Punjab wants a Rs10b raise in overdraft limit

LAHORE: The Punjab government is likely to request the State Bank of Pakistan (SBP) to revise its overdraft limit, to deal with the financial crunch it is in.

The province wants the limit to be increased from Rs27 billion to Rs37 billion to manage its affairs, it is learnt. Other provinces are also expected to follow suit and ask SBP for revisions to their limits.

The Punjab government has been facing a financial crisis for quite some time now. Owing to slow revenue collection and generation, the government received a small amount as its share from the divisible pool. Recovery from indigenous resources was also reported to be low.  The government received Rs41 billion per month from the federal government as its share of divisible pool under the 7th National Finance Commission. “It has to collect an additional Rs8 billion from indigenous resources (tax and non-tax revenue) per month to balance the income and expenditure columns,” an official from the Finance Department said.

Adding to the already-stretched financial situation, Punjab allocated Rs21 billion under the head of subsidies in the 2010-11 budget, which made the state of the economy worse. The federal government announced a 50 per cent increase in salaries of government employees, which put an additional burden of approximately Rs7 billion per month on the province’s kitty.

The Punjab government now requires Rs49 billion to meet the current (salaries, pensions and operating costs) and development expenditure per month for running its affairs smoothly.

The provincial government has been availing the overdraft facility constantly.

By the end of the first quarter of the financial year 2009-10, the overdraft liability of Punjab government had touched Rs83 billion – the highest ever. The position improved last October when the federal government allowed the province to convert Rs50.9 billion overdraft into a loan.

In order to discourage the tendency for overdrafts, the SBP fixed Rs26.9 billion as the maximum overdraft limit for the Punjab. However, the Punjab government – after examining its financially-constrained situation – has once again decided to request SBP to fix the limit at Rs37 billion. “Otherwise, it will not be possible for the government to meet its expenditures (current and developmental),” the Finance Department official added.

The official said that normally the overdraft should be no more than six-month’s current expenditures (salaries, pensions). Since the Punjab government’s expenditure has increased with the raise in the salaries and pensions of government employees, therefore, the overdraft limit should be revised, he added.

Tanveer Ashraf Kiara, the provincial Finance Minister, believed that the overdraft limit would increase ‘automatically’ since the government expenditure had increased.

Published in The Express Tribune, July 27^th, 2010.