Banks are reluctant to finance the wheat purchase

Islamabad:

As provinces remain mired in a huge pile of commodity debt, banks are reluctant to extend loans to provincial governments to supply wheat without securing a federal government guarantee.

The matter was discussed at a recent meeting of the Economic Coordination Committee (ECC) while debating a proposal to hand over wheat procurement duties to the provinces. The financial managers thoroughly discussed the wheat purchase effort, where different views were expressed.

Some members raised questions about provincial jurisdiction over agricultural crops, suggesting that provincial governments should set wheat purchase targets according to their needs.

Some members of the CEC suggested that the provinces should get loans from commercial banks to buy wheat on their own without involving the federal government. However, it was clarified that banks were reluctant to extend loans to provincial governments without the guarantee of the federal government.

Additionally, it was pointed out that the current procurement process has resulted in the accumulation of huge debts for the provinces. The system also favored middlemen, rather than farmers, so a major overhaul was needed.

YKK members stressed that the procurement of wheat was intended to stabilize prices and maintain its correct supply throughout the year.

It was explained that the wheat stocks carried by the Pakistan Agricultural Storage and Supplies Corporation (Passco) had other purposes such as supplying wheat-deficient provinces and the armed forces, which could not be done by the private sector without proper planning.

It was highlighted that Punjab had significantly reduced its commodity debt in consultation with the Finance Department.

A Punjab spokesman revealed that this year the province will maintain a flexible procurement target to stabilize prices rather than launch a rigid target-based campaign. The ECC appreciated and supported the province’s approach.

Sindh, on its part, supported the continuation of the current procurement process as proposed by the Ministry of National Food Security and Research.

The ECC agreed that the proposal made by the ministry of food security can be approved, but with the commitment that the entire procurement effort should be scrutinized for possible reforms to prepare a future plan. Under the plan, the government will gradually shift procurement work to the private sector, apart from maintaining strategic reserves.

It was suggested that the ministry present a comprehensive plan to the Greek Cypriot Council. In addition, Passco’s storage capacity should be upgraded to international standards and possible models should be studied, including seeking equity capital from international organizations to build state-of-the-art silos.

It was suggested that any future wheat supply and procurement plan should also provide for a wheat import permit.

The Ministry of National Food Security has submitted proposals for examination and approval by the Greek Cypriot Council.

He proposed to assign to Passco a procurement target of 1.40 million metric tonnes with an interim credit line of Rs 169 billion at a price of Rs 3,900 per 40 kg of wheat.

In addition, the Sindh government may be given a target to purchase one million metric tonnes of wheat with a temporary credit line of Rs 100 billion at a price of Rs 4,000 per 40 kg.

The Balochistan government may be assigned a target of 0.050 million tonnes with a cash credit limit of Rs 5.7 billion at a price of Rs 4,300 per 40 kg.

The ministry said they may be borne by the respective provincial governments. In case of emergency, the ministry may be allowed to approach the ECC again for revision of the procurement target of Passco.

The ECC considered a summary submitted by the Ministry of National Food Security titled “Arrangement of wheat supply targets for 2024 for Passco, Sindh and Balochistan along with cash credit limits” and approved the proposal.

He directed the ministry to regularly monitor wheat stocks and supplies with a view to keeping the ECC informed.

Instructions were also given to thoroughly review the need for procurement arising from domestic requirements and present all aspects to the committee along with the way forward focusing on private sector involvement to reduce the Government’s footprint in wheat procurement beyond necessary strategic reserves.

The ECC directed the Finance Directorate to continue monitoring the implementation of Punjab and Sindh’s commodity debt retirement plans and adjust cash credit limits to the extent of their unsecured exposure from September 2023.

Published in The Express Tribune, April 16^u2024.

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