ISLAMABAD, May 15: The federal government has refused the provinces’ demand to partially waive cash development loans amounting to Rs200 billion, disallowing them to borrow money from the market to pay back the costly liability.

“It can’t be (done) just like that. We have already increased their grants a lot,” adviser to the prime minister on Finance Dr Salman Shah told Dawn on Monday.

He said that the provinces had been told to implement fiscal reforms, maintain strict fiscal discipline, increase revenue generation and improve monitoring and implementation before the centre even considered helping them out.

He said relief in cash loan repayment was a kind of grant, whether through a waiver or change in loan conditions, adding that grants to provinces had already been increased under the interim National Finance Commission (NFC) award.

The provinces had been insisting that they would set aside a major portion of their budgets for repayment of interest and principal amounts of loans to the federal government, leaving limited fiscal space to fund their development programmes or meet their current expenditures.

They wanted the centre to put in place a mechanism to reduce their loan liability or allow them to borrow to refinance CDLs through cheap banking sector loans, which would enable them to save on interest payments.

The cash deposit loans carry about 17-18 per cent interest rates. Commercial banks are ready to lend money to the provinces at mark-up rates between six and eight per cent. Under the Constitution, the provinces cannot borrow directly from the banking sector without the centre’s permission.

The provinces argued that the centre had achieved enough fiscal space through rescheduling of its foreign debts and the same principle should be applied to the cash development loans to provide relief to the provinces.