Government is likely to prepay another $3 billion worth of costly foreign loans this fiscal in continuance to the exercise started by Finance Minister Jaswant Singh last fiscal for reducing interest burden and fiscal deficit.

"We will prepay costly foreign loans this fiscal also. The magnitude will be more than what we repaid last fiscal," finance ministry officials told PTI in New Delhi on Thursday.

The prepayment resulted in a savings in interest cost of about $200 million (Rs 950 crore) last fiscal, they said.

"We are in the process of selecting the foreign loans according to the coupon rates," the officials said while declining to give the precise amount.

Finance Minister Jaswant Singh indicated in his budget that government would continue the debt restructuring exercise through prepayment of foreign loans, debt swap of state loans worth Rs 80,000 crore (Rs 800 billion) and buyback of costly government securities from banks and financial institutions of Rs 43,000 crore (Rs 430 billion) during 2003-04.

Government prepaid foreign loans aggregating $1.67 billion to World Bank and another $1.3 billion to Asian Development Bank last fiscal.

The centre privately placed government securities worth Rs 13,000 crore (Rs 130 billion) with the Reserve Bank to buy the required foreign exchange to prepay the foreign loans without affecting its fiscal situation.

The private placement comprised government papers worth Rs 5,500 crore (Rs 55 billion) for a coupon rate of 6.72 per cent and another Rs 7,500 crore (Rs 75 billion) at 6.57 per cent.

"Government substituted the foreign debt with domestic debt amounting to Rs 13,000 crore (Rs 130 billion) issued to RBI. Similar type of exercise is expected this fiscal also," the official said.

Since the fresh rupee borrowings by the government through private placement with RBI was used exclusively to retire an equivalent amount of debt in foreign currency with equivalent residual maturity, the Finance Ministry officials said "the transaction will not have any fiscal implications."

The monetary impact of additional borrowing would be neutralised by equivalent rupee payments by the Centre to RBI towards purchase of foreign exchange.

The reduction in RBI's foreign currency assets was matched by a corresponding increase in the domestic assets in the form of G-Secs acquired by the central bank.

Despite efforts to reduce costs, the Centre's interest payments is scheduled to go up to Rs 1,23,223 crore (Rs 1232.23 billion) in 2003-04 from an estimated Rs 1,15,663 crore (Rs 1156.63 billion) in 2002-03.

Interest costs is the main reason for increase in non-plan expenditure of the government, which in turn resulted in higher fiscal deficit at about 5.9 per cent last fiscal.