KARACHI, Sept 20: The federal government is showing no inclination to offer any debt relief to the provinces in the National Finance Commission award. The three “small” provinces Sindh, Balochistan and NWFP carry a debt burden of about Rs145 billion on which Islamabad is charging an exorbitant interest rate of about 18 per cent.
Budget documents shows that NWFP carries the highest debt burden of Rs86 billion followed by Rs43 billion on Sindh and about Rs16 billion on Balochistan. Debt portfolio of NWFP includes Rs43 billion cash development loans, about Rs16 billion SCARP loans and about Rs27 billion SAP-tied loans. Sindh’s debt portfolio shows Rs24.8 billion cash development loans, Rs13.4 billion SCARP loans and Rs5.3 billion SAP loans.
Well placed sources say that the representatives of the three provinces will again demand some relief in debt servicing from Islamabad in the crucial meeting of National Finance Commission (NFC) being held on Sunday.
The federal government has suggested to the provinces to seek loans from market and foreign donors at lower rates to retire Islamabad’s expensive loans carrying interest rate of about 18 per cent.
The Sindh government has recently retired Rs2 billion federal loan from a virtually interest free 100 million dollars credit given by the World Bank. “It will give us an annual saving of Rs400 million, which would have been paid as interest,” the Sindh Finance Minister Abdul Hafeez Sheikh claimed on more than one occasion. It shows that annual interest on Rs2 billion loans was about 20 per cent.
Since 1972, when elected provincial administrations took charge, the federal government started offering cash development loans, SCARP loans to finance tube wells and rupee component for the SAP-tied schemes. This loaning was abruptly stopped in 2000- 2001 when provinces were asked to finance all development schemes through their own resources.
Small provinces have been agitating before the previous as well as the current Commission to get some relief in debt servicing. Debt servicing takes up more than 21 per cent of the revenue expenditure budget of NWFP, almost 16 per cent of Sindh budget (it was 26 per cent in 1994-95), while Balochistan had been deferring the payment on the expectation that Islamabad would provide some relief in the awaited NFC award.
Provinces have blamed the federal finance ministry of carrying out arbitrary calculations “on the basis of a complicated formula” without consulting provinces. The federal finance ministry fixes the annual payments for principal and interest amounts. This amount is then deducted at source from the instalments of monthly provincial shares in federal divisible pool of taxes. Once deducted, the provinces have no options but to accept it.
This system has given Islamabad an image of “extortionist and usurer” that has fleeced and continues to fleece small provinces since the time of their re-emergence in 1970 after break-up of one unit.
How unjust this system of debt recovery is, it has been well illustrated in the budget documents of Sindh and NWFP.
The White Paper issued by NWFP government states that Peshawar has paid back to Islamabad about Rs74 billion during 1972-73 to 2001- 2002. It has adjusted Rs7.36 billion principal amount while Rs66.50 billion went for payment of interest.
The NWFP estimates that it will make a total interest payment of Rs125.5 billion on Rs44 billion principal amount of cash development loans till 2024-25.
“The total payment to the federal government would be 386 per cent of the principal amount by the year 2024-25,” the NWFP White Paper reveals.
Sindh’s story of debt servicing is no different from NWFP. Sindh received total amount of Rs36 billion cash development loans in last 26 years.
It has paid back more than Rs59 billion that adjusted only Rs6.5 billion principal amount and Rs52.75 billion went for payment of interest, and, therefore, there is still an outstanding amount standing at more than Rs30 billion.
“Is this federal relationship or a colonial bondage” is the bitter remark of a cynic officer in a private conversation.