PESHAWAR, Oct 19: The NWFP’s proposal to get rid of the expensive loans payable to the Centre failed to attract the federal authorities to renegotiate the terms and conditions, sources said.
“The NWFP government’s move to get rid of the expensive loans failed to succeed after Islamabad paid no attention to its proposals forwarded a few months back,” said a senior government functionary, when contacted to know the response meted out to Peshawar’s efforts to bring down the size of its liabilities payable to Islamabad.
Under its debt management strategy submitted to the federal government before the start of the current financial year, the provincial government had requested the Centre to renegotiate the mark-up rate on the total principle loan the province had to pay to it (Centre).
The federal government was forwarded a proposal either to apply the rate of export refinance facility (4%) or the rate of treasury bills (by adding one per cent to it) on the total principle amount the province had to pay to the Centre.
Similarly, through an other proposal the provincial government had sought permission from the finance division to allow it to borrow less expensive loans from the open market to prepay expensive loans payable to the federal government.
“None of the recommendations attracted required response from the federal government,” said the officer.
Since 1972-73 financial year, successive NWFP governments had taken loans from the federal government for development works in the province.
In all, the province obtained a total of Rs43.93 billion loan (including cash development loans, loan for social action programme and loan for executing salinity control and rehabilitation projects) from the federal government between 1972-73 financial year and 1997-98 financial year.
Of this amount the province is still required to pay over Rs29 billion despite the fact that up to June 30, 2002, it paid over Rs85 billion including Rs14.2 billion principle amount and the remaining Rs71 billion going down the drain to serve interest over and above the principle amount.
The province would need to pay Rs169 billion to clear its debt payable to the federal government and the process of repayment would end in 2025.
“It is interesting that while the federal government is taking measures to clear its expensive external debt, it is least responsive to the provinces’ request for helping them out as in the case of the NWFP,” the official said.
The province can save substantial amount if it is allowed to obtain loans from the open market to clear its expensive federal government’s loan.
However, a finance manager of the province was of the view that the federal government’ decision to pre-mature retire the expensive debt may well open a window for the provincial governments wanting to prepay part of their expensive loans by borrowing less expensive loans from the market.
A high placed officer of the provincial government, previously attached with the NWFP finance department, said that federal finance ministry ignored provinces’ suggestion viz-a-viz prepayment of expensive federal debt by taking less expensive loans from the open market due to the simple fact that doing so would render negative impact to the annual revenue receipts of the federal government.
Islamabad raises substantial amount of receipts every year through proceeds of debt repayment from provinces.
For the current financial year, the NWFP government had allocated an amount of Rs7.8 billion for debt repayment of which over Rs6 billion would be on account of interest payment.
“Like the NWFP, other provinces, too, allocate considerably large amount every year to serve their liabilities payable to the federal government,” the officer said and added: “On collective basis debt repayments by provinces fetch considerably large amount in the form of capital receipts for Islamabad every year.”
“Allowing provinces to clear its liabilities by taking less expensive loans from the open market would mean that the Centre would be slashing its own revenue receipts which it would never want in the wake of donor agencies’ pressure on it to improve revenue generation.”
Finance division, said an officer, did not support provinces’ suggestion because it would not only curtail its revenue resources allowing federating units to prepay their federal loans, it would financially cause burden to the federal government.
“Whereas, provinces would get rid of their expensive loans, the Centre would have to adhere to its international commitments because the amount it extended to provinces to support their development programmes had actually been obtained in the form of loans from the international donor agencies,” said an other officer knowing the federal government’s stand over the issue.
However, officials of a concerned department of the provincial government, when contacted, did not accept the validity of the stand, saying that federal government, too, prepay such expensive loans which were causing burden to provinces.
“The federal government has already exercised that by announcing its decision to prepay expensive external debt of $1.1 billion,” said one of the officers.
In one of its case studies conducted by the NWFP government, said the officer, it was found that if the repayment was made front loaded — i.e. to eliminate the grace period of five years involved in every loan agreement — the amount required to serve interest component would experience substantial decrease saving considerable amount for the province.