PESHAWAR, March 6: The NWFP government got rid of Rs5.7bn expensive loans at the start of the current financial year resulting into lowering of its monthly debt repayment instalment by about Rs105m, according to official sources.

The move to retire very expensive cash development loans — payable to the federal government — the province is likely to save around Rs1bn every year.

The province is presently paying Rs530m every month to retire part of its multi-billion rupees loans collectively payable to the federal government and international donor agencies.

NWFP was recently released Rs5.7bn loan by the World Bank of which it diverted Rs3.7bn to clear the CDL.

Furthermore, the last government arranged another Rs2bn from its own resources, including different types of funds and savings, to repay the expensive CDLs bringing the total repayment made at the start of the current fiscal year to Rs5.7bn.

The province’s total internal and external debt stood at over Rs73.9bn at the close of the last financial year including Rs36.6bn payable to the federal government against the cash development loans (CDLs) the province has been obtaining to finance its annual development plans since early 1970s.

The province is also bound to pay Rs37.4bn to the international donor agencies against the financial assistance they have been extending to it to carry out development projects in various sectors.

The province, according to the sources, has been estimated to save over Rs1bn every year after having cleared some of its most expensive CDL.

In some of the cases the province, said the sources, had obtained CDL at over 17 per cent interest rate - much higher than the rate presently being charged by banks and DFIs.

Provincial finance managers are of the view that though the lowering of the monthly debt repayment instalment seems to have little positive impact, the move would gradually ease off the pressure the provincial kitty undergoes because of very expensive loans.

The province repaid over Rs8bn during the last financial year of which only a marginal sum of Rs1.68bn served the principal amount and the remaining amount went down the drain on account of mark up—payable against the total provincial liabilities.

For the 2002-03 financial year the province had initially allocated Rs8.67bn for debt servicing. However, the original spending under this head are likely to be much higher than the initial estimates after the province retired Rs5.7bn loans alone in early July last.