ISLAMABAD, June 19: The federal government has turned down a request for prepayment of provincial loans through low-interest market loans but offered to revise the National Finance Commission award provided the provinces reached consensus on horizontal distribution of resources.

Adviser to the Prime Minister on Finance Dr Salman Shah said at a post-budget seminar on Monday that the federal government would not allow the provinces to arrange short-term loans from the market on low-interest rates and pay back their expensive long-term cash development loans (CDLs) to the Centre.

He said the CDLs were long-term loans given to the provinces on certain terms and conditions, and if such loans were to be paid back to the Centre before the agreed time, they would have to pay additional cost and penalties for prepayment.

The provinces have been saying that the repayment cost of interest and principal of CDLs is very high and they want to replace it with low-cost loans currently available with the banking sector.

Responding to a question regarding the NFC award, the adviser said: “We are ready to give new NFC award if the provinces agree on horizontal distribution formula. The provinces issue different statements in public and hold different views privately about the interim NFC arrangement to be enforced from the fiscal year 2006-07.”

He said the announcement of interim NFC award by President Musharraf for the next five years had helped the provinces get higher financial resources which enabled them to announce enhanced development budgets for the next fiscal year.

About the construction of big dams, Mr Shah said opposition parties adopted double standards, as they welcome the construction of five big dams in one province but oppose them in another province. He said if the opposition announced to support all five dams, the government would arrange required funding.

He asked representatives of the business community to adopt resolutions in support of big dams, including Kalabagh dam, through different chambers of commerce and industry across the country to help the government achieve consensus on the subject.

He claimed that prices of sugar were coming down after State Bank’s decision to impose a 50 per cent cash margin on all fresh advances/disbursements by banks against sugar stocks to discourage hoarding and ensure price stability of the commodity. After government’s steps, he said, everyone including importers and sugar mill owners wanted the public sector to purchase sugar at Rs33 per kg from them.

He said the federal budget had provided direct relief to each segment of society by increasing salaries, pensions and Rs100 billion subsidies for most poor population, workers, women, agriculture, industries and rural development. He said the subsidies were being provided to the areas of food, power, fuel and social sectors.

Dr Shah said Pakistan could not make progress without improving the tax-to-GDP ratio and broadening of tax base should cover all segments of society across the board in the years to come. He said tax rates could be reduced provided the tax net expanded and even the GST rate (15 per cent) could be brought down.

Comparing Pakistan with other regional states in terms of direct taxes, Dr Shah said the ratio of direct taxes stood at 32 per cent in Pakistan, which was 27 per cent in case of India and even on the lower side in Bangladesh.

The national economy should be transformed in such a manner where the establishment of monopolies could be avoided from the hands of private sector after coming out from the clutches of public sector, he said, adding that Pakistan’s economy is agro-based and availability of water is not up to the mark.

The adviser said the government would come up with strengthened Competition Authority where certain powers would be given to the upcoming public sector entity for curtailing undue profiteering.