Punjab finance minister Tariq Hameed says the loans obtained from the Centre during the last 22 years total Rs 110 billion to Rs115 billion. Sindh’s debt is also to the extent of Rs110 billion.

All this is happening in a country in which interest was abolished in 1985. But since then the interest rates which the provincial government have to pay have been going up and up. The interest rate of the federal government for the provinces has risen from 9.25 per cent in 1973-74to 17.70 per cent in 1998-99.

As a result of such trading on loans to the provinces and lending to the public sector borrowers, like Wapda or the KESC the Centre will be getting Rs65.2 billion as interest payments this year while it received Rs51.4 billion last year. So the public sector units which borrow from the government are afflicted by a heavy debt problem and the compulsion to make hefty interest payments annually while their capital sum borrowed does not come down.

Now if the provincial governments succeed in getting their loans reduced and interest rates cut to reflect the new reality the heavily indebted public sector institutions, too, would make similar demands on the federal government and it cannot refuse.

And to add to the problems of the provincial governments the federal government has stopped cash development loans to the provinces f