Manager Research, PAGE
Jan 28 - Feb 03, 2008

Pakistan is largely dependant on agriculture and the sector continues to be the single largest source and a dominant driving force for growth and the main foundation of livelihood for more than half of the countryís population. It accounts for more than 20% of the GDP and employs 43.4% of the total work force. The sector has experienced mixed trends over the last six year. The country witnessed unprecedented drought during the first two years of the decade i.e. (FY01 and FY02) which resulted in contraction of agricultural value added. Hence agriculture registered negative growth in these two years. In the following years (FY03 to FY05), relatively better availability of irrigation water had a positive impact on overall agricultural growth and this sector exhibited modest to strong recovery. The performance of agriculture remained weak during FY06 because its crops sector particularly major crops could not perform up to the expectations. Growth in the agriculture sector registered a sharp recovery in FY07 and grew by 5% as against the preceding yearís growth of 1.6% in FY06. Over the past 20 years some important structural changes have taken place in the sector. According to the information available, livestock contributes more than one-third of agricultural GDP, compared with about 28% twenty years ago. Similarly, fisheries and forestry, while still minor contributors to agricultural GDP, have grown rapidly. Structural changes have also taken place within the crop sector. Cotton is now as important as wheat in terms of value added with a one-fifth share of total earnings. Rice and sugar have, however, fallen from a 20% share in the early 1970s to less than 15% currently. Finance to agriculture sector has gone up by 23% to US$2.6bn in 2007 as against US$2.2bn in 2006.


Credit requirements of the farming sector have been increasing over the years mainly due to the rise in the use of fertilizer, pesticides and mechanization. In order to cope with the increasing demand for agricultural credit, institutional credit to farmers is being provided through Zarai Taraqiati Bank Limited, Commercial Banks, Punjab Provincial Cooperative Bank Ltd and Domestic Private Banks. The Government allocated Rs160bn for agriculture credit disbursements for the year 2006-07 which was 23% higher than the allocation of the preceding year i.e. Rs130bn. But as per the provisional numbers the amount disbursed during the year was Rs129bn below the target.






Production Loans





Development Loans















Source: SBP


Disbursement of credit to the agriculture sector by commercial and specialized banks has shown an impressive growth of 26% during the first half (July-December, 2007) of the current fiscal year. Commercial and specialized banks have disbursed a total of Rs90.28bn to the agriculture sector during July-December period as compared to Rs71.68bn in the same period last year, showing an absolute increase of Rs18.6bn. Overall credit disbursement by five big commercial banks including Allied Bank Limited, Habib Bank Limited, MCB Bank, National Bank of Pakistan and United Bank Limited stood at Rs44.94bn during the first half of the current fiscal year, compared with Rs34.28bn during same corresponding period last year, depicting an increase of Rs10.63bn or 31%. NBP and HBL topped the list of five big commercial banks in terms of agricultural credit disbursement of Rs13.94bn and Rs10.42bn against the annual target of Rs32bn and Rs22bn, respectively. During July-December period, MCB Bank disbursed Rs.9.7bn, ABL Rs6.83bn, and UBL Rs4.03bn against their annual targets of Rs18.50bn, Rs11bn, and Rs13bn, respectively. Moreover, Zarai Taraqiati Bank Limited has disbursed Rs23.87bn during the first half of the current fiscal year, while disbursement by Punjab Provincial Co-operative Bank Limited stood at Rs2.40bn. Besides, 14 other domestic private banks loaned a combined Rs19.09bn during July-December period against the full-year target of Rs35.50bn. State Bank of Pakistan has set a target of Rs200 billion for the current fiscal year, up from Rs166bn in the last fiscal year, showing an increase of Rs34bn. During the last fiscal year, commercial and specialized banks disbursed a total of Rs168.3bn.


The main beneficiary of the greater credit disbursement to the agriculture sector is to the fertilizer sector. Farmers need credit to buy the fertilizers which are essential for the production of the crops. During calendar year 2007, total nutrient offtake was about 3,561k tons, which witnessed a decrease of 6.8% over 2006. Of this nitrogen was 2,712k tons (-5.6%), phosphate 811k tons (-11.4%) and potash about 38k tons (+11.2%). The provisional data indicate that urea offtake reached a level of 4,917k tons, which decreased by 6.1% and DAP offtake at 1,386k tons, showing a decrease of 8.0% over the year 2006. The subsidy factor on Phosphatic and Potassic fertilizer products played a vital role in supporting the farmers not to fully skip the use of DAP and other imported fertilizers due to high prices.


Government has over the years continued to give assurance to the agriculture sector over greater credit disbursement and provisions of more subsidies. As the sector contributes greatly to the overall GDP hence the importance of that increases further.