Commodity operations financing is the credit that commercial banks in Pakistan extend to government agencies so they can buy, store and later sell agricultural commodities and farm inputs on the state's behalf. The largest user has historically been wheat procurement by provincial food departments and the Pakistan Agricultural Storage and Services Corporation (PASSCO), with smaller lines for sugar and fertiliser. The loans are taken out at procurement time and repaid, or "retired", as the stocks are sold.
The term is mainly Pakistani. It appears in the State Bank of Pakistan's monetary statistics and in the money and credit chapter of the Pakistan Economic Survey, where government borrowing from the banking system is split into budgetary support and commodity operations. Similar arrangements exist in other countries that run public food stocks, but few report them as a separate monetary line. Because the borrower is the state, commodity loans sit closer to government borrowing than to ordinary private-sector credit.
Commodity operations financing in plain terms
Picture a school canteen that buys a whole term's supply of rice in one go when prices are low after harvest. The canteen does not have the cash, so it borrows from a local shop and promises to pay the shop back bit by bit as it sells meals. The rice in the storeroom is the shop's comfort that the money will come back.
Commodity operations work the same way, but at the scale of a country. After the wheat harvest, government food agencies borrow from banks to buy grain from farmers and keep it in warehouses. Over the following months they release the wheat to flour mills and repay the banks from the sale proceeds. If the wheat sells for less than it cost to buy, store and finance, the shortfall has to be covered by the government.
How the financing works
A provincial food department or federal agency agrees a credit limit with a consortium of scheduled banks before the procurement season. The borrower draws on the line as it pays farmers, and the banks hold the procured stock as collateral, often backed by a sovereign guarantee from the provincial or federal government. Pricing has typically been set as a margin over a market benchmark such as KIBOR (Karachi Interbank Offered Rate); earlier press reports also describe an undertaking to the International Monetary Fund (IMF) to link commodity financing rates to Market Treasury Bills (MTBs).
The loans run in a seasonal cycle:
- Procurement. Borrowing rises sharply in the spring wheat-buying season, when agencies pay farmers at the official procurement price.
- Storage. Interest accrues while the grain sits in warehouses, so the cost of holding stock grows with every month and every rise in interest rates.
- Release and retirement. As stock is sold to mills, the agency repays the banks, and the monetary data record a "net retirement".
SBP circulars have also allowed banks to finance private flour mills for wheat purchases under the commodity operations heading, against a pledge of fresh stocks, and have said such lending does not count towards banks' agricultural credit targets.
How commodity financing shows up in money data
In the SBP's monetary survey, net government sector borrowing is broken into budgetary support, commodity operations and smaller items. Commodity borrowing therefore adds to the banking system's net domestic assets and, through bank lending, to Broad Money (M2). A large stockpile can show up as a rise in money and credit even though no new spending decision has been taken by the finance ministry.
The Pakistan Economic Survey 2024-25 reports that during July–March FY2025 commodity financing recorded a net retirement of Rs 303.4 billion, against Rs 362 billion a year earlier. Wheat financing drove the fall, with a net retirement of Rs 326.9 billion, because the federal government stepped back from regulating wheat prices and PASSCO did not take part in wheat procurement in that period. Sugar financing, by contrast, showed net borrowing of Rs 23.2 billion.
Fiscal risks and reform
Commodity operations have long been a source of hidden public debt. When procurement prices are set above market prices, or stocks rot or are sold at a loss, the agency cannot repay its loans in full. The unpaid balance rolls over at market interest and eventually lands on provincial or federal budgets as part of domestic debt. Credit tied up this way is also credit not lent to businesses.
Under its IMF programme from 2024, Pakistan committed to phase out government support prices for crops and to limit public procurement to its own needs. Provinces paid down much of their legacy commodity debt, and the federal government decided to wind up PASSCO, with a special-purpose company set up to settle the corporation's bank liabilities. Large official wheat purchases have still been approved where stocks needed rebuilding, so commodity financing has shrunk but not disappeared.
The practice overlaps with ideas found elsewhere on the wiki: warehouse receipt finance for private traders, broader trade finance, and debt management by finance ministries that want contingent liabilities brought onto the budget. For the wider market in grain and other raw materials, see Commodities Market.