How IMF has forced Pakistan to reform its farm sector

Indian Express

30-05-2025

Can one imagine India dismantling minimum support price (MSP)-based procurement operations in wheat and rice? Or the government dissolving the Food Corporation of India (FCI)?
Both political and economic considerations – not risking farmer displeasure and ensuring adequate grain reserves for the public distribution system, as well as to curb excessive open market price volatility – practically rule these out.
But Pakistan has done that and much more – under pressure from the International Monetary Fund (IMF).
The Pakistan government did not declare any MSP for the 2024-25 wheat crop, sown in November-December and being marketed from April. Nor has Pakistan Agricultural Storage & Services Corporation Ltd – PASSCO, the country's equivalent of FCI – procured a single tonne this time.
Last year, the MSP for the 2023-24 crop was fixed at Rs 3,900 per maund (40 kg), i.e. Rs 9,750/quintal, and PASSCO procured 1.79 million tonnes (mt) of the cereal grain.
Reform at gunpoint
Pakistan's decision to dispense with MSP and government procurement of wheat has been externally forced, part of conditionality linked to an Extended Fund Facility loan of $7,113-million from the IMF, to be disbursed from the 2024-25 to 2027-28 fiscal years (FY: July-June).
The so-called memorandum of economic and financial policies, submitted by the Pakistan government to the IMF for availing the loan, has clearly stated that in the case of wheat 'we have abstained from announcing support prices and undertaking provincial procurement operations during the 2025 Rabi season and are committed to continue this approach going forward'.
That's not all. The memorandum has also committed to 'winding down PASSCO' under an overall plan to 'phase out federal and provincial government price-setting for agricultural commodities by end-FY26'.
Pakistan's Minister for Parliamentary Affairs, Tariq Fazal Chaudhry, confirmed in the National Assembly earlier this month that PASSCO is being 'wound up', as the government isn't any longer buying wheat or regulating its prices. It has already appointed a consultancy firm, TAGM & Co, to assess the total value of PASSCO's warehouses, offices and other assets, and formulate a winding-up plan for the 51-year-old corporation 'within three months'.
But it's not just MSP, procurement and PASSCO.
The memorandum given to the IMF has promised to review all relevant legislation underpinning government interventions in commodity markets 'by end-December 2025'. These include the Price Control and Prevention of Profiteering and Hoarding Act, 1977 (similar to India's Essential Commodities Act of 1955) and provincial laws such as the Punjab Foodstuffs (Control) Act, 1958 and the Sindh Essential Commodities Price Control and Prevention of Profiteering and Hoarding Act, 2005.
If these weren't enough, all the four provinces of Pakistan – Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan – have amended their individual Agriculture Income Tax legislation. These have now been fully aligned with the federal-level personal and corporate income tax regimes applicable for ordinary farmers and commercial agriculture respectively. The amendments will enable taxation of farm incomes to 'commence from January 1, 2025'.
The contrast with India
India hasn't been under any IMF-guided programme since June 1993, when it borrowed the last tranche of a Standby Arrangement loan of 2,207.925 million SDR (special drawing rights), equivalent to $2,394 million. This loan, taken between April 1991 and June 1993 when the country was facing a balance of payments (BOP) crisis like Pakistan is today, got completely repaid by May 31, 2000.
With no IMF conditionality linked to financial assistance, there's no question of any reforms in India being imposed from outside, leave alone at gunpoint. Government agencies here have so far procured almost 30 mt of the 2024-25 wheat crop at the MSP of Rs 2,425 per quintal (the Indian rupee is over 3.3 times the Pakistani rupee). They have further purchased 85.5 mt of paddy (equivalent to 57.3 mt of milled rice) at the MSP of Rs 2,300-2,320 per quintal.
Apart from MSP procurement and stocking of grain by FCI, India provides subsidies on fertilisers, electricity for irrigation and canal water, crop credit, insurance premium and other farm inputs. Income from agriculture attracts no tax either.
Agriculture reforms in India – especially those leading to distorted cropping patterns (more rice, wheat and sugarcane being grown at the expense of pulses, oilseeds, maize, cotton and millets) and promoting inefficient/excessive use of nitrogen and water – are less likely under any BOP crisis-induced, IMF-dictated external pressure of the sort seen in 1991.
The Central government's having to repeal the three farm laws liberalising trade in agricultural produce – which it had pushed through Parliament in September 2020 – demonstrates the limitations of reform by central fiat under the given political economy realities.
The impetus to farm reform in India is more likely to come from internal fiscal, as opposed to external BOP, pressures. And that would probably be at an individual state level (Punjab, for instance) rather than from the Centre.
Production comparisons
The US Department of Agriculture (USDA) expects Pakistan's wheat production in 2024-25 (that crop is now being marketed) at 28.5 mt, down from last year's record 31.44 mt.
The decline is due to a reduction in area sown, from 9.6 million to 9.1 million hectares. That, in turn, is attributed to the Pakistan government's decision to discontinue MSP procurement and also dry weather.
Since October 2024 and throughout the growing season, rainfall was below average and temperatures well above average. While wheat is a largely irrigated crop, the 2-3 showers normally received during the winter-spring months help in supplementing irrigation water and positively impacting yields.
Wheat is Pakistan's staple food, with its per capita consumption of around 124 kg per year being 'one of the highest in the world', according to USDA. The agency projects the country's consumption in 2025-26 at 31.5 mt, which will then necessitate imports. Pakistan was forced to import 3.59 mt in 2023-24 (May-April) and 2.73 mt in the previous marketing year.
It's the opposite situation in rice, where Pakistan's annual production of 9.75-9.8 mt is way ahead of domestic consumption of 4.1-4.2 mt. That makes Pakistan an exporter of rice, the world's fourth largest after India, Vietnam and Thailand. Pakistan's rice shipments were at 6.49 mt in 2023-24 and 5.5 mt in 2024-25.
The accompanying table shows Pakistan to be a significant producer of wheat, rice, maize and cotton.
While its output of these crops is lower than India's, a more appropriate comparison would be with Uttar Pradesh (which has almost the same population) and Punjab (having similar growing conditions).
Pakistan scores reasonably on the above counts, although the medium and long-term impact of the IMF-imposed reforms, plus more resources going towards military spending ('guns versus butter'), on its agricultural economy remains to be seen.
Harish Damodaran is National Rural Affairs & Agriculture Editor of The Indian Express. A journalist with over 33 years of experience in agri-business and macroeconomic policy reporting and analysis, he has previously worked with the Press Trust of India (1991-94) and The Hindu Business Line (1994-2014).
... Read More