KARACHI, May 10: All the four provinces have expressed serious reservations on the federal government’s concessional mark-up offer of 11 to 12 per cent on the cash development loan given by Islamabad during 1999-00.

After 1999-00, the federal government stopped providing cash development loans to the provinces. Islamabad had levied an interest rate of more than 18 per cent on this loan amount which is expected to come down to 11 to 12 per cent.

The federal government offered this concessional mark up last month when the finance ministers of all the four provinces held a meeting in Islamabad on March 29, and demanded that Islamabad should write off all the loans given since 1975.

Another demand raised by the provinces with Islamabad was to review the stringent loan conditionalities, particularly relating to the annual servicing. Under the existing arrangement, the provinces annual debt servicing include 90 per cent on account of mark up and only 10 per cent to adjust the principal amount.

Debt servicing amounts of each of the four provinces are deducted from their respective shares in the federal pool fund. In case of Sindh, all these at source deductions, that include annual debt servicing and other liabilities on account of Wapda and Ministry of Food and Agriculture, constitute more than one- third of the total cash flow from Islamabad. It means the net cash inflow from Islamabad is hardly two-third of what is provided every year.

Islamabad has been recovering anywhere from 16 to 18 per cent interest every year on the cash development loans from the provinces. This excessive and exorbitant interest rate has crippled the finances of the provinces particularly of Sindh and Balochistan, they were finding book keeping a difficult exercise.

But Islamabad’s recent response has hardly amused the finance minister of any of the four provinces. All these finance ministers are maintaining a discreet silence and have indicated their disappointment.

Sindh’s total debt stock is Rs110 billion of which the cash development loan amount of the year 99-00 is only Rs1.98 billion. The federal government had levied an interest rate of 18.1 per cent on this loan, which would now come down to 11 or 12 per cent.

“This is an insignificant amount,” retorted an official of the Sindh government who pointed out that his government obtained a total amount of Rs36.05 billion cash development loans from Islamabad since 1973-74. Out of this amount, Rs59.21 billion has been paid back and still an amount of Rs30.11 billion remains unpaid.

“This is simple usury prohibited in Islam, but is being practised by Islamabad with impunity for decades,” a young officer angrily pointed out. Sindh government officials say that of the total amount of Rs59.21 billion paid back to Islamabad since 1973-74 hardly 11 per cent of the principal amount has been adjusted and more than 89 per cent went as interest earning of the federal government. “It will take two more decades and one more generation to pay back the entire principal amount of unpaid Rs30 billion loan to Islamabad,” he said.

The provinces want to start the year 02-03 with a clean slate that is without any debt servicing liability. The federal government has restructured more than 12 billion dollars of loans with the lenders. Provinces want similar relief for themselves from Islamabad. There is also a demand that future federal loaning to the provinces should be such that servicing is manageable from the incomes to be generated from the schemes on which these amounts are invested.

A working group of the National Finance Commission is reported to have finalized its report on debt issue. The final meeting of the NFC is expected to be held in Karachi late May and provincial debt adjustment would be one of the issues the NFC award would address.