Punjab gazes into an abyss of debts

As the debt burden increases on a federal level and the rupee value slumps, the provinces too appear to be struggling to make ends meet amid piling arrears.

The devaluation of the rupee has reportedly caused the Punjab government’s dues to climb to a further Rs77 billion in just the past three months. Which is to say that although Punjab had been guzzling foreign loans for a long time from different governments during their tenures, the recent devaluation of the rupee against the dollar has caused the total debt burden to shoot from Rs954.52 billion to Rs1031.63 billion since June 2021.

Experts believe that the debt burden has increased due to poor policy. As a result of which, they deduce that the provincial government will now have to pay extra in principal and interest. Sources privy to the matter revealed that the debt burden on Punjab is likely to increase further in the coming days due to continued devaluation of the rupee. “So far, the debt burden has risen by 8 per cent in three months, but more is expected,” the source commented.

According to the Punjab government, the current external debt burden is 99.5 per cent, while 0.5 per cent of debt is in rupees. The Punjab government has secured 150 loans out of which 124 loans were taken in US dollars.

The value of which is Rs767.956 Billion. 12 loans of Special Drawing Rights (SDR) are worth Rs155.61 billion which constitutes 15 per cent of the total debt.

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These loans were obtained by Punjab in the past for development works in the fields of agriculture, transport, education, urban and community development, governance, health, energy, industry infrastructure, tourism, and environment.

Per Finance Department records, Punjab will have to repay Rs63.80 billion this year in terms of repayment of loans. Out of this, the actual loan amount is Rs50.41 billion, while the interest amount is Rs13.39 billion. Whereas, during the last financial year, the Punjab government had to pay Rs62.85 billion; when the local currency wasn’t as fractured as it is today.

Economist Dr Qais Aslam, addressing the matter, stressed on the devaluation of the rupee against the dollar, and its impact on the province’s existing burden of debt— especially those collected in USD. “Past governments have taken loans for various projects but now these loans have been mismanaged due to which the Punjab government will face a shortage of funds, and the government will not be able to work according to its vision. Many development projects will not be completed. The government also has to borrow more to pay off its debts,” he opined.

Adding further, he maintained that the government was already facing problems due to an increase in internal expenditure. However, due to the devaluation of the rupee, further losses will have to be borne, and the only easy solution for the government to repay the debt is to meet its expenses by taxing more people.

The economist believes that the government should take loans only when it has prepared proper plan of action for repaying them. “While on the other hand, the Punjab government will have to pay a huge amount of Rs18 billion over the next two years to repay the loan taken on the Orange Train Line. The Punjab government will have to allocate a significant amount in the budget,” highlighted Dr Aslam while speaking to The Express Tribune.

Published in The Express Tribune, November 19^th, 2021.