Public Finance Reform in Mizoram, India

The Asian Development Bank (ADB) is extending $100 million in loans to India’s Mizoram state for public sector financial reforms designed to improve the state government’s finances and strengthen service delivery.

ADB’s Board of Directors today approved the funds for the Mizoram Public Resource Management Program (India). The program aims to help the state government create fiscal space by taking steps to raise additional revenue from tax and non-tax sources, and improve debt management including pre-payment of high cost loans. The program also focuses on strengthening service delivery in the education and health sectors.

“The state government of Mizoram has demonstrated strong political commitment to undertake financial reforms, including carrying out tough decisions on social policies relating to health, education, and public sector enterprises. ADB is pleased to support these efforts,” said Ashok Sharma, Director, Financial Sector, Public Management and Trade Division of ADB’s South Asia Department.

The reforms will support, among other things, improvements to the state health insurance scheme by targeting more efficient service in a cost effective manner. Revamping the state’s costly pension scheme is another priority, while the program will seek to overhaul loss-making public sector enterprises, with downsizing or closure not excluded among the options. Funds will also be allocated for a voluntary retirement scheme for under-qualified teachers in primary and secondary schools as part of ongoing efforts to improve the education sector.

“We hope that the funding for the fiscal reforms and the parallel capacity-building technical assistance will enable the state government to successfully deliver on the reforms,” said Gambhir Bhatta, Principal Governance Specialist at ADB’s South Asia Department.

ADB’s program finance includes a $94 million loan and a technical assistance loan of $6 million, both drawn from ordinary capital resources. The loans have a 15-year term, including a 3-year grace period, with interest set in accordance with ADB’s LIBOR-based facility. The program is set to run from August 2009 to July 2012 and the state’s Finance Department will be the executing agency.

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