LAHORE, April 25: Punjab will use the project-free $350 million soft loan offered by the Asian Development Bank to swap a portion of its high-priced Cash Development Loan obtained from the federal government over the last several years.

According to finance minister Sardar Hasnain Bahadur Dareshik, the “federal government had already allowed the provinces to swap their expensive cash development debts with low-cost loans if and when possible”. The Punjab, he said, was behind the NWFP and Sindh in this respect. The loan swap is being sought by the province under the Provincial Debt Management Strategy evolved recently.

The ADB had offered the facility at just one per cent interest rate at a meeting of ADB chief in Pakistan Marshuk Ali with Chief Minister Pervaiz Elahi in March.

Finance department officials told this reporter on Friday that negotiations with the bank were on to finalize the loan. “We expect that we’ll obtain the loan during the fiscal 2003-04,” they said.

The Manila-based multilateral donor will provide the soft-term facility under the Punjab Resource Management Programme. The officials said the swapping of the high-cost CDL stock with a soft-term ADB credit would ease pressure on the meagre resources available to the province for development.

“We will be able to allocate greater resources to the social sector in the budget for the next fiscal after a reduction in our debt servicing burden,” they said and added that it was precisely what the ADB officials had desired the Punjab to do in return for this facility.

The cash development loans were obtained to finance the annual development programme of the province in view of the shortfall in federal transfers.

Punjab’s outstanding CDL stock stood at Rs86.94 billion — out of the accumulated debt burden of Rs121.2 billion on the province at the end of the year 2001-02 — as compared to Rs51.464 billion in 1991-92. The CDL stock stood at Rs9.516 billion in 1981-82 and merely Rs999 million in 1971-72.

The province has obtained cash development loans at as high an interest rate as 17.35 per cent in 1998-99. In the financial year 1997-98, however, the interest rate was as low as 8.5 per cent. In the remaining years since 1974-75, the interest rate paid by the province has never been less than 10.25 per cent.

The province will spend Rs16.131 billion or 14 per cent of its current budget of Rs117.10 billion for the current fiscal year on debt servicing. Last year, it had spent Rs17.445 billion on debt servicing.