LAHORE, Oct 20: The Punjab hopes to receive the first tranche of a low-cost $450 million loan from the Asian Development Bank (ADB) some time next month.

The size of the first tranche, provincial finance minister Hasnain Bahadur Dreshak told Dawn here on Monday, would be $100 million.

The details of the agreement have already been sorted out, and officials expect it to be signed shortly.

ADB is providing the loan under the Punjab Resource Management Programme for poverty alleviation, financial restructuring and private sector development.

The project-free loan will be used by the Punjab government to retire a part of its expensive Cash Development Loans stock of Rs83.742 billion.

The Punjab intends to pay the federal government at least Rs45 billion — Rs15 billion each year — to slash its CDL stock. This would help the province save Rs1.7 billion each year. In all, the provincial government will save Rs5.1 billion per year on account of debt servicing from the fiscal 2005-06.

The provincial government plans to trim down its CDL burden by using low-cost loans to be obtained from ADB and the World Bank.

Finance department officials say the “retirement of the high-cost CDL stock will provide them the much needed fiscal space for development”.

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 15 per cent or above is Rs54.972 billion, and the interest rate on the remaining 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 current year 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 loans as well as disposing of public sector enterprises and properties (of Rs4.192 billion) to service debt. In addition to it, the state land under illegal occupation will also be sold to generate funds to retire the expensive debt.

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 savings schemes.