LAHORE, May 10: The federal government has indicated to Punjab that it may allow the province to retire more of its expensive cash development loan (CDL) stock from the next financial year.

The Punjab government has already reduced its CDL stock by Rs18 billion during the last three financial years, including the current fiscal, under its debt management strategy.

“The premature retirement of a part of expensive federal loan has created a fiscal space of Rs8 billion for development,” provincial finance minister Hasnain Bahadur Dareshak told this reporter on Thursday.

He said that the federal government had earlier capped premature retirement of the province’s CDL stock at Rs18 billion, but has now hinted at the possibility of allowing it to reduce more of its federal debt burden.

Under its debt management strategy, the provincial government has managed to obtain low-cost loans as budgetary support from multilateral and bilateral donors, like the World Bank, the Asian Development Bank and the UK’s DFID and using these funds to retire the federal loans.

A cash-strapped Punjab had accumulated high-cost federal debt in the form of CDL during the 1980s and 1990s for financing its development.

Helped by better financial management and enhanced own tax and non-tax receipts, as well as increased funding from Islamabad under the National Finance Commission (NFC), Punjab managed to discontinue borrowing CDL after 1999. But by that time it had already accumulated huge stock of expensive CDL loans, which subsequently pushed up its annual spending on debt-servicing.

The weighted average of interest cost on the federal loans was calculated to be 14.44 per cent against the average cost of 1.094 per cent on the foreign loans.

The minister admitted that the province was behind its tax collection target for the year.

“I doubt that we would be able to meet the target for agriculture income tax. Besides, we may also face a dip in the stamp duty collection due to stagnation in the property market,” he said.

He said the figures collected for the first three quarters of the current fiscal year, that is, July-March, showed that the province had utilised 69 per cent of its development funds as against 67 per cent last year.

He said the districts had already consumed all of their Rs12 billion development funds.

He admitted that only 6.3 per cent of funds allocated for special infrastructure (Lahore-Sialkot Motorway, Lahore Ring Road, etc) development in the provincial annual development programme could be utilised in the first three quarters of the fiscal.

He said the finance department had already released Rs4.5 billion set aside for special infrastructure development programme. But the department concerned could utilise only Rs1.459 billion.

He did not say what factors had caused extremely slow progress on the special infrastructure projects.