RAWALPINDI, June 21: The Punjab government plans to reduce its debt servicing to Rs10 billion over the next three years as part of its financial management reforms, officials said here on Saturday.

The provincial government’s total debt is Rs146 billion. The province allocates Rs17 billion on debt servicing, which has eroded its resource base, financial managers say.

The provincial government has created Debt Management Cell in the finance department to analyse the problem. The cell is expected to submit its findings in September this year. The government is hiring professionals on contractual basis to run the cell.

The over-riding principle for debt management strategy of the Punjab government is creating fiscal space to finance critical non-salary expenditures and development charges.

The increase in debt burden has left little for the government to spend on development activities and in critical social sectors.

At present, 57.18 per cent of the loans, amounting to Rs83742.474 million, is the Cash Development Rupee Loans received from the federal government, carrying an average interest rate of 14.625 per cent. Out of 51 such loans, 30 have interest rate of over 15 per cent, while that of the remaining is less than 15 per cent.

The Punjab government plans to retire these high cost loans earlier than the period specified in the amortization schedule. The second category comprising 32.39 per cent of the provincial loans has a total value of Rs47442.53 million, which is foreign exchange loans carrying an average interest of 1.090 per cent per annum.

Another 0.07 per cent of the debt burden bearing a value of Rs16 million is the Punjab Loan 2004. This loan has an interest rate of 16 per cent and will mature during 2004.

The government owes Rs75.747 million, constituting 0.05 per cent of the total size of debt, under the Punjab Loan 2008.