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Punjab Bonds being considered by govt to fund ADP - Naveed Yaseen - 10-12-2008 06:53 AM
* Punjab government owes Rs 64,000 million in CDLs
* Section 167, Constitution of Pakistan, 1973 allows provincial governments to borrow on the security of Provincial Consolidated Fund
By Anwer Hussain Sumra
LAHORE: The Punjab government is intending to issue a Punjab Bond to collect money from the ‘open market’ to improve its cash balance and minimise the intensity of the financial crisis currently facing it, an official of the Finance Department told Daily Times. The bond is likely to be worth Rs 10 billion, he added.
The Punjab government has been facing a financial ‘crunch’ since it came into power, he said, adding that the development works announced in the Annual Development Programme (ADP) 2008-9 were also facing problems. He said that the delay in the development work had troubled the elected bodies, adding that they had decided to issue a Punjab Bond after the federal government’s consent.
Finance Department sources said that the Punjab government had repeatedly requested the federal government to allow it to issue bonds, adding that the money would provide benefits including provision of extra fiscal space, financing of development work in time and increase of dependency on internal resources. It would also save the provincial economy from foreign exchange risk.
CDLs: The Punjab government is currently facing a burden of Rs 64,000 million in Cash Development Loans (CDL), taken by previous governments during the 80s and 90s to finance the Annual Development Programme (ADP).
These loans were offered on very high interest rates between 8.5 to 17.7 percent, the official said, adding that most of the money was laundered by the then elected parties and bureaucrats.
Sources said that since Fiscal Year 1979-80 to 1999-2000, the chief ministers of all the provinces got these loans (Rs 69,682.643 million) to initiate and complete various development projects to bring prosperity and improve the country’s average living standard. The federal government, for a period of 25 years, provided these loans, he said, adding that a five-year grace period was provided for the payment of the CDLs.
The sources said that the CDLs were on a high interest rate, adding that it was not feasible to attain the same type of loans to finance the current ADP of Rs 160 billion.
The Punjab government was not interested in taking loans form foreign funding agencies because of the foreign exchange risk involved if the rupee de-evaluates further.
Sources said that the bond would be issued for the period of 8-10 years, adding that the subscribers would be issued certificates to be matured on a specific date.
Constitution: Section 167, Constitution of Pakistan, 1973 enables provincial governments to borrow on the security of the Provincial Consolidated Fund within limits for the provision of funds to execute development works and pay outstanding loans, the sources added.
http://www.dailytimes.com.pk/default.asp?page=2008\10\12\story_12-10-2008_pg13_1