The Asian Development Bank (ADB) and the Government of India signed a US$200mn loan to help India's Punjab state improve a weak fiscal situation that is undermining growth, investment and socioeconomic development.
"Untargeted public expenditure including various transfer payments has left Punjab in a financial bind which is weighing on public investment and the delivery of public services," said M. Teresa Kho, Country Director of ADB's India Resident Mission, who signed the agreement for ADB. "ADB's loan will help the state government to introduce reforms which will strengthen finances, encourage fresh investment and free up resources for priority spending needs."
With large committed expenditure, the state government has been forced to borrow heavily in recent years to fund its spending needs, creating a vicious cycle of debt and deficit. Moreover, untargeted power subsidies are adversely affecting environmental sustainability in the state by exerting pressure on water resources.
Tarun Bajaj, Joint Secretary, Department of Economic Affairs at India's Ministry of Finance, who signed the agreement on behalf of Government of India, said: "The Punjab Development Finance Program will improve targeting of public expenditure in the areas of health, education, power, and public works. Moreover, it addresses environmental issues that are undermining sustainability considerations through direct feedback loops from subsidy to water table depletion." Jaspal Singh, Secretary (Expenditure), signed on behalf of the Government of Punjab.
Savings produced by these actions are expected to free up extra space for spending in other areas, allowing capital outlays as a percentage of gross state domestic product to rise from less than 1% in fiscal year (FY) 2012 to an expected 2.4% by FY2016. Fiscal savings between FY2014 and FY2018 are expected to reach US$766mn.
The loan funds will be released in three tranches as policy milestones are met, with the first amount set at US$50mn. ADB is also providing a technical assistance grant of US$400,000 to raise the fiscal management skills of key institutions overseeing the reforms. The program will run for about two and a half years with an expected completion date of June 2017.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members - 48 from the region. In 2013, ADB assistance totaled US$21.0bn, including cofinancing of US$6.6bn
"Untargeted public expenditure including various transfer payments has left Punjab in a financial bind which is weighing on public investment and the delivery of public services," said M. Teresa Kho, Country Director of ADB's India Resident Mission, who signed the agreement for ADB. "ADB's loan will help the state government to introduce reforms which will strengthen finances, encourage fresh investment and free up resources for priority spending needs."
With large committed expenditure, the state government has been forced to borrow heavily in recent years to fund its spending needs, creating a vicious cycle of debt and deficit. Moreover, untargeted power subsidies are adversely affecting environmental sustainability in the state by exerting pressure on water resources.
Tarun Bajaj, Joint Secretary, Department of Economic Affairs at India's Ministry of Finance, who signed the agreement on behalf of Government of India, said: "The Punjab Development Finance Program will improve targeting of public expenditure in the areas of health, education, power, and public works. Moreover, it addresses environmental issues that are undermining sustainability considerations through direct feedback loops from subsidy to water table depletion." Jaspal Singh, Secretary (Expenditure), signed on behalf of the Government of Punjab.
Savings produced by these actions are expected to free up extra space for spending in other areas, allowing capital outlays as a percentage of gross state domestic product to rise from less than 1% in fiscal year (FY) 2012 to an expected 2.4% by FY2016. Fiscal savings between FY2014 and FY2018 are expected to reach US$766mn.
The loan funds will be released in three tranches as policy milestones are met, with the first amount set at US$50mn. ADB is also providing a technical assistance grant of US$400,000 to raise the fiscal management skills of key institutions overseeing the reforms. The program will run for about two and a half years with an expected completion date of June 2017.
ADB, based in Manila, is dedicated to reducing poverty in Asia and the Pacific through inclusive economic growth, environmentally sustainable growth, and regional integration. Established in 1966, it is owned by 67 members - 48 from the region. In 2013, ADB assistance totaled US$21.0bn, including cofinancing of US$6.6bn
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