PESHAWAR, July 11: The federal government has not adjusted the Rs2.1 billion paid in 2004-05 by the NWFP as premature retirement of part of its expensive loan to the centre, according to official sources.
“We are hopeful of getting it adjusted. This is the reason the provincial government has not asked the federal government to pay back the money to NWFP,” said a finance manager of the province.
The NWFP says it has prematurely retired Rs10 billion against the cash development loan since 2002-03.
The move was in line with the provincial debt reduction strategy aimed at creating fiscal space. The strategy, formulated by the previous military-backed civil government to meet a condition of a World Bank loan agreement, has been adhered to by the Muttahida Majlis-i-Amal government. Accordingly, Rs5.7 billion was paid in 2002-03 while the sitting government paid Rs1.9 billion in 2003-04 and Rs2.1 billion in 2004-05.
An official said the amount paid in 2003-04 was adjusted by the federal government, but the payment made in 2004-05 has not been adjusted yet. As a result, the Rs2.1 billion paid by the NWFP government from its own resources is lying with the centre without being beneficial to the province.
Official circles said the MMA government’s reluctance to get the money back from the centre was likely to affect the provincial kitty.
The premature retirement of Rs5.7 billion in 2002-03 and Rs1.9 billion in 2003-04 was made by diverting part of capital receipts, raised through structural adjustment credit extended by the World Bank.
However, the Rs2.1 billion payment made in 2004-05 was arranged through borrowings from different funds.
“The centre accepted only those amounts which were diverted from structural adjustment loans provided by the World Bank,” said a finance manager.
Officials said the first two payments were accepted because the centre was bound to do so in line with the loan agreement between the NWFP and the World Bank.
However, the third payment was not acknowledged because the centre was averse to the idea of federating units paying back expensive cash development loans by borrowing funds at low rates from the market.
“The federal government opposes the premature retirement of costly loans by federating units because it makes a negative impact on its own capital revenue receipts,” said an official.
The sources said that Rs2.1 billion had been paid to clear the cash development loans involving 15 per cent annual mark-up.
The premature retirement of Rs7.6 billion — Rs5.7 billion in 2002-03 and Rs1.9 billion in 2003-04 — has helped the province save over Rs2 billion, the amount it will have paid as interest during the past three years.