State Bank of Pakistan (SBP) will, reportedly, direct the commercial banks to give credit for procurement of 7.5 million tons of wheat, well-informed source told Business Recorder. Central Bank, in a presentation to the Economic Co-ordination Committee (ECC) of the cabinet on January 12, 2010, informed that during Financial Year 2010, banks would provide new finances only to replace Financial Year 2009 repayments.
According to Governor SBP, this would be Rs 107 billion short of Financial Year 2010 requirements. There is a collateral shortfall of Rs 98 billion due to carrying cost of Rs 24 billion paid for sale of wheat and for subsidy/other receivables due from provincial governments against the release of their stocks amounting to Rs 74 billion.
Governor SBP proposed that the government guarantee should contain full repayment so that shortfall could be covered from budgetary resources. SBP proposed to address the funding gap of Rs 71 billion by sale of 2 million tons of wheat from reserve stocks or to cut procurement by 2 million tons.
However, when the issue was tabled before the federal cabinet on January 27, 2010, presided over by the Prime Minister, Syed Yousuf Raza Gilani, Ministry of Food and Agriculture (Minfa), the SBP's position changed.
The cabinet was informed that due to incentives given by the present government to the farmers, the country witnessed a very good wheat crop and, therefore, the procurement figures for the 2008-09 crop was raised to 9.23 million tons as against the target of 6.55 million tons. The cabinet was informed that the current wheat stocks as on 25th January 2010 was at the level of 6.10 million tons against just 1.83 million tons in January 2009. It was further informed that the pace of lifting of wheat from Passco outlets by the provinces was very slow while the average release of wheat to flour mills was 28,964 tons per day.
According to Minfa's estimates, by April 15, 2010 the stocks in reserves would be around 3.26 million tons, which would supplement the future crop which, due to the prevailing drought and other factors, might require reinforcement to meet the public demand during the next year. The cabinet was further informed that the wheat and flour prices are stable in the country. However, it was emphasised that the provinces should adopt a uniform pricing policy on wheat/flour, load-shedding be relaxed for the tube-wells, SBP should advise the commercial banks to give credit for procurement of 7.5 million tons, Passco should enhance its storage capacity and maintain strategic stocks.
The sources said, Finance Minister, Shaukat Tarin assured all out support to Minfa for maintaining strategic stocks of wheat and sugar etc and that SBP would advise the commercial banks to provide additional financing for this purpose.
Earlier, in the ECC meeting on January 12, Governor, SBP made a presentation to the ECC on the status of commodity operation financing. It was stated that public sector financing had doubled since 2006 and its share had gone up by 60 percent from 40 percent of private sector credit. Current level of commodity financing is Rs 328 billion including about Rs 87 billion for sugar, paddy and fertilisers.