KARACHI, April 24: The State Bank of Pakistan has dispelled the impression created by certain quarters that its recent decision to restrict bank financing to functional flour mills only may deprive the farmers in getting appropriate price for their wheat.

“This impression is totally unfounded,” said a statement issued by the SBP here on Thursday.

It said the facilities to the private sector were in addition to the bank financing made or to be made available for the procurement drive of the government agencies and provincial food departments, which had been allowed by the government to avail bank financing to the extent of Rs87 billion for the current year.

The involvement of private sector in wheat procurement created tremendous problem for the government last year to control the wheat and flour prices as it resulted in hoarding and black-marketing of the commodity. It escalated the prices to such an extent that a very high level of prices is still prevailing in the market.

However, the SBP denies that its decision to involve private sector in wheat procurement was the key element in pushing the prices high.

Market experts hold wheat shortage in the country and price hike in the international market responsible for the increase in prices in the local market.

“It is clarified that the procurement of wheat is largely made by Pakistan Agricultural Storage and Supplies Corporation (Passco), and food departments of the governments of Punjab and Sindh,” said the central bank.

Although the private sector has been allowed to participate in procurement of wheat, its role is still evolving and needs to be closely monitored to prevent a repetition of the wheat hoarding crisis that started during 2007, said the SBP.

In order to discourage hoarding of wheat, the banks have been directed by the State Bank to provide financing to functional flour mills only for procurement of wheat during wheat procurement season 2008.The SBP said extensive consultations were held with the ministry of food, agriculture and livestock and input was also taken from different references received from Pakistan Flour Mills Association on the adverse role of the non-genuine buyers of the wheat during wheat procurement season 2007.

“The State Bank will continue to monitor the performance of banks in providing funding facilities to the private sector as per its instructions and will ensure that the financing requests of eligible borrowers for procurement of wheat are not denied on flimsy grounds,” the central bank said.

“The SBP has been highly supportive of commodity financing requirements of the country and has played a significant role in encouraging banks to provide timely credit to farmers and mills,” it added.

This is a strange phenomenon that the country produces sufficient wheat to feed its entire population but the shortage problem still persists.

The country may need hardly one million tons of wheat, mainly because of smuggling to Afghanistan, which is less than 0.5 per cent of the country’s need but the private sector magnified the shortage and has been minting money through artificial shortage.