KARACHI, Sept 14: The Sindh government is now formally demanding the refund of the entire amount that was paid to service those federal loans which were, in fact, never borrowed and the liabilities are being attributed to bad accounting practices and non-reconciliation of accounts.

A Debt Committee in the Federal Economic Affairs Ministry has taken up the issue of more than Rs300 billion federal loans, which include Rs110.26 billion shown in the books, which were given to Sindh.

Contesting these liabilities, the Sindh government wants Islamabad to allow the provinces to borrow from the market to swap with the loans taken from Islamabad. In respect of servicing the foreign loans, Sindh wants the same concessions and relief which Pakistan government has been able to obtain from foreign donors.

“We enjoy provinces support on this issue,” Syed Sardar Ahmad, the Sindh’s finance minister informed Dawn on Wednesday who disclosed that an initial meeting was held in Islamabad followed by a meeting of the finance secretaries of the four provinces at Lahore this week.

After carrying out a scrutiny of the loans obtained by the Wapda for SCARP in the province, the Sindh government found that a sum of Rs5.65 billion has been released and utilized as against Rs19.95 billion being shown as the loans booked by the Wapda for Sindh. Against this liability, Sindh paid Rs21.8 billion, which include Rs3.96 billion for adjustment of the principal amount.

“We have verified our figures with the Wapda,” Sardar Ahmad claimed.

In his budget speech delivered last June, the Sindh Finance Minister had disclosed on the basis of preliminary analysis “We paid Islamabad Rs32.20 billion against our liability of Rs15 billion thus ending up with overpayment of Rs17 billion.”

The account books show federal government advanced Rs38.12 billion loans to Sindh to finance its annual development programmes since 1974 to 1999. Against this liability, Sindh serviced Rs89.13 billion which adjusted Rs18.44 billion of CDLs leaving an unpaid liability of more than Rs17 billion.

Sindh wants a review and scrutiny of these liabilities and a blanket permission for all the provinces to borrow from the market to pre-pay all these loans to Islamabad.

In his budget speech, Sardar Ahmad had complained that even after having informed Islamabad of the anomaly detected in the SCARP related CDLs, the federal government continued to deduct at source the loan servicing charges, the Sindh had never borrowed.

Sindh’s total loan liabilities are Rs110.26 billion. This includes Rs35.75 billion CDLs both SCARP related and loans obtained to finance ADPs. The foreign loans liabilities amount to Rs74.51 billion. “The cost of CDLs hurt us more because of the exorbitantly high rates of interest that range from 12 per cent to 18 per cent,” Sardar complained. Besides this high interest rate, the mode of debt servicing is such that a very big chunk of repayment goes towards the interest payment and only a small amount goes towards payment of principal amount.

Sindh government has been able to retire prematurely Rs6.20 billion federal loans against borrowing from the Asian Development Bank in two years 03-04 and 04-05. There is a plan to adjust Rs2 billion in the current fiscal year too from a World Bank loan. The premature retirement of loans in last two years provided Sindh government a benefit of one billion rupees debt servicing relief.

The issue of federal and provincial loans is an important issue on the National Finance Commission. It was addressed only for once in the first NFC in 1974. A solution of this long pending issue — almost 30 years — will go a long way in giving good fiscal space to the provinces and local governments to take up real nation building task.