KARACHI, Jan 4: Sindh is asking for a debt relief from the federal government same as Islamabad has managed to obtain from Paris Club on a debt stock of $12 billion.
Facing a huge liability of over Rs110 billion plus a provident fund liability of Rs15 billion, Sindh is desperately looking for fiscal space in the budget. Sindh is the only province where more than 50 per cent of the officially counted population 29.99 million lives below poverty line.
Even otherwise a cursory glance at the relationship with Islamabad on matter of loans and repayment calls for an immediate review.
Sindh received a total amount of Rs36 billion loans from Islamabad in last 27 years and has paid back more than Rs59.21 billion in 28 years. But Sindh still owes a debt liability of more than Rs30 billion towards the federal government.
Unbelievable! But it is so. It is so because of what an official document alleges “arbitrary calculations undertaken (by the federal government) without consulting the provincial governments have resulted in an enormous liability”.
The fact is that out of total payment of Rs59.2 billion by the Sindh government, only a small amount of Rs6.5 billion went towards adjustment of the principal amount and the remaining amount of Rs52.75 billion was paid as interest.
Debt adjustments is one of the issues that dominate the proceedings of the current National Finance Commission.
A chart printed in the Budget analysis 2001-02 shows that Islamabad started offering cash development loans since 1973-74. The first loan amounted to Rs352.63 million with an interest rate of 9.25 per cent. Islamabad offered last loan of Rs1.98 billion in 99-00 at 16.1 per cent rate. A year earlier in 98-99 the federal government offered loan of Rs2.76 billion at 17.71 per cent rate of return.
From 1973-74 to 1978-79 there was no payment towards the principal amount of loans. During this period a total amount of over Rs3 billion was received as loans against which Rs991.26 million was paid towards interest. There was an unpaid balance of more than Rs2 billion.
The payment for principal started since 1979-80 with a ratio of two per cent only and till 1995, it did not go beyond 10 per cent with an average rate of 5 per cent in this period.
Therefore, in terms of total payments, the Sindh government has paid only 10.9 per cent of principal amount and an unbelievable 89.1 per cent interest on Rs36 billion loans.
“The federal finance division fixes the annual payments for principal and interest amounts on the basis of a complicated formula,” the official document reveals.
Furthermore, the federal government makes some payments to Wapda on behalf of Sindh government against the work done on SCARP projects. The total indicated amount of SCARP CDL is Rs13.4 billion in last 27 years.
Sindh has paid back more than Rs22 billion against SCARP loans and there is still an outstanding amount of Rs13.71 billion.
Total outstanding amount of all these CDLs come to Rs43.5 billion. As against this liability, the Sindh government has paid to this date a total payment of more than Rs82 billion. Only a sum of Rs9.27 billion went towards the adjustment of principal amount and Rs72.88 billion was paid against interest.
Repayment terms in respect of foreign loans are relatively much softer than local currency loans. A total amount of Rs12.4 billion has been paid back against foreign loans, which include the bulk sum of Rs7.85 billion towards principal amount and Rs4.57 billion towards the interest.
Sindh owes a total of Rs65 billion worth of foreign loans. The provincial government bears the foreign exchange risk. The federal government fixes the rate of foreign currencies on yearly basis keeping in view the global trend and fluctuations in international money market.
During 00-01, the federal government raised the dollar-rupee parity from Rs52.15 to Rs57.79, an increase of Rs5.64. The exchange value of Saudi riyal was also raised by Rs1.50 to Rs15.41 from Rs13.91. Overall the total liability of foreign exchange loans increased because of fluctuation in exchange value and a fresh Asian Development Bank loan of $26.57 million.
With this mounting debt liability, the debt servicing of Sindh government also increased from Rs3.59 billion to Rs11.40 billion in the current fiscal year (01-02) budget.
As a percentage, the debt servicing now constitutes 15.9 per cent of the Sindh’s current expenditure in 01-02. This ratio has once climbed up to 27.3 per cent in 1997-98. It was 24.5 per cent in 1990-96.
In 1990-91 debt servicing was 30 per cent of the total provincial receipts, which has now been brought down to 16.4 per cent.