RAWALPINDI, June 21: The Punjab government has agreed to a policy, under the Punjab Resource Management Programme, to capitalize the General Provident Fund (GP Fund) as it is finding the scheme unsustainable in its current shape, officials said.

"The government is looking for ways for the prudent management of the GP Fund scheme by investing the amounts and distributing the profits among the account holders, thereby relieving itself of the interest liability," an official said.

There is a general perception that the growing GP Fund liability may become an obstacle in providing money for the priority areas. A task force had been constituted last year to examine the existing structure of the scheme and to come up with recommendations for its sustainability.

The task force, it has been learnt, has recommended that a separate GP Fund account should be set up and proper investment should be made under professional management and handling.

Besides, it has been recommended that the maintenance of existing fund accounts should be entrusted to independent professional managers. There is a realization in the government circles that if the Fund was not capitalized, the government may eventually have to pay the liability in later years through its own resources in addition to the interest payment on it.

A study conducted in this regard had revealed that after the year 2016, the Punjab government will need to put in additional resources of Rs65 billion into the GP Fund if the present situation was left unattended.

The government at present is paying interest on the GP fund accumulations at a rate of 14.5 per cent. The allocation for interest payment on the fund for the year 2004-05 is Rs2,157.746 million.

Moreover, the rates of disbursements are higher than receipts in the fund. The increase in the salaries of government employees has also raised the subscription amount, leading to a greater liability on the Fund.

The scheme was introduced when interest rate on bank loans was much higher, but the situation is quite opposite now with interest rates on the fund much higher than any other scheme.

Other problem confronting the government with regards to the scheme is that the accounts are not updated and, therefore, it is not exactly aware of its liability.

An official report said: "the accounts do not depict the exact size of liabilities due to unrecorded subscriptions and interest thereon. "As a matter of fact, the individual accounts are updated only when the subscriber demands final settlement of his accounts," it added.