ISLAMABAD, Jan 9: The government is likely to freeze wheat support prices at Rs415 per 40kg for two years to ensure that domestic prices of the commodity do not exceed the international prices.

Informed sources told Dawn on Monday that current wheat support prices, which were fixed at Rs415 per 40g in September 2005, have created “distortions” in the country’s economic and financial system that needed to be immediately rectified.

It was in this backdrop that the federal government tentatively agreed to freeze the prevailing wheat support prices at least for two years with a view to stabilizing them in relation with the international prices.

The government is believed to have learnt one lesson: “Never increase the prices of domestic food items higher than international ones.”

“The practice of extending unnecessary wheat support prices every year needs to be discouraged,” a source said.

The government is facing difficulties in selling its stock of 3.6 million tons of wheat because of being expensive compared to the imported commodity.

The mills owners have been refusing to lift wheat despite pressure being exerted by departments concerned. This has forced the government to review its decision of offering increased wheat support prices, often at the behest of the agricultural lobby, the sources added.

One of the reasons for wheat stocks piling up was “slow releases” seen last year, which will be streamlined in 2006, the sources said.

The International Monetary Fund (IMF) has raised objections over the government’s decision to offer new wheat support prices every year, saying the practice was driving up inflation.

However, a senior official of the ministry of finance said that food inflation had dropped from 15.7 per cent in April 2005 to 5.8 per cent in November 2005 and this was a result of stabilization in wheat flour (atta) prices.

He was of the view that stabilization in wheat prices in relation with international prices could further bring down the rate of inflation.

The official said that wheat support prices had been constantly increasing over the last few years, including Rs400 per 40kg to Rs415 in 2005, from Rs300 to 350 in 2004 and Rs350 to Rs400 in 2004.

However, the sources said, the government “has been advised” by the IMF to direct the ministry of food and agriculture (Minfal) to play a key role in containing inflation by not proposing every year a certain increase in wheat support prices.

The Fund officials, the sources said, also believed that inflation was a monetary phenomena and as such it was the responsibility of the central bank and the fiscal authorities to achieve price stability. They also maintained that if inflation is caused primarily by wheat support price, then Minfal must look into the issue without taking into account the pressure of the landed gentry in the country.

The IMF officials have agreed with the country’s independent experts and economists that monetary factors were the main drivers of inflation in Pakistan while wheat support prices were affecting this inflation at least in the short run.