PESHAWAR, July 24: The proportion of foreign loans payable by the NWFP government surpassed the size of its internal borrowings at the close of the current fiscal year, according to official sources.
The provincial government's total debt, internal and external, stood at an all time high of over Rs61 billion on June 30 last.
It included a local loan component of Rs27.4 billion payable to the federal government.
The province has been relying heavily on the cash development loans (CDL) extended by the Centre to the federating units till late 1990s from early 1970s.
Whereas the size of foreign loans payable by the provincial government jumped up to an all time high of Rs33.7 billion at the end of the last fiscal year.
The balance between the proportional size of the province's internal and external loans tilted in favour of the later as a result of the provincial government's premature retirement of some of the expensive loans from the CDL and also because of the release of the second tranche of the World Bank's loan in the last fiscal year.
The bank is financing NWFP government's three-year provincial reforms programme under its structural adjustment credit (SAC).
The release of the second tranche of Rs5.1 billion in the last fortnight of the last fiscal year rose to the total funds transferred to the province under the SAC, over Rs10 billion. And this amount has been transferred to Peshawar in a period of two years helping it to materialise its multi-sectoral reforms programme.
"The province is eying to qualify for the third SAC tranche involving Rs5 billion by fulfilling commitments and conditions the government is required to under the SAC agreement," said an official source.
The official said the province was in the process of prematurely retiring some of its expensive debt by partly utilizing the funds from the zero-interest based SAC loan in fiscal 2004-05.
"The formalities for premature debt retirement have not been determined," said the source.
The World Bank loan involves 0.75 per cent service charges with no interest. Whereas the exchange rate risk cover would be taken care by the federal government for a period of 35 years during which the province is required to repay the loan.
The policy to prematurely retire expensive CDL, said the official source, helped the government to save over Rs1 billion during the last two financial years on account of interest.
"This created much wanted fiscal space for the provincial government and would positively impact its financial health in the years to come," said a finance manager.
However, in the process of prematurely retiring the loans to lay off its expensive debt, the province, according to official data, has recorded increase in its overall liabilities.
"We are retiring expensive loans by diverting part of the SAC loans and through borrowing money from internal sources," said the source, adding that "the province is trying to benefit from the low interest rate against fresh loans".
But, some other sources said, the province might not find it easy to implement its premature debt retirement plan for fiscal 2004-05, in view of its last financial year's experience.
When it prematurely retired over Rs1.9 billion in the first quarter of the last financial year, the federal government adjusted the amount in the last quarter of the same year.
"You never know that the province experiences the same situation even during the current fiscal year," said the official.