PESHAWAR, Feb 27: The federal government has not yet adjusted over Rs1.5 billion loan the NWFP government had prematurely retired during the current financial year to lighten the burden of expensive loans , according to official sources.

Senior government functionaries told Dawn that the NWFP government had acted in line with its policy to retire part of its expensive debts - payable to the centre - ahead of time.

At the start of the 2004-05 financial year, the province owed Rs27.3 billion to the federal government on account of cash development loan it had taken between 1974-75 and 1997-98 to support its annual development programme.

In accordance with its debt retirement strategy formulated more than two years ago, the provincial government has earmarked a sum of Rs2.1 billion to pre-pay part of the expensive cash development loan (CDL) in 2004-05.

"Though the debt strategy is yet to be formally approved by the centre after being forwarded to it two years ago, the provincial government paid slightly over Rs1.5 billion during the current fiscal year in line with its policy to get rid of expensive debt," said a finance manager of the province.

The official, however, said that the payment made by the province had not yet been adjusted by the centre. "Officially federal authorities do not encourage premature retirement of expensive debt by federating units because the practice negatively impacts the centre's own capital revenue receipts, but they never return the money if any of the provinces prematurely retires part of the expensive debt," said an official source, requesting anonymity.

This is for the third consecutive year that the province retired part of its federal loan and then waited for getting the same adjusted by the federal authorities.

In 2002-03, the then military-backed civil government in the province paid Rs5.7 billion while in 2003-04 the MMA government paid Rs1.9 billion in keeping with the debt strategy, which has been formulated in accordance with certain conditions of a loan agreement between the NWFP and a foreign donor agency.

"It took several months before the province got the amount, paid in 2002-03 and 2003-04, adjusted by the federal authorities," said an official. Official quarters here are of the view that the debt money paid this year is likely to be adjusted at the end of the fiscal year.

"Ideally, the federal authorities should adjust the amount the moment payment is made to them, but they don't do that because of their own considerations," said the source.

So far, the provincial government has paid off Rs9 billion debt ahead of time which, according to the sources, has created a fiscal space of over Rs1 billion. Premature retirement of expensive loan, said the official sources, helped the provincial government save over Rs2 billion on account of mark-up payable over and above the principal amount.