Treasury yet to execute construction sector guarantees
The Treasury is yet to issue guidelines to line ministries and the Road Development Authority (RDA) for government guarantees based on the recent Cabinet decision to provide the construction sector enterprises with a facility to borrow from banks.
Guarantees equivalent to the amount due on account of contracts carried out in the past, under a new dedicated credit scheme funded by the Central Bank and made available at concessionary rates were to be issued more than a week ago and the construction sector is becoming impatient, an industry CEO told the Business Times.
He said that operating instructions on these new credit schemes were to be issued as fast as possible but it is still at large. The Central Bank (CB) on June 17 introduced several new remedial actions to support the government’s efforts in reviving the economy, following the advise given by President Gotabaya Rajapaksa. They are waiting to launch the scheme for the construction sector, the source added.
The source also said that the Treasury has said it will settle the construction sector in an excess of Rs.50 billion in loans by the end of this month. If it is not possible for them to do so by cash, due to the current conditions, arrangements will be made with banks to provide a bill discount facility, at 4 per cent against the certified bill under the CB scheme. “But for all this, they need to do first things first.”
The construction industry contributes about 9 per cent to the GDP, employing about 600,000. It’s the fifth highest in the nation’s GDP earnings, after services, manufacturing, agriculture and utilities. In recent years, the total annual construction turnover is about Rs. 800 billion, which is expected to increase if the investments planned by the Government materialise.
In spite of the financial challenges that are likely to be faced by the Government, given the strong legal/contractual protections available for construction contractors in the event of suspensions of ongoing projects, especially the Government funded ones will recommence operations soon, a report by rating agency ICRA Lanka said. With the lifting of the lockdown, most foreign funded projects are expected to recommence their operations as they do not face such challenges, it said.