Punjab receives final loan tranche after public finance successes

10 Dec 18

The Asian Development Bank has approved a $100m loan to India’s Punjab state following improvements in fiscal responsibility and budget management.

The loan is the third and final tranche of a $200m policy-based package, approved in 2014, which includes 22 actions to be taken by the state to free up money for public services and improve investment.

The third tranche required the state to adopt new rules on fiscal responsibility and budget management, as well as implementing a gender-responsive spending framework for the health, education, power and public works departments.

It also installed an electronic database on the state government’s employees and pensions to keep better track of wages and benefits payable.  

“The state government has demonstrated strong ownership and a sense of appreciation for the benefits of the ADB programme,” said Bruno Carrasco, director of the public management, financial sector, and trade division of ADB’s South Asia Department.

“Even after programme completion, we see little risk of reversal of the policy actions taken,” he added.

Punjab is one of the richest states in India but the poor health of its finances has resulted in slowed economic growth. The ADB said the state’s commitments to salaries, pensions, interest payments and subsidies “almost exhausted” revenues and led to increased borrowing. 

The state government is also working to provide free electricity to farmers and other programmes to promote agriculture, which has led to fiscal deficits, the bank highlighted.

The ADB’s senior public management economist Cigdem Akin said: “Despite some uncontrollable delays, the ADB programme has made significant strides toward structural change in Punjab, which has placed state finances on a much stronger footing.”

 

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