Tag Archive: export

Remember the export of wheat about three years ago by Pakistan triggering a very serious food shortage in the country leading to phenomenal rise in food prices? The same wheat was imported back at exorbitant prices. Since then the price of wheat and flour is constantly on the rise. This was perhaps one of the biggest corruption scandals of the Shaukat Aziz government. It seems that the present government has learnt only one lesson from this regrettable decision; do it again and make billions at the cost of millions of hapless “voters” who you will need only in the next season of “democracy”. Interestingly, this decision, which has been taken to be able to pay off central bank loans, has been taken at a moment when wheat prices are at the lowest in the international market.

It is simply beyond comprehension why export is needed to pay off SBP loans which essentially are in local currency. It seems that the driving factor behind this imprudent decision is dollar-lust. Express Tribune has reported that after a ban stretching more than three years, the government on Tuesday allowed the export of wheat in a bid to pay back central bank debt, a move that could result in a serious food crisis since a World Bank (WB) report has already warned of a five-million-ton drop in production in the next crop. The Economic Coordination Committee (ECC) of the cabinet allowed the grain export without imposing any cap on quantity. It is expected that wheat will be exported in massive quantities since Russia, the world’s largest wheat producer, has banned the grain export resulting in price surge in the international market.

The ECC assessed a $300 per ton (Rs1,040 per 40 kilogram) wheat price in the international market, anticipating a further hike in coming days. Although the government has fixed the wheat price at Rs950 per 40 kg in the domestic market, farmers usually receive an average Rs850. Pakistan is the third largest wheat producer. The ban on export of wheat was slapped in June 2007 when because of incoherent policies the country first exported the commodity and then had to spend over $1 billion to import the same for domestic consumption.

The ministry of food and agriculture’s summary to the ECC proposed lifting the ban primarily to pay back debt taken from the State Bank of Pakistan (SBP) to buy wheat, make room for next year’s crop storage and capitalize on higher prices in the international market. Total wheat stocks are estimated at 9.07 million tons, of which 6.1 million tons are in Punjab. “The Punjab government is paying Rs77.5 million per day interest on loans,” obtained for buying wheat, says the summary. The federal government is picking up Rs24.6 million from the amount.

The production target in the pre-flood scenario was also estimated at 25 million tons. According to the Damage and Need Assessment Report of the World Bank and the Asian Development Bank, “wheat production may reach only 20 million tons opposed to an average production of almost 23 million tons in the last three years.”

The report goes on to say that there is concern about the possible impact of reduced wheat output in the coming season on food security. Around 78,000 tons of wheat were either destroyed or damaged in Punjab during the recent floods.

Strengthening your currency is not a difficult proposition; you only have to cut down on dollars’ outflow and increase the inflow. Outflow can be curtailed through controlled imports or if and when the prices of major import commodity i.e. crude oil face southward. Increase in inflows can be achieved through increase in export items like textile products but that seems a far cry due to scarcity of electricity. There are other factors; like foreign investment in stocks etc but that is possible only if the political stability, as per investors’ perception is achieved.

In spite of dooms day scenario painted by prophets of doom, there are certain developments here and there that give you some reason to feel a bit of relief. Bloomberg Businessweek has recently reported that Pakistan’s rupee was headed for a weekly gain as stock inflows picked up and a drop in crude oil prices helped reduce the nation’s import bill.

The currency strengthened on each of the five days, its longest winning streak since April 2009, and overseas investors pumped a net $14.6 million into Pakistani shares in the first three days of this week, exceeding weekly tallies for the past two months. Pakistan imports 80 percent of the oil it uses and the cost of crude was $76.56 a barrel in recent trading, 0.8 percent less than at the end of last week.

“The reduced demand for dollars from oil importers helped the currency to strengthen,” said Mustafa Pasha, assistant vice president and economist at BMA Capital Management Ltd. in Karachi. “The rupee will remain under pressure as importers will need as much as $600 million to import oil next week.”

The rupee traded at 85.281 per dollar as of 9:35 a.m. in Karachi, 0.3 percent stronger than at the end of last week, according to data compiled by Bloomberg.

The central bank said yesterday its foreign-exchange reserves as of June 18 were $12 billion, up from $11.9 billion on June 11.