KARACHI, Oct 27: The State Bank has withdrawn all restrictions imposed on lending to sugar industry with immediate effect. In a circular issued here on Friday, the SBP said all restrictions for financing against the security of sugar stocks had been lifted.

The central bank on June 9 this year had placed restrictions over lending to the sugar industry to curb hoardings of the commodity which practically escalated the prices of the sweetener by 50 to 60 per cent.

However, the restrictions did not work and the sugar prices finally settled in the range of 40 to 45 per cent higher than its earlier price in October 2005.

The powerful sugar lobby in the political corridors of Islamabad convinced the government that the price escalation was an international phenomenon. But the market strategist said a crisis was manufactured and a space was created to fill the gap with higher sugar prices.

All efforts to bring down the prices through imported sugar by private sector and the Trading Corporation of Pakistan failed mainly because the efforts were delayed to provide time for manipulation of the sugar prices.

On June 9, the SBP advised all banks that they would ensure that all advances against the security of sugar stock were fully adjusted by July 31, 2006 and renewals or fresh disbursements of such advances should be made only after a clean up period of at least one month.

The circular further clarified that all renewals and fresh disbursements were being subject to 50 per cent cash margin requirement.

To impose a cash margin of 50 per cent on all fresh disbursements to be made by banks against the security of sugar stocks, the SBP said that the banks should not finance the cash margin themselves.

On July 31, the State Bank again issued a circular carrying instruction that the deadline for adjustment of financing facilities against the security of sugar stock was being extended up to October 31, 2006 but only for those whose expiry date is after July 31, 2006.

It further said that the banks and DFIs should ensure a minimum decline of one-third every month in their outstanding against security of sugar stock so that full adjustment was made by the above deadline.

However, the banks and DFIs were allowed to extend financing facilities against the securities of imported sugar without the requirement of 50 per cent cash margin. But, such financing would be adjusted within 45 days of the disbursement of funds.

This facility was grossly misused and locally produced sugar was proved imported one.

“In order to avoid the misuse of this relaxation, banks are required to obtain and retain sufficient documentary evidence in order to establish that the pledged sugar was imported after June 9, 2006,” said the circular issued on July 31, 2006.

Market experts said that October is a crucial month to judge the size of the sugar crops and yield. The decisions should be taken in October to meet the possible shortage. The delayed decisions to import sugar already caused millions of rupees loss to the TCP as it failed to sell out the costly imported sugar and compelled to supply to utility stores at the lower than cost.