Punjab mulls new strategy for circular debt reduction

LAHORE:

As circular debt pertaining wheat procurement climbs to Rs428 billion, the provincial government has decided to issue bonds to pay off the burgeoning dues.

Previously, in a bid to offer temporary relief and ensure supply of cheap flour in the market, political governments had been providing subsidies to the people for the purchase and storing of wheat. However, now that the debt burden has increased manifolds, it seems the onus of repayment is once again being saddled on the people.

The burden of the increased circular debt has also started weighing heavy on the food department, which has led the government to find new ways for clearing its dues.

Per latest strategy mulled, the provincial government plans to secure further loans through issuance of more bonds to repay the existing loans and amend its poor financial policies.

The Punjab Ministry of Finance has sought the federal government’s permission in the regard, following which the said loans are going to be secured.

Resultantly, once the plan goes into action, it is being speculated that the people of Punjab, regardless of their access to cheap flour, might be required to repay the new loans secured by the government on their behalf.

Circular debt began in 2002 with a volume of Rs36.9 billion, but has projected to more than Rs428 billion in the last 18 years. Addressing the rise in debt, sources related to wheat procurement alleged that the government has been routinely borrowing billions in funds from a consortium of banks to purchase wheat every year.

“Later, the same wheat would be provided to the people on cheaper subsidies, under which the amount earned from the wheat was paid. But now that the amount given in subsidy too is rising, the Punjab Finance Department has started seeing the rising debt as a threat. Which is why the new repayment strategy has been thought out,” the source commented.

According to sources however, for the new strategy to work, the government will have to implement the State Bank’s rules and regulations as well. The finance department however, appears to be confident about its plan, which expects an incremental decrease in the burgeoning debt.

Per Punjab Finance Department data, the burden of past loans obtained by the government for developmental works in the province has also ballooned to Rs905billion. Out of this, local loans are worth Rs7.69 billion while foreign loans now amount to a staggering Rs897.55 billion.

These loans however do not include circular debt, while food department loans are undisclosed. Owing to which, circular debt, which applies to yearly wheat purchase, is always kept separately.

Sources project that if government policies remain unchanged, the value of circular debt will continue to increase, making repayment more and more difficult with each passing year.

Speaking on the matter Punjab Finance Secretary Abdullah Sunbul said that the government is hopeful that its latest strategy will help getting rid of the growing circular debt on wheat procurement. “We still require the permission of the federal government to put these plans into action. We are confident that the new strategy for loan repayment will provide some relief to the province by reducing the value of these increasing loans,” the secretary asserted.

Published in The Express Tribune, November 25^th, 2020.