ISLAMABAD, Nov 24: Balochistan government has fallen into a classic debt trap — taking new loans to service old — as its overdraft touched highest ever Rs16 billion this month and interest repayments exceeded Rs250 million per month, it is learnt.

The vicious circle of loans both emanating from the State Bank of Pakistan as overdraft (OD) and the federal government as cash development loan (CDL) has practically compelled the provincial government to freeze its current expenditure and development programme almost at the last year level.

A senior member of the provincial government confirmed that Balochistan has crossed central bank's borrowing limit by Rs16 billion but the pace of increase in the OD has been contained in the last couple of years.

He told Dawn that a resource-short province like Balochistan would never like to make a wasteful expenditure of Rs3 billion per year at the rate of Rs250 million per month in the shape of interest payments but the federal government has not been forthcoming to reduce financial woes of a poor province.

Responding to a question he said the federal government may be painting a rosy picture of development taking place in the country’s largest province, but the fact remained that these could be seen only on federally administered mega projects without improving the local conditions. The federal government claims it was currently executing development projects worth Rs130 billion in the province.

He said that there had been no progress on Balochistan’s dispute with the federal and Sindh governments over equitable distribution of royalty and gas development surcharge because of a status quo over the National Finance Commission (NFC).

The overdraft accumulated in financial years of 2003 and 2004 to Rs12 billion due to excessive borrowing for current expenditure and repayment of CDLs. Last year, this overdraft slowed down to Rs13.8 billion and has so far reached about Rs16 billion.

This year, there was practically no increase in about Rs5 billion current expenditure of the last year, except for about Rs37 million additional burden arising out of increase in salaries announced by the federal government.

Also the provincial Public Sector Development Programme (PSDP) has also been frozen at last year’s Rs7-8 billion, which actually means that development allocations have come down this year when seen in the context of general inflation and currency conversion rates. The centre’ principal cash development loan to Balochistan currently stands at around Rs6 billion.

He hoped that a reasonable amount of royalty on gas that had been held up with the federal government for many years would be retrieved in a few weeks. These receipts would hopefully reduce current account deficit of the province by over Rs1.5 billion.

Similarly, the provincial government was also expecting to get two separate tranches of Balochistan Resource Management Programme (BRMP) and Devolved Social Sector Programme (DSSP) in the current year that would help reduce CDL by about Rs2 billion, he added.