Punjab borrows $50 million despite cash surplus

Has been signing foreign loans without federal approvals.

ISLAMABAD: Armed with a cash surplus already, Punjab has borrowed $50 million or Rs5.1 billion from the World Bank (WB) for a period of 25 years to impart training to its unskilled youth, highlighting its imprudent fiscal planning that carries repercussions for overall external debt management.

The Washington-based country’s largest lender approved $50 million for skill-training programmes in priority growth sectors in Punjab, according to a handout issued by the WB’s country office on Friday. It said the project would help improve the quality, labour market relevance and access to the training programmes with a focus on the employability of graduate trainees.

The provincial government has borrowed funds at a time when it is seeking powers to issue sovereign guarantees against foreign borrowings – a function that currently rests with the federal government. Punjab’s representative on the 9th National Finance Commission, Dr Ayisha Ghaus Pasha, demanded in the first meeting of the NFC that the provinces should be given powers to issue sovereign guarantees.

Under the present arrangement, the Economic Affairs Division’s (EAD) prior approval is required before negotiating foreign loans by the provincial governments. The federal government issues it keeping in mind the overall balance of payments position.

Sources in the EAD said that despite having no such powers, Punjab has been signing foreign loans without obtaining prior permission, leaving no option for the division but to give ex-post facto approvals for the sovereign guarantees due to provincial government’s proximity with the federal government.

Punjab’s decision to obtain the $50-million loan also highlights imprudent fiscal planning, said EAD officials. According to consolidated fiscal operations summary for the period of July-December 2014, the provincial government had a cash surplus of Rs61.2 billion.

The EAD officials pointed out that foreign borrowing for intangible assets by all the provinces would soon create debt management problems for the federal government. They added these functions can be performed by utilising domestic resources.

The credit is financed from the International Development Association (IDA), the WB’s low-interest arm. It will be on standard IDA terms, with a maturity of 25 years, according to the WB handout.

The WB said that the Punjab Skills Development Project will benefit individuals in the labour force who wish to gain job-specific skills and training in order to join the labour market, as well as those who wish to increase their earnings capacity through in-service training.

An estimated 70,000 trainees will directly benefit from the project, of which at least 15% will be female, it added.

According to the WB’s estimates, the unemployment rates in Punjab are the highest for youth aged 15-24 years. The incidence of vocational training is higher than the Pakistani average, but still very low. Only 2.4% of the working age population (15-64 years) has completed vocational education.

Published in The Express Tribune, May 2^nd, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.