Agri sector can wipe out CAD in 6 years

Former SBP governor says public banks should direct 50% lending to agriculture

KARACHI:

Pakistan’s agriculture sector has the potential to overcome the current account deficit and balance-of-payment crisis within six years, according to State Bank of Pakistan (SBP) Former Governor Salim Raza.

Speaking at ‘Agri Connections 2023’, organised by the Pakistan Agricultural Coalition (PAC) on Thursday, Raza noted that the agriculture sector must sustainably grow at 6% to achieve the necessary economic growth and job creation. He added that the agriculture growth rate has remained stagnant over the years, contributing to a trade deficit of $5.5 billion in food and cotton imports in FY22, further widening the current account deficit to $17.4 billion in the same year.

The PAC study highlights practical solutions to boost the agriculture sector’s major crop yields up to international standards, producing surplus crops for export. The coalition, comprising agriculture stakeholders and businesses such as banks, fertiliser manufacturers, and insurance companies, launched the study report at the conference. Raza emphasised that the report does not focus much on farmers’ welfare.

“This year (FY23), we are going to import around 10 million bales of cotton (higher than last year) ... so, the deficit may be around $6-6.5 billion,” explained Raza.

The former SBP governor stated that Pakistan’s agriculture trade deficit can be eliminated as many of the imported agricultural products, such as pulses and cotton, can be produced domestically.

“If the agriculture trade deficit can be brought down to zero over the next three years and turned into a surplus in the subsequent three years, Pakistan could overcome its current account deficit within six years,” he said.

He further noted that the agriculture sector’s sustainable growth rate directly impacts the GDP’s growth rate, stressing that without 6% growth in agriculture, there is no way Pakistan’s GDP can sustain a 6% per annum growth rate.

According to Raza, China, India, and Brazil have an advantage in providing required financing to farmers for agricultural inputs, including seeds, fertilisers, pesticides, storage and warehouses, machinery, and extension services, as they have public banks dedicated to agriculture financing. In contrast, Pakistan has a predominantly privately owned system, making it impossible to follow those countries’ approach.

However, the ex-SBP governor suggested that the government could utilise public banks, including the National Bank of Pakistan, Bank of Punjab, Sindh Bank, and Khyber Bank, to devote 50% of their lending to agriculture financing.

PAC Chief Executive Arif Nadeem highlighted the company’s efforts to offer tested cotton seeds that could augment cotton production to a surplus from the current deficit. The seeds could increase cotton production to three times at 21 million bales compared to 7-8 million bales annually at present, whereas Pakistan’s annual needs stand at 15-16 million bales. The company has also developed new techniques that would increase rice production by 40% in Pakistan. Nadeem emphasised that the selection of the right seed is crucial to agronomy, as 60% of all technology is packed into seeds.

Board of Investment, Secretary, Asad Gilani noted that “Pakistan loses 12%-13% of wheat yields, which is about $200 million in value, due to a lack of mechanisation. In addition, the country loses about $500 million in post-harvest losses.” Sindh Abadgar Board, Vice President, Mahmood Nawaz Shah highlighted that the country only has one laboratory and negligible cold storages, stressing the need to target horticulture to boost exports. He added that Pakistan has abundant resources, but they are not utilised efficiently.

Published in The Express Tribune, March 17^th, 2023.

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