LAHORE, May 31: The Asian Development Bank (ADB) has agreed to provide low-cost loan of $450 million to the Punjab government for financial restructuring, poverty reduction, income generation and promotion of the private sector in the province.
The ADB approval to provide the loan to Punjab was conveyed by its officials at a meeting with Chief Minister Pervaiz Elahi here on Saturday. Senior government officials from the finance and the planning and development departments were also present on the occasion.
The loan will be disbursed to the provincial government in four years, according to the officials. The first tranche of $150 million will be released during 2003.
The Punjab government, officials told Dawn, was likely to “sign a memorandum of understanding with the bank early next week.” The ADB was providing this ‘project-free’ loan under the Punjab Resource Management Programme (PRMP).
An official handout later said the chief minister apprised the ADB mission about the measures taken by his government to “uplift the economy of the province and reduce poverty.” It claimed “the government has set up cells to monitor the pace, quality and the results of the development projects undertaken for the uplift of the people.” Both the Punjab government and ADB are working to achieve the same objectives: to alleviate poverty, improve social sector and provide basic facilities to the masses.
The Punjab, according to senior finance department officials, would use the ADB facility to swap some portion of its high priced Cash Development Loans (CDL) obtained from the federal government over the last several years to finance development in the province.
Finance Minister Sardar Hasnain Bahadur Dareshak had told this reporter a few weeks ago that the “federal government had already allowed the provinces to swap their expensive CDL with low-priced loans whenever possible.”
The Punjab is said to be lagging behind the NWFP and Sindh in this regard.
The loan swap is being sought by the Punjab government under a Provincial Debt Management Strategy (PDMS) evolved recently. “The swapping of the highly expensive CDL debt stock with the low-cost ADB facility will ease pressure on the meagre resources available to the province for development,” the officials said and added it (debt reduction) would provide “fiscal space” to the government to allocate greater resources for development in the coming years.
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 — 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 1971-92.
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 stood at 8.5 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 to service debt. Last year it had spent Rs17.445 billion on debt servicing.