Circular debt mounting due to commodity obligations

ISLAMABAD: Another circular debt is mounting up without getting attention of anyone as commodity operation-related obligations have crossed by Rs500 billion loans against meager stocks available with federal and provincial governments, The News has learnt.

Owing to losses of Rs300 billion faced by PIA, the government was worried about tackling its losses and tried to find out strategic partner that triggered protests during which two employees were shot dead. Banks loans also went up to Rs500 billion mainly on accounts of wheat, sugar and fertilizer stocks.

The most worrisome indicator about this fiasco is ignorance of all key players about velocity of this rapidly increasing liability as the last Economic Coordination Committee (ECC) of the Cabinet was told that the wheat stock of 6.8 million tons was available with Passco and Provincial Food Departments.

“If its cost was calculated, 6.8 million tons wheat would be converted into Rs68 billion worth against the piled up liability of banks to the tune of Rs480 billion,” said the official sources. The obligation on sugar stocks stood at Rs47.764 billion and fertilizer Rs32.375 billion. Total liabilities in shape of bank loans stood at Rs564 billion.

On January 22, 2016, the State Bank of Pakistan (SBP) data showed that the commodity operation related obligation stood more than Rs500 billion after clearing obligation of Rs58 billion in last year. 

When attention of Finance Ministry’s top guns was drawn towards piling up of commodity-related obligation, they said that first of all it was obligations of the provincial governments. “Ideally the stocks should be equal against the piled up obligations,” they admitted.

They were told that the main commodity was wheat against which the piled-up obligation was massive but its stock stood at just 6.8 million tons, this revelation caused worries on face of the economic managers and they promised to check these facts and come back with detailed reply.  With the reduction in POL prices in international market, the subsidies decreased significantly and helped Islamabad to stop piling up of circular debt on energy sector.

At the moment, the circular debt on energy sector was not increasing as it used to be mounting up earlier when the POL prices were over $100 per barrel which was now declined to below $30 per barrel.

“Now there is need to focus on commodity-related piled-up loans amount which will ultimately become obligation of federal as well as provincial governments any day sooner or later so it should be tackled before becoming another monster for the economy,” added the sources.

Economist Dr Ashfaque Hassan Khan said that another circular debt in shape of commodity operation was increasing that needed to be tackled without wasting time. The government, he said, was parking up obligation to show improved picture on fiscal front but ultimately it would have to be cleared by someone.