Shahbaz Sharif, Rejecting loans is easier said than done

dawn.com

The Shahbaz Sharif government, which announced on Monday its decision to reject foreign loans and aid, has obtained foreign loans of Rs34.27 billion in the last fiscal year from the multilateral lenders like the World Bank and the Asian Development Bank to support its budget and carry out various reform and development programmes in the Punjab.

The amount of foreign loans pitched for the current financial year is estimated to be just below Rs40 billion, which forms more than one fifth of its development programme of Rs190.5 billion.

The repercussions of rejecting foreign assistance can be very serious for the province’s development programmes, officials say

Chief Minister Sharif announced on Monday that his cabinet had decided to break the “begging bowl” and rid the province of its reliance on foreign loans and aid. He, however, said the implementation of the decision depended on its approval by Pakistan Muslim League-Nawaz leader Nawaz Sharif.

The province has so far received only a few billion rupees from the total loan amount committed by the lenders for the current year. But the government is hopeful of getting a major portion of the rest of the committed funds before the close of the financial year.

“It will be extremely difficult to meet our budgetary targets if the province does not get the promised funding. It may have to further cut development spending,” an official of the provincial finance department told Dawn on Monday.

The province has already slashed its development programme for the year by more than Rs60 billion to Rs130 billion because of the devastating floods last summer and the falling federal transfers, which form more than 80 per cent of the provincial revenues, due to lower than expected tax revenue collection by the Federal Board of Revenue.

“The rising foreign debt burden of the province is a cause of serious concern for us because of the increasing debt servicing. But the provincial government’s socio-economic development commitments require further foreign borrowing over the next several years even if it means further rise in debt stock and debt servicing,” the official said.

Punjab’s total foreign debt has soared to a little below Rs391 billion or 80.5 per cent of its total debt stock of Rs485.7 billion as of June 30, 2010. If Punjab actually rejects foreign loans, according to officials, it will mean end of several programmes in the education, health and other sectors, at least for the time being, because of resource shortages.

The official was at a loss to understand the “reasons” prompting Chief Minister Sharif to decide to reject foreign loans and aid.

“Apart from the loans we are hoping to receive, the foreign grants and aid (pitched at Rs12.5 billion for the ongoing fiscal) also form a substantial part of our revenues. Foreign loans and assistance (grants and project aid) are important, not least because of uncertain economic conditions in the country and very low provincial own tax collection,” he said.

Punjab’s own tax revenues constitute slightly more than 10 per cent of its total revenues. Last year, it could collect only Rs37 billion against the target of Rs50 billion. This year, it has estimated provincial tax collection (excluding provincial sales tax of Rs51 billion currently collected and disbursed by the federal government) at Rs40 billion.

“If the chief minister and his cabinet are serious about breaking the begging bowl and reducing the province’s reliance on foreign loans and aid, they should think of ways of increasing the provincial tax revenues – substantially. So far I have not seen any plan to raise the provincial taxes,” the official said.

He also pointed out that the Sharif government must also think of cutting its expenditure on projects like sasti roti and Ramzan ration subsidies in addition to changing their lavish lifestyle.

“The provincial government was forced to borrow Rs50 billion from the State Bank of Pakistan to spend on such schemes on financial year 2009. In the given circumstances it is preposterous to talk about rejecting foreign loans and aid. The province cannot afford this kind of policy without sacrificing development and well being of its citizens,” he contended.

In an obvious reference to PML-N leader Nawaz Sharif, former finance minister Salman Shah, who thought of Mr Sharif’s decision to reject foreign aid and loans as a political gimmick, said: “Those who pay a paltry amount of just Rs5,000 as tax to the government cannot break the begging bowl.”