ISLAMABAD: The government has increased the markup on development loans and advances to the provincial, local bodies, state-owned enterprises (SOEs) and public sector financial institutions by almost one percentage point for the previous fiscal year, which ended on June 30.
In a notification issued on Thursday, the finance ministry has fixed the markup rate for the 2021-22 fiscal year at 11.2 per cent, up from 10.30pc a year ago.
The federal government charges these markup rates on cash development loans to the provincial governments, Azad Jammu and Kashmir (AJK) and Gilgit-Baltistan, besides loans extended to local bodies, public sector entities (PSEs), corporations, autonomous bodies, financial and non-financial institutions and capital outlays of the federal government in the commercial departments.
Since the 2017-18 fiscal year, the markup charged by the federal government has increased from 6.62pc.
Rate increased to 11.2pc for previous fiscal year from 10.3pc a year ago
The federal government generally contracts development loans from international lenders, mostly at around 2pc, and extends them onward as cash development loans to the provinces and other institutions at significantly higher markups.
Based on these loans, the federal government is forecast to generate more than Rs300bn as gross interest receipts, including Rs40bn from provincial governments and about Rs260bn from PSEs and other entities.
The federal government advances loans to provinces, the AJK government, public sector enterprises, local bodies and others to assist them in carrying out their development programmes and social initiatives. These loans and advances are of two types, namely cash development loans and foreign re-lent loans.
The federal government advances the cash development loans out of its resources, whereas all others are primarily foreign re-lent loans.
Markup accrued on the loans granted by the federal government to provincial governments, local bodies, financial institutions, non-financial institutions, commercial departments and government servants is one of the key sources of the federal government’s revenue stream.
The markup is chargeable per the terms and conditions of each loan agreement but is revised every year based on the government’s debt servicing cost on government papers like investment bonds and treasury bills.
Published in Dawn, November 18th, 2022
