PESHAWAR, Jan 7: Reduction in the rate of interest on saving schemes has added to the financial worries of the NWFP government, adversely affecting its plans to enlarge the size of its pension fund, sources said.

In late 1990s, the provincial government established the pension fund with an aim to take care of its future liabilities under the same head is increasing at an alarming rate with every passing year.

According to official sources, NWFP's annual pension bill rose from Rs466 million in the 1990-91 financial year to Rs3.6 billion in 2002-03 financial year growing by 670 per cent during the last one decade.

Expenditure under the same head is expected to rise to Rs10 billion after a period of 10 years when the employees recruited, mostly on political grounds, in the mid-80s would start getting retired.

The province, according to official data, has a total of 282,000 employees of which around 90 per cent work in the pay scales 1, 2, 5, 7, 9, 16 and 17. Keeping in view the intensity of the issue the province had set up pension fund in 1997 to set aside certain amount of funds from the provincial government's kitty every year to get ready for the time when pension bill would start eating considerably large portion of the provincial revenue receipts around 2009-10 financial year.

As per government's plans, the size of the pension fund had to be enlarged substantially every year to make it able to take care of the annual pension bill by utilising the amount to be accrued as interest on the actual investment.

However, said the sources, resource constraints experienced by the province did not allow any of the successive provincial governments to make substantial investments in the pension fund.

The last military-backed civil government, said an official source, appeared to be least bothered about putting money in the pension fund as its move to curtail non-developmental expenditure cost heavily to the pension fund.

The province, said the source, had a total of Rs2.3 billion in its pension fund at the start of the 2002-03 financial year in which the provincial government invested around Rs300 million more by shifting part of the funds generated through savings under the current revenue account at the close of the last financial year.

During the current financial year, the provincial government has not been able to make investment in the pension fund, so far, due to paucity of funds. "More investment in the pension fund is likely to be made in the end of the current financial year given that provincial government record savings in its current revenue account," said a senior finance manager of the province.

If the government was not able to invest money in the pension fund then its size would grow during the current financial year only by the amount to be accumulated on account of interest on the investment already made in different saving schemes in the past, said an official.

"On the average, interest rate on the funds invested in pension fund ranges between six and seven per cent per annum," he said. "Hence, if there is no investment then the size would grow only by the amount to be generated through the interest amount."

In view of the reduction in the rate of interest on saving schemes effected during the last couple of years, provincial government's plans to utilise pension fund to take care of its annual pension liabilities after a span of 10 to 15 years is likely to remain far from a success.

Though the plan launched in 1997 was considered to be of great utility, the decreasing rate of interest on saving schemes left the provincial government's plan in a shambles, said the official.

With the financial institutions and banks offering interest rate of two to three per cent under new savings schemes, he said, the move to enlarge the size of pension fund was not likely to pay dividend to the provincial government and fulfil the purpose for which the fund was created.