Thiruvananthapuram: The State government’s plans for an expenditure push ahead of the upcoming Assembly elections and the closing months of the financial year have suffered a major setback, with the Union government sharply curtailing its borrowing limit.

The Centre has slashed the permissible limit borrowing by ₹6,880 crore in one stroke, bringing it down from the available balance of ₹12,516 crore for the remaining three months. The State has received an official communication to this effect from the Union Finance Ministry.

The cut has been justified on the grounds that institutions such as KIIFB and pension companies had resorted to additional borrowings outside the Budget. As a result, the State can now raise only ₹5,944 crore during the remaining months of the financial year.

Between January and March, the government requires around ₹20,000 crore merely to clear bills, including payments to contractors. More than ₹15,000 crore is needed to meet salary and pension commitments too. In addition, the enhanced welfare pension of ₹2,000 also has to be disbursed. The Finance Department has assessed that existing revenue streams, including tax collections, will be insufficient to meet these obligations.

Earlier, the Centre had reduced the State’s borrowing limit by ₹3,300 crore, citing the failure to constitute a contingency fund to cover potential loan repayment defaults by institutions backed by State government guarantees.

There was hope that this ₹3,300 crore would be released after Kerala agreed to deposit, over five years, an amount equivalent to half a percent of the total guaranteed liability into a contingency fund. However, that expectation has also been dashed following a fresh directive insisting that the entire 2.5 percent be transferred to the fund in one lump sum.