If Pakistan opts for plan-C given by the Advisor on Finance, Shaukat Tarin (which relates to IMF assistance) then it will certainly have to withdraw subsidy on DAP, a senior official of the Food Ministry told Business Recorder here on Monday.
The government has planned to achieve a production target of 25 million tons of wheat for year 2008-09 and to achieve this target, a meeting under Economic Co-ordination Committee (ECC) held on October 14 approved subsidy of Rs 27 billion on DAP that is an essential input being used to enhance the yield per acre.
The wheat crop production in 2007-08, was just 21.5 million tons that was 2.5 million tons less than the target. The shortage of DAP and its imbalanced usage in wheat cultivation were the main reasons that were held responsible of failure in achieving the target.
The official said that the main purpose of the subsidy for DAP is to be sold at not more than the price of Rs 3050 per 50 kg bag, to provide relief to the farmers and to encourage them to grow more wheat. In 2007-08, DAP was being sold even at Rs 3500 to Rs 3800 per bag and the farmers decreased its use , which resulted in a poor yield.
In international market, the price of DAP is getting higher by each passing day. The price of DAP is Rs 5000 per 50 kg bag. So the government has decided to provide Rs 2200 per bag subsidy on DAP. If we take into account the foreign exchange reserves position, we would be left with no other option but to move towards IMF meeting its conditionali ties to have some cushion to absorb the shock.
Tarin has already described the options available to avoid default. The plan has three parts; Plan-A constitutes assistance from international financial institutions, with the exception of IMF, Plan-B comprises financial support from Friends of Pakistan with a meeting scheduled for next month and Plan-C would consist of resorting to IMF.
Pakistan is facing severe economic difficulties with plunging foreign exchange reserves and high inflation. Standard and Poor's downgraded the country's sovereign credit rating to level of CCC-plus, close to likely default on its commitments of external loan repayment. The official said, "Beggars can not be choosers. So, if IMF imposes the condition of withdrawal of subsidy on DAP then we would be forced to do so".
The director IMF's Middle East and Central Asia department, Mohsin Khan, has already said that it is unlikely that Pakistan would default on its debts, because the payment of $500 million is only major financial commitment due in February 2009. However, the country's foreign exchange reserves at $7.75 billion, are alarmingly low.
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