IMF warns Zarai Taraqiati Bank privatisation may affect credit access for small farmers

The International Monetary Fund (IMF) has cautioned that privatisation of Zarai Taraqiati Bank Limited (ZTBL) could affect access to credit for small farmers, despite improvements in the bank’s financial position and reduction in non-performing loans, The Express Tribune reported. 

The concerns were highlighted in IMF’s Governance and Corruption Diagnostic report, which examined governance issues and financial performance of the specialised agriculture bank.

The board of the Privatisation Commission last month recommended a transaction structure for the sale of ZTBL to the Cabinet Committee on Privatisation after internal deliberations over the proposed structure.

Before proceeding with privatisation, Prime Minister Shehbaz Sharif reportedly held consultations with stakeholders and cabinet members, where concerns were raised over the willingness of commercial banks to lend to low-income groups and small farmers.

According to the report, the government’s decision to privatise ZTBL could create difficulties for smallholders seeking development financing and agricultural credit.

“Depending on its form, privatisation could raise issues of access to credit for smallholders, particularly their development financing,” the IMF stated in the report available on the Ministry of Finance’s website.

The observation has reinforced concerns previously raised by some cabinet members and parliamentarians regarding the future availability of financing for small farmers.

ZTBL remains the country’s only specialised agricultural bank and primarily serves low and middle-income farmers dependent on institutional credit for working capital needs.

According to the 7th Agricultural Census 2024, around 97% of Pakistan’s farmers own less than 12.5 acres of land.

The report noted that the bank historically faced governance challenges and a high level of non-performing loans, but a new management team had recently undertaken measures to improve recoveries.

Sources said unapproved financial statements for the period ending December showed that ZTBL had reduced non-performing loans to around ₨50 billion, representing a decline of nearly 25% over the past three years.

Officials stated that bad loans declined by around ₨8 billion, or 14%, during the last year alone following governance reforms and recovery efforts.

The government also revised Loans for Agriculture, Commercial and Industrial Purposes Act, while the bank recovered around ₨9.8 billion over the past three years.

According to a senior bank official, ZTBL recorded cumulative gross profit of around ₨70 billion during the past three years, nearly 280% higher than profits earned during the previous two decades combined.

The bank’s tax contribution increased to around ₨27 billion during the same period, while total credit disbursements reached ₨250 billion, including ₨42 billion under the prime minister’s Kissan package.

Officials said the bank’s equity increased to around ₨95 billion by September last year, compared to around ₨60 billion in December 2022.

According to agricultural census data, around 61% of farmers in Pakistan own less than 2.5 acres of land, while only 16,958 landlords own more than 100 acres, accounting for 6.2% of total farmland.