LAHORE, June 15: Punjab will pay the federal government Rs45 billion in the next three years to retire a major part of its expensive Cash Development Loans (CDL) stock of Rs83.742 billion, resulting in a saving of Rs5.100 billion for the province each year for development.
The provincial government plans to trim down its CDL burden by using low-cost loans it would get from the Asian Development Bank and World Bank during the next three financial years under the Punjab Resource Management Programme and for reforming the education sector. Both the donors have already approved the loans.
The province will pay Rs15 billion to the federal government each year starting from 2003-04, saving it Rs1.700 billion a year on debt servicing.
“The retirement of high-cost CDL stock will provide us the much-needed fiscal space. We have decided that the money saved in this way should be spent on development projects. In three years, we’re going to get extra resources of Rs5.100 billion each year for financing development projects,” finance minister Hasnain Bahadur Dreshak told reporters at his post-budget press conference here on Sunday.
Punjab’s CDL stock constitutes some 57.18 per cent of its total debt of Rs131.128 billion (inclusive of foreign liability of Rs47 billion) and carries an average interest rate of 14.625 per cent. The balance of CDL carrying interest rate of 15 per cent or above is Rs54.972 billion, and the interest rate on the remainder Rs28.769 billion is less than 15 per cent.
As of today, the government has to make a payment of Rs195.942 billion by 2025-26 on account of total liability of its CDL pile. The province had allocated Rs17.875 billion for debt servicing in the current fiscal. The amount set aside to service debt has shot up to Rs30.632 billion (including Rs15 billion arranged to retire a part of the CDL stock) in the ensuing year’s budget.
The finance department has drawn up a debt management strategy to reduce the high-cost debt burden on the province. The strategy calls for swapping high-cost loans with low-cost ones as well as disposing of public sector enterprizes and properties (of Rs4.192 billion) to service the debt. In addition to it, the state land under illegal occupation would also be sold to generate funds to retire the expensive debt.
Finance secretary Salman Siddique said the strategy evolved to reduce the debt was not final, and could be changed and improved.
The provincial government had borrowed the CDL from the centre to finance its development in the past. The federal government is said to have borrowed the money (from public) at a high interest rate through the national saving schemes.
Although the federal government has allowed Punjab to cut down its CDL stock by swapping part of it with low-cost foreign loans, it has turned down the provincial government’s proposal to let it arrange soft-term credit of Rs33 billion from the Pakistani banks to offload the remaining CDL burden.
“Since the federal government itself is paying very high rates on the NSSs on account of the loans provided to the provinces, it cannot afford to allow us to swap our costly loans with soft-term bank borrowing and, that too, in one go,” said the minister. But, he added, the federal finance minister had promised to reconsider the request next year.
Another problem being faced by the provincial government is on account of its General Provident (GP) Fund accumulations (which are in addition to the CDL and foreign debt liabilities) that have grown to Rs15 billion this year. Unsustainable high interest rate of 19.915 per cent on GP Fund accumulation and enhanced rates of subscriptions have added to the gravity of debt-servicing problem for the province’s finance managers. The Fund is expected to rise to Rs15.511 billion in 2004-05, and decline to Rs5.640 billion in 2008-09 because of an increase in its payment. The government has budgeted Rs3.60 billion to pay interest on its GP Fund liability.
