IMF flags ZTBL privatisation risks

The International Monetary Fund (IMF) has flagged that Pakistan's decision to privatise Zarai Taraqiati Bank Limited (ZTBL) could raise issues of access to credit for small farmers, as the bank has managed to reduce bad loans by one?quarter to Rs50 billion to address governance concerns.

The privatisation would expose Pakistan's 97% small?scale farmers who hold less than 12.5 acres of land. The observation was made in last year's Governance and Corruption Diagnostic report, which vindicates concerns of some cabinet ministers and parliamentarians who opposed privatisation for the same reason.

The IMF had scrutinised the affairs of the only specialised agriculture bank through a governance lens. ZTBL has a very high share of non?performing loans due to governance issues. In its report, the IMF noted that a new management that has taken steps to recover problem loans was recently appointed.

Sources said that according to the latest unapproved financial statement for the period ending December, the management has reduced non?performing loans to Rs50 billion – a reduction of about 25% in bad loans over the past three years. In just the last year, there was a 14% (Rs8 billion) reduction, achieved by breaking corruption nexus and improving poor governance that plagued the bank until 2022. The government also revised the Loans for Agriculture, Commercial and Industrial Purposes Act, and the bank recovered Rs9.8 billion in the last three years.

But the IMF's comments about the government's recent privatisation drive highlight serious concerns about the fate of poor farmers who are heavily dependent on the bank to meet their working capital needs.

"The government has decided to privatise ZTBL. Depending on its form, privatisation could raise issues of access to credit for smallholders, particularly their development financing," reads a footnote in the report available on the finance ministry's website.

The board of the Privatisation Commission last month recommended a transaction structure for the sale of ZTBL to the Cabinet Committee on Privatisation. There were also divisions within the board over the structure, sources added.

Before deciding on privatisation, Prime Minister Shehbaz Sharif held discussions with relevant stakeholders and his kitchen cabinet. Views were divided because conventional banks often do not lend money to poor and middle?income groups. Those banks have also not wholeheartedly supported the prime minister's electric bikes scheme, approving barely 10% of applications. They are also reluctant to fund the prime minister's housing scheme until they get sweeping authority to take over homes after the third default notice.

A senior ZTBL management official said there had been a historic turnaround at the bank in the past three years. Bad loan recoveries rose to record levels while disbursements to farmers also jumped during the period ending December 2025. The bank's cumulative gross profit over the past three years jumped to Rs70 billion, which is about 280% higher than the combined profit earned during the previous 20 years. As a result, the bank's tax contributions also jumped to Rs27 billion over the same period.

The Privatisation Commission board last week made key recommendations to the Cabinet Committee on Privatisation (CCoP) regarding the sale of ZTBL. The proposals were refined after extensive deliberations, focusing on maximising value for the government, according to a statement issued by the commission.

The government is pushing ahead with privatisation despite the bank being the only specialised financial institution caring for neglected farmers, and many legacy issues have been resolved in the past three years. Total credit disbursements by the bank were Rs250 billion during the last three years, including Rs42 billion for the prime minister's Kissan package. The bank's equity increased to roughly Rs95 billion by September last year, compared with Rs60 billion in December 2022.

Agricultural land is largely held by small farmers. According to the 7th Agricultural Census 2024, 97% of the country's farming community owns less than 12.5 acres of land, meaning they fall into the low?middle to middle?income groups. Such small landholdings do not generate enough savings; these poor farmers live from crop to crop and depend on ZTBL and middlemen for working capital.

In 2010, 89% of farmers had less than 12.5 acres. Twenty?six percent owned even less than one acre – a ratio that was just 15% in 2010. About 35% of all farmers own less than 2.5 acres. In short, 61% of farmers have less than 2.5 acres, which is insufficient to ensure decent earnings due to outdated techniques and low yields. There are only 16,958 landlords in Pakistan who own more than 100 acres, holding 6.2% of total farmland.