Sindh to get $100m ADB loan next week: Payment of federal debts
By Sabihuddin Ghausi
KARACHI, April 7: The Sindh government is to receive a $100 million loan from the Asian Development Bank sometimes next week. Bulk of the amount - about Rs4 billion in Pakistani currency
- will be utilized for paying back the federal government loans and about Rs2 billion will be given to local governments.
Sindh Finance Minister Syed Sardar Ahmad informed Dawn that the provincial government had adjusted Rs2 billion federal government loans a year ago after getting $100 million loan from the World Bank.
Adjustment of about Rs6 billion loans, he said, would help in relieving the provincial government of debt servicing burden from the budget, creating some space for the development work in the years to come.
He said that all the provinces, including Sindh, wanted to pay back their expensive loans as was being done by the federal government. He mentioned the recent pre-payback of $1.7 billion by the federal government that also included the penalty payment.
Under the same strategy, he said, the Sindh government adjusted Rs2 billion a year ago and planned to pay back again Rs4 billion before the next budget. In reply to a question, Mr Ahmad says preparation for the next year's budget depends entirely on the announcement of the award by the National Finance Commission.
"We should have some idea of the availability of resources for the next fiscal year before we go ahead to draw up revenue expenditure and development budget."
He disclosed that from the next fiscal year district governments would be asked to prepare their current expenditure and development budgets, which would be discussed and debated in district assemblies.
"Once we get an idea of availability of resources for 2004-05, the Provincial Finance Commission will be called for meeting to decide on the share of districts."
Debt servicing had been remained a major constraint of Sindh's budget and, in the year 1997-98 it constituted 27 per cent of the total current expenditure. This was mainly because of the cash development loans and Rs11 billion overdraft of the State Bank.
Under a programme, the SBP overdraft has been cleared completely, and according to Mr Ahmad, the Sindh government maintained a credit balance with the State Bank.
But the burden of unpaid cash development loans (CDLs), loan given to finance the Social Action Programme, dig tube wells in the province and foreign loans remain on the Sindh government.
The federal government has been extending CDLs to the provincial governments for financing the annual development programmes. These loans are in equal instalments of principal amount and interest over a period of 25 years.
Sindh re-emerged as province in 1970 and had the first elected government in 1971. The 1974 award of the National Finance Commission wrote off all the loan liabilities on Sindh and other provinces.
Since 1973-74, the Sindh government received 27 cash development loans amounting to Rs36 billion. The federal government stopped providing these loans to the provincial governments till the year 2000-2001.
Sindh carried a burden of Rs110 billion loan till 2001-02, of which Rs43.5 billion was obtained from Islamabad and Rs65 billion worth of credit from foreign donors.
The federal government loans are very expensive and carry more than 17 per cent annual interest. The mode of repayment is very complicated, which is deducted at-source every year from share of Sindh in the federal divisible pool.
The Sindh government started paying back only interest from 1973-74 till 1978-79. Sindh's debt servicing during these six years did not clear a single payment of the principal amount of the loans. It was only in 1979-80 that Sindh paid the first instalment of the principal amount.
During the last 28 years, from 1973-74 till 2000-01, Sindh paid back more than Rs59 billion against total loan amount of Rs36 billion. Even then the unpaid principal amount is over Rs30 billion. A sum of Rs52.75 billion was paid as interest on the amount.
Financial experts say that Sindh will have to pay back about Rs100 billion more to clear all the existing loans and interest, which go on compounding with every passing day. During the last 28 years, Sindh's payment of Rs59 billion included 81 per cent towards interest only and hardly 19 per cent has adjusted Rs6 billion principal amount.
The federal government has obtained relief from the foreign donors and has brought down its debt burden. The provinces have a much strong case in terms of moral values and economic justification. The loan adjustment is bound to emerge as the main issue in the forthcoming NFC award.
