PESHAWAR, June 13: The NWFP government has planned premature retirement of Rs5 billion federal loans in the financial year 2007-08. A finance department official told Dawn that the provincial government was anticipating improved financial condition in the next fiscal year mainly due to higher proceeds from the federal divisible pool, straight transfers and subvention.

Besides, the provincial government would receive $130 million soft loans from the World Bank, a major portion of which would be utilised for the premature retirement of various Cash Development Loans (CDLs) that carry high interest rates ranging between 15 and 17 per cent, the official said.

“The early retirement of such expensive loans will expand the fiscal space enabling the provincial government to undertake various development activities as envisaged under the Provincial Reform Programme (PRP-II). The World Bank’s loan is tied with the implementation of the PRP-II,” the official said, adding that the retirement of CDLs before their schedule had remained a bone of contention between the federation and provinces until recently.

The provincial governments had been insisting on replacing the expensive CDLs with inexpensive loans available in the market, while the federal government had paid little heed to the proposal since it could affect the financial management, the official said.

The federal government took almost two years in adjusting the early repayment of loans against various CDLs made by the NWFP and Punjab in 2004-05.

The MMA government has been pursuing the Debt Management and Reduction Strategy (DMRS) to get the expensive federal government loans reduced with inexpensive credit available in the market. Its initial plan was to retire Rs15 billion expensive loans within five years to enhance the fiscal space for meeting the current development expenditures. Three CDLs totalling Rs5.7 billion, Rs1.9 billion and Rs24.574 billion were retired in 2003, 2004 and 2005 respectively, which created a permanent fiscal space of over Rs2.1 billion through the World Bank’s earlier financial assistance.

The official said the federal government had recently relaxed its policy to some extent and agreed on adjusting some CDLs if the provinces were ready to retire them before the schedule.

“In view of such development, the provincial government will retire at least Rs5 billion worth of CDLs in the next fiscal year to keep the DMRS intact,” the official added.