LAHORE, Oct 28: Punjab's total debt stock is expected to come down to 64.80 per cent of its total revenues in 2007-08 from 83.90 per cent during the current financial year, according to the provincial government's projections.

It is despite the fact that the total provincial debt stock is going to grow to Rs187.98 billion in the fiscal 2007-08 from this year's Rs156.03 billion, according to the projections.

A presentation given by finance secretary Salman Siddique at the two-day workshop on the Medium Term Budgetary Framework last week suggested that the provincial government is implementing a policy of obtaining low cost loans from international donors to "support its development initiatives and using these loans to swap its old expensive federal debt."

In the fiscal year 2003-04, the Punjab government retired Rs12 billion that has resulted in a saving of Rs900 million on account of debt-servicing. This year the government hopes to save Rs1.950 billion due to this swap. The provincial finance managers insist that their plan to swap expensive CDL stock with low-priced loans obtained from the international donors will result in a total saving of Rs10 billion through reduced debt-servicing costs each year from 2008.

The presentation made it clear that the province would cut its current expensive domestic debt of Rs68.490 billion under its debt management strategy to Rs38.21 billion in four years. At the same time, however, the provincial government would raise its low cost foreign debt to Rs149.77 billion in the same period from the current Rs87.54 billion.

With the increase envisioned in the provincial revenue as well as decrease in expensive loans, the cost of debt-servicing or the interest on it would also reduce substantially.

While debt servicing to total expenditure is projected to drop to 2.9 per cent during 2004-08 from the present 6.4 per cent, the ratio of debt servicing to current expenditure would drop to just 4.5 per cent from 9.4 per cent.

Similarly debt-servicing to current revenue receipts would fall down to merely 3.1 per cent from the current seven per cent.

The reduction in the debt-servicing cost would be achieved by the government because of the actual decrease in the interest payment on its debt stock and the projected rise in its revenues, as projected in the province's debt profile 2004-08, according to the provincial finance department.

The savings from the premature retirement of expensive debt are expected to provide the province the much needed fiscal space for expanding its development spending, they say.

The province has already increased its development budget for the current year to Rs43.44 billion, which is more than double to the development allocation of Rs21.50 billion in 2002-03.