LAHORE, July 6: The Punjab government has brought down its interest servicing cost for its cash development loans and foreign loans as proportion of current expenditures to just 7.38 per cent during this fiscal year from 12.51 per cent in 2000-01.

The reduction in the interest servicing cost has been achieved by the government because of the "actual decrease in the interest payment (on the two kinds of borrowings) as well as a hefty 32.40 per cent increase in the current expenditures since 2000-01."

The interest payments on CDLs and foreign loans in 2004-05 are estimated at Rs10.471 billion against the current expenditures of Rs141.877 billion, according to the budget documents for the ongoing fiscal year. This compares to interest payments of Rs13.402 billion and current expenditures of Rs107.153 billion in 2000-01.

Punjab's CDL stood at Rs68.449 billion - or 44.50 per cent of the province's debt stock of Rs153.843 billion - at the start of the current fiscal on July 1. The average rate of interest on the provincial CDL stock is calculated at 14.44 per cent.

On the other hand, the province's foreign exchange loans stand at Rs68.68 billion and constitute 44.65 per cent of its debt. The average rate of interest on it is 1.09 per cent.

In view of the huge differential on the average interest rates on CDLs and foreign loans, the provincial government is executing from the last fiscal year its debt management strategy to "retire the high priced CDL stock with low cost loans" from international donors.

Two such loans have already been obtained from the World Bank for the provincial education sector reforms programme and another from the Asian Development Bank for the resource management programme.

In 2003-04, the Punjab government retired Rs12 billion that has resulted in a saving of Rs900 million on account of debt servicing. This year the province would be able to save Rs1.95 billion due to this swap.

The managers of the provincial kitty claim that their plan to swap expensive CDL stock with low-priced loans obtained from the international donors will result in a total saving of Rs10 billion through reduced debt servicing costs each year from 2008.

In his budget speech, finance minister Sardar Hasnain Bahadur Dareshek said the savings from the premature debt retirement would provide the province the much needed fiscal space for expanding its annual development programme.