Pakistan’s central bank has softened rules for wheat procurement financing by flour mills in the private sector, allowing banks to extend loans for purchasing imported grain in addition to the one being harvested locally these days.

The State Bank of Pakistan (SBP) allowed banks to finance local wheat procurement by eligible flour mills after June 30, 2021, where the mills may also borrow to procure imported wheat from July 1, 2021.

Moreover, it also extended the time period for returning these loans by two months to March 31, 2022. Earlier, it had fixed the last date for repayment of the loan maximum by January 31, 2022 in the previous notification issued last month – March 2021.

The central bank, however, holds commercial banks responsible for making sure the financing is made available against fresh wheat stocks only and that the stocks are utilised on time and financing is not misused by the borrowers for hoarding of wheat which usually causes an artificial shortage of grain and increases wheat and wheat-flour prices in the open markets.

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The central bank amended the rules purposely around the time domestic farmers began harvesting staple crop in the last weeks of March and in the beginning of April 2021.

Minister for National Food Security and Research Syed Fakhar Imam the other day said that the country is estimated to produce a bumper crop at around 26.2 million ton in the current season compared to 25.2 million ton attended in the preceding year.

The estimates for production of local wheat is very much close to the local consumption projected – around 26 million ton in a year. However, the government has continued to import the grain in order to ensure sufficient buffer stocks to keep flour price stable in the market.

The government faced criticism for a sharp rise in flour (quality no 2.5) prices up to Rs68 per kilogram in recent months and a year ago as well.

Procurement by the flour mills in the private sector would be in addition to the one done by federal and provincial food departments to ensure price stability in the market.

“Given the requests and feedback received from the stakeholders, SBP has decided to amend the instructions issued for financing of wheat procurement by the private sector…,” SBP said in a notification issued on Friday.

Fresh financing for procurement of wheat shall start from the commencement of wheat procurement season 2021 in respective provinces. Banks will provide financing to eligible borrowers for the procurement of indigenous wheat for the harvest season of 2021 (April 1 to June 30, 2021). “The financing facility would be extended to the eligible borrowers for procurement of indigenous and imported wheat from July 01, 2021…,” SBP said in the notification.

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“These loans will be fully settled on or before March 31, 2022, positively.”

To curb the possibility of hoarding, banks shall require the client(s) to disclose their storage location and verify the same and strictly monitor wheat stock held by the client vide periodical and random inspections of wheat pledged with the bank as well as the gradual release of wheat stock to generate cash for repayment of bank loan.

“SBP may acquire stock reports from banks to verify their authenticity/genuineness as and when desired,” the statement read.

Banks shall “be under obligation to immediately recall the advances allowed to the private sector in case of hoarding of wheat; ensure that no financing is allowed to the client for the retirement of loans availed from other banks and ensure that their clients are in strict compliance with the guidelines of respective government (federal/provincial) for the release of wheat stock and are not involved in any other activity which may cause speculation of wheat/flour price in the market.”

Published in The Express Tribune, April 4th, 2021.

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