Agricultural credit behind target

By Ahmad Fraz Khan


THE latest agriculture loan figures released by the State Bank of Pakistan only confirm the worst fears of farmers – the banks do not take agriculture loans serious enough to meet their targets.

The last year was an exception when the banks exceeded their target by Rs12 billion and the State Bank of Pakistan increased indicative credit target to Rs250 billion for this year – Rs38 billion (18 per cent) higher than the actual disbursement of Rs212 billion.

According to the 10-month figures, commercial banks have disbursed only Rs174.77 billion or 69 per cent of Rs250 billion target. If the target has to be met, more than Rs75 billion needs to be disbursed in the remaining two months (May-June) at a rate of Rs37 billion each month against their monthly average of Rs17.47 billion achieved so far.

Disbursements by five major banks – Allied Bank, Habib Bank, MCB, National Bank of Pakistan and United Bank – stood at Rs86.552 billion, compared to Rs74.328 billion during the same period of last year, up by 16.45 per cent.

Fourteen private (small) banks jointly advanced Rs32.1 billion, compared to Rs33.48 billion disbursed in July-April, 2008 – a drop of 4.26 per cent.

The Zarai Taraqiati Bank (ZTBL) – the largest specialised bank – advanced Rs52.505 billion against Rs45.8 billion and the Punjab Provincial Co-operative Bank Rs3.610 billion, compared to Rs3.983 billion last year Fortunately, agriculture is the only sector, which has maintained some vibrancy in otherwise recession-hit economy. Load shedding has taken better of industrial sector, and service sector has been subdued. On the contrary, the country has just harvested a record wheat crop, which not only reflects current vibrancy of the sector but also its potential to perform miracles.

It is unfortunate that the only performing sector is being denied its most essential requirement. The formal sector provides only 30 per cent of its total requirements. Failure to achieve even that 30 per cent could be termed as un-pardonable.

The sector needs around Rs250 billion – equivalent to the official target – for fertiliser alone. It needs another Rs250 billion for diesel, even at the depressed demand of two billion litres.

It also needs Rs30 for tractors, which could increase if production rises. It spends Rs50 billion on seeds, Rs40 billion on electricity, even with all load shedding going on, Rs28 billion on pesticides and Rs50 billion on other implements.

The mere contribution of banking sector could be gauged from the fact that out of all these expenditures on seven major heads, the banks would only be covering on fertiliser if they achieve their credit target. But even that does not seem to be a possibility, this year again.

The target would not be achievable given the expenditures pattern of the farmers. During May and June, there would be sowing and nursery raising activity for cotton and rice and sugarcane would be going under routine development.

The only activity is part purchase of fertiliser, which might not require huge amounts to provide banks a chance to hit their target even if they wish to. The next big activity would be spraying pesticides on cotton during the monsoon (September). Thus, the target would be missed by all means.

The government is denying credit to the agriculture sector when it has just agreed to share Rs31 billion out of total dues of Rs84 billion that the Karachi Electricity Supply Company (KESC) – a totally private concern – owes to Pakistan Electric Power Company (Pepco).

On the one hand, the government has money to throw around lavishly on privatised concerns like the KESC and on the other, it does not have money to “even lend to the agriculture sector.” This is a dangerous dichotomy, to say the least.

Loans to agriculture sector are, by and large, commercial loans, coming on the market rate as they go to other sectors, and high mark up rates if industrial loans are benchmarks.

The federal government has recently helped Pakistan Electric Power Company (Pepco) to raise Rs81 billion from banks through term deposit certificate for clearing its circular debts.

The banks were literally forced to come up with required money. It is not to belittle importance of the power sector or argue that it was not important to help Pepco raise money. But, it is to underline importance of the agriculture sector and need for official help to meet its fiscal requirements.

Pakistan’s economy, in its present form, revolves around agriculture. Even its manufacturing sector is currently totally dependent on agriculture – tractor manufacturing is the only sector which escaped global and local recession, in otherwise total stagnant automobile sector.

The tractor industry also runs some 300 downstream SMEs. It only goes to show how important the sector has become in current economic scenario.

If the government cannot make the banks partly finance the most important sector of the economy, there must be something severely lacking in its priorities and strategies of governance.


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