Tuesday, January 12, 2010

Bankruptcy Of Punjab Government

Bankruptcy Of Punjab Government; Is It Real?


Mr. Parvez Ilahi, former chief minister of Punjab has alleged that the government of Punjab has become bankrupt, which the latter has denied. Finance minister, Mr. Shaukat Tareen has however confirmed that (excessive)  overdraft has been converted  into a long term loan at an undisclosed rate of interest. Nevertheless this is a debt. The figures on government of Punjab’s borrowing have not been released. What is bankruptcy , simply speaking, when you cannot pay your immediate dues, your cheques are dishonored. By this yard stick, Punjab government is not bankrupt. However it may have bust it’s borrowing limit. State bank of Pakistan is responsible to define and enforce such limits, which is keeping mum on the controversy. It should release the factual details.In an article, former deputy governor Ashraf Janjua has detailed the modus operandi of State Bank of Pakistan in this respect. However what seems to bbe lacking is a clear cut formula. Borrowing should be related to the assets or size of the economy.

In Germany, maximum borrowing of federal government has remained under 2.9 % of GNP over the years and of the US this limit is 1.8%. In India, states and provinces borrowing limit is 4% of the state’s GDP, and seems to be working well. Why do not we define such a straight forward formula?

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