Punjab awaits federal loan

Buzdar administration seeks Rs 115 billion to pay outstanding bills

LAHORE: Triggered by the spread of the Covid-19 virus, Punjab’s financial woes appear to have crossed the red line. Struggling to pay its employees, pensioners, and a long list of outstanding bills, the provincial government is begging for a lifeline. In a last-ditch attempt to prevent a payment default, the province is now borrowing a whopping Rs.115 billion from the federal coffers.

According to one official at the cash-strapped provincial finance department, out of the Rs 115 billion, Punjab is likely to receive Rs. 70 billion from the federal government. “The loan will allow the provincial administration to pay salaries, pension and keep the government running for some time,” said the official, speaking on the condition of anonymity.

A sharp reduction in revenue collection, coupled with other factors, has triggered a financial crisis for the most populous province. If there were any chances of recovery, experts said they were blown away by the arrival of the Covid-19 health crisis, which has brought the country’s economic activity to a grinding halt.

Experts believe Chief Minister Usman Buzdar’s government was struggling to meet its tax collection targets long before the Covid-19 crisis forced it to shut the provincial economy. “Covid-19 may have accelerated the crisis,” said one expert.

The province has been struggling to make ends meet due to the Rs 660 billion shortfall under the National Finance Commission (NFC) Award. To address its fiscal deficit, the Buzdar administration has requested Islamabad to clear its outstanding dues.

According to officials, the centre owes Punjab Rs. 128 billion in arrears.

Due to agreements with the International Monetary Fund (IMF), the provincial administration’s hands appear to be tied. The agreements the Washington D.C. based lender prevent an overdraft from the central bank, which leaves the Buzdar administration with no option but to seek a loan from the federal government.

Forced to cut corners by the crippling crisis, the administration has placed a temporary hold on all development funds. As a result, more than 900 development projects are on hold until the province makes a financial recovery.

Financially, the province has struggled for some time. According to one expert, Punjab owes over Rs 900 billion to foreign lenders and institutions. Under current circumstances, the expert said, the province will not be able to deliver the upcoming fiscal budget, which is due next month.

Experts believe Covid-19 curbs have dealt a double whammy to the provincial economy. “It has brought the economy to a standstill and also limited the tax collection,” said one expert.

Published in The Express Tribune, May 23^rd, 2020.