Finance Ministry, CB unveil plans to revive economy
President Gotabaya Rajapaksa at a meeting with senior Central Bank officials led by Governor W.D. Lakshman on Tuesday. Picture courtesy President’s media unit.
State fiscal and monetary authorities have announced a series of measures, following the criticism of President Gotabaya Rajapaksa of the Treasury and the Central Bank, to expedite economic recovery and resurrect SMEs in the COVID -19 crisis.
Responding to the President’s direction, the Finance Ministry and the Central Bank will be taking fiscal, monetary, and financial market measures following proper procedures to mitigate the economic impact of the pandemic.
Tax concessions, extending deadlines for tax filing, deferral of tax payments, faster tax refunds, and some tax exemptions credit guarantees and collateral waivers are under consideration to rescue corporates and SMEs.
Kickstarting this fiscal policy initiative, the Treasury has suspended the levy on the export of tea for a period of three years, as a relief for fixed maintenance of the tea industry.
The ministry is to raise a Foreign Currency Term Financing Facility (FTFF) of up to US$500 million for the purposes of financing the expenditure as approved in the Vote on Account (VOA) for the Fiscal year 2020. The Treasury has allocated Rs.1043 billion for government spending for the period June to August 2020 in accordance with the VOA.
The ministry has issued a request for proposals on Wednesday from international banks/ investment houses and domestic banks to submit financing proposals for the FTFF at a fixed rate or a floating rate, linked to the US$ 6 Month LIBOR or its successor with a maturity period of 1 year or more.
“The timing is excellent for the moment as the global interest rates continue their historic spiral downwards during COVID -19 crises,” a senior Treasury official told the Business Times.
The proposals should be submitted on or before June 30 and the government reserves the right to engage with one or more banks/investment houses for the purposed FTFF, he added.
In addition, necessary action and policy decisions will be taken to implement all the SME line of credit projects (SMELOC) in the pipeline while streamlining all existing SME loan schemes of banks specially development banks under Central Bank guidelines, he revealed.
The Asian Development Bank (ADB) has agreed to provide $100 million for the SME Emergency Response Component under the Additional Financing – III of the SMELOC project for granting short-term working capital loans for the affected SMEs.
This was a result of a recent request of the government made from the ADB with the aim of reviving the SMEs adversely affected by the COVID-19 pandemic to provide affordable working capital facilities for those SMEs in order to re-energize the SME sector, he disclosed.
The Department of Development Finance of the Ministry of Finance, Economy and Policy Development – Project Management Unit (PMU) is the implementing agency.
In an immediate response to the President’s directive, the Central Bank will issue more money to banks at 1 per cent to provide loans under credit schemes up to Rs. 150 billion while reducing reserve ratios and releasing another Rs. 115 billion to the credit system.
A sum of Rs .27.5 billion had already been released by banks from the Rs. 50 billion re-finance facility introduced earlier.