Provinces seek debt relief, write-off: Meeting tomorrow
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Finance ministers of all the four provinces are meeting in Islamabad on Thursday to make a joint plea for relief in debt servicing and a cut in the interest rate on federal loans given to finance development programmes. Well placed sources said that the finance ministers of the provinces are expected to seek loans write-off, waiver on accumulated interest and want the harsh conditions and excessively high interest rates on rupee loans to be reviewed and softened. Provinces seek relief and concessions from federal government after Islamabad claimed to have obtained debt restructuring from Paris Club for 12.7 billion dollars. Another forceful argument being advanced by the provinces is the precedent of loans write-off set by the first National Finance Commission in 1974. “If not the entire amount of outstanding loan, a part of the loan should be written off,” argued a senior official. In last 25 years, the federal government has almost doubled interest rate from 9.25 per cent in 1973-74 to 17.70 per cent in 1998-99 on the rupee loans given to the provinces. This has put unbearable pressure on the meagre resources of the provinces who are over 80 per cent dependent on the federal government funds to meet their budgetary requirements. Provinces find terms and interest rates on foreign loans relatively easy and bearable. Their only complaint is that development programmes should be designed by the provinces, and not by the donors. For last two years, the federal government has stopped altogether the allocation of capital development loans in rupees to the provinces. The provinces are being asked to generate resources from their own budget to finance their respective capital outlay. No consolidated figure is available of the total outstanding federal loans with all the provinces but Sindh carries a liability of more than Rs110 billion. Its debt servicing liability constitute 15.9 per cent of the total current expenditure and 16.4 per cent of the total current receipts in the current fiscal year. The harshness of the conditions on the rupee loans advanced by the federal government can be ascertained by the fact that in last 27 years Sindh government has paid back a total amount of Rs59.2 billion on amount of Rs36.05 billion CDL loans. Even then there is a total outstanding liability of Rs30.11 billion. According to an official document, Sindh has paid only Rs6.5 billion as principal whereas the remaining Rs52.7 billion has been paid on account of interest during last 27 years. For first five years, from 1973-74 to 1978-79 there was no adjustment of the principal amount of the loans received during that period. The federal government started adjusting principal amount of loan since 1980 with a ratio of only 2 per cent and till 1995 it did not go beyond 10 per cent with an average rate of 5 per cent. In terms of total payments, Sindh paid 10.9 per cent of the principal and 89 per cent interest of the CDLs. Officials in Sindh government blames the federal finance division of determining annual debt servicing for principal and interest on the basis of a ‘complicated formula’ beyond the comprehension of ordinary mortals. “The arbitrary calculations undertaken without consulting the provincial governments have resulted in an enormous debt servicing liability,” an angry official remarked. |