The threat of another circular debt crisis was averted as retirement of advances under commodity operation picked up and the procurement agencies got retired Rs 122 billion during the current fiscal year. Sources in banking sector told Business Recorder on Friday that key development was witnessed in the commodity financing, as massive retirement of commodity financing was carried out by the state run procurement agencies during the July to mid March period of FY11.
According to the State Bank of Pakistan, retirement under commodity financing improved to Rs 122.648 billion during July 1, 2010 to March 18, 2011 of current fiscal year as compared to Rs 63.556 billion in same period of last fiscal year, depicting an increase of 93 percent or Rs 59.092 billion. With the current retirement, the outstanding stock of commodity operation narrowed down to Rs 291 billion as on March 18, 2011 as compared to Rs 413.191 billion on June 30, 2010.
Breakup shows that a massive financing amount was repaid during the third quarter of current fiscal year, as provincial food departments and other government agencies paid back Rs 72.748 billion during third quarter (Jan-March) of 2011, Rs 26 billion in first quarter (July-Sep) and Rs 23.9 billion in second quarter (Oct-Dec) of current fiscal year.
Sources said the bulk of the retirement was made in wheat advances by provincial departments and Pakistan Storage and Supply Corporation (Passco) and Trading Corporation of Pakistan, as the federal government has allowed wheat export.
Stocks of wheat procured in last two years 2009-10 was not offloaded and was lying as strategic reserves in the stores of Passco and provincial food departments. Therefore, in order to offload already procured wheat stocks, the federal government in January this year lifted two-and-half-year ban on wheat export and allowed private sector to export the commodity without subsidy.
The government decision provided a safe passage to the procurement agencies to offload their wheat stocks at a better price and retire financing obtained from banks as a result a major retirement was witnessed during third quarter of current fiscal year.
For the coming wheat season, the government has announced that it would procure 6.5 million tons of wheat and before the new procurement, Passco and food departments are striving to offload already stocked wheat due to poor capacity of storage.
"Therefore, presently Punjab food department and other provinces put their stocks for exports and get good response from exporters due to rising international price as well as demand," sources said. Export of wheat has already started and so far some 0.8 million tons of wheat has been exported by private sector during last two months, while they still have over 0.5 million tons orders in the pipeline.
The major borrower of wheat financing was Punjab food agency, which made sharp retirement since January after offloading procured stocks in the market. In addition, by December 2010, the TCP also reduced its loan burden to almost half the level of Jun 2010 and this was made possible with the receipts of sales proceeds. However, despite the overall retirement in commodity financing, advances against sugar, mainly for import, remained higher during the period as compared to the same period of last year.
Overall advances of commodity operation stand at Rs 291.543 billion comprising wheat advances of Rs 191.848 billion, sugar Rs 44.688 billion, urea Rs 37.747 billion, rice Rs 15.196 billion and other commodity advances Rs 64 million as on March 18, 2011.