Govt barred from setting crop prices

IMF condition aimed at curbing provinces' extra spending, limiting subsidies

ISLAMABAD:

The International Monetary Fund (IMF) has imposed a major condition on Pakistan's federal and provincial governments, preventing them from setting agricultural support prices for all commodities, including wheat and sugarcane.

This condition is part of nearly a dozen restrictions that the global lender has imposed on provincial governments aimed at curbing reckless spending and limiting their authority for provision of subsidies.

The agriculture-related condition will directly impact three cash crops – sugarcane, wheat and cotton. Besides, it will cause an increase in prices of imported fertiliser due to the restriction on selling the commodity at subsidised rates.

Sources said that the IMF has included a condition in the $7 billion bailout package that requires the federal government and the four provinces to phase out their price-setting mechanisms. The five governments will have to start implementing the condition from this Kharif crop season and complete the task by June 2026.

At present, the federal and provincial governments fix prices of wheat, sugarcane, cotton and fertiliser. The IMF condition will apply to both finished commodities like fertiliser and raw commodities like wheat, sugarcane and cotton.

Pakistani governments will "refrain from announcing support prices and discontinue procurement operations that crowd out the private sector".

Punjab government has already stopped buying wheat from farmers, which helped reduce prices of both wheat and wheat flour by 40% and contributed to a reduction in the overall inflation rate to single digit last month.

Owing to the Punjab government's move to give electricity subsidy for two months, the IMF has also imposed a condition on all provinces that they will not give any subsidy on electricity and gas during the 37-month duration of its loan programme.

The Ministry of Finance communicated the IMF's decision to the government of Punjab last week. But after publication of a story in The Express Tribune, Punjab government spokeswoman Uzma Bukhari claimed that there was no such communication with the province.

Sources said that as per the IMF's condition, the four provincial governments and the federal government would end price intervention from this year's Kharif season.

They pointed out that the provincial governments would not determine the sugarcane support price and the deadline for millers to start the crushing season.

The millers blame the high cost of sugarcane for producing expensive sugar. For the last season, the provincial government set the sugarcane price at Rs425 per 40 kg but the millers bought the raw commodity from Rs425 to Rs480 per 40 kg.

These conditions are part of the $7 billion Extended Fund Facility (EFF) that has not yet been approved by the IMF executive board.

The IMF has also stopped the five governments from procuring any commodity beyond their own use. The federal government procures commodities mainly for use by the military and special areas like Gilgit-Baltistan.

As per the IMF condition, the limited procurement and its sale will be made at market prices and the governments will recover the full cost from the buyer of these commodities.

The intervention in the market distorts prices and often leads to disruptions.

The Economic Coordination Committee (ECC) of the cabinet had allowed export of 250,000 metric tons of sugar since June this year but so far the federal cabinet ratified export of only 150,000 metric tons.

The ECC approved export of 100,000 metric tons of sugar in the third week of August but the prime minister turned down the summary due to an increase in domestic sugar prices after the permission for export of 150,000 metric tons.

At the time of approval of the export of 150,000 tons, the ECC decided that in case local prices rose above Rs140 per kg, it would cancel the export permission. Prices have already touched Rs150 per kg.

Millers say they have over 800,000 tons of surplus sugar and despite the export permission there will be no shortage of the sweetener.

Pakistan had established the Trading Corporation of Pakistan (TCP) in 1967 with monopoly rights over the trading of commodities. In the modern world, the TCP has lost its relevance but the government remains unable to take a decision on winding it up.

The entity has in the past been used to procure wheat, sugar and urea to meet domestic market requirements – a function that the private parties can perform with no cost to the exchequer.

However, this week Finance Minister Muhammad Aurangzeb-led Cabinet Committee on State-Owned Enterprises declared the TCP as an essential entity and did not shut it down.

The federal and provincial governments owed Rs287 billion to the TCP. Maximum receivables of Rs115 billion were against the National Fertiliser Marketing Limited, followed by Rs95.3 billion against the Utility Stores Corporation.

The Ministry of Finance was also not timely paying subsidies to the TCP. The food ministry owed Rs2.5 billion to the TCP on account of cotton subsidy. The Punjab Food Department has also not cleared Rs15 billion dues of the entity.