ADB grants US $100 mn for financing SME’s badly hit by power tariff hike

Sri Lanka’s small and medium enterprises (SMEs) have been greatly affected by a series of electricity tariff hikes since August last year up to now pushing around 2000 industrial entities out of business, Census and Statistics Department data shows.   

The Ceylon Electricity Board has enforced tariff hike by 75 per cent in August 2022, 66 per cent in February this year but reduced it by 14 per cent in July and increased it by 18 per cent on October 20.  

This overestimation of electricity demand has resulted in higher production costs as they cannot bring down power costs due to urgency in meeting the deadline of production orders, several entrepreneurs complained.

The COVID-19 pandemic and the economic crisis since the year 2020  have badly affected  SMEs and following the electricity tariff hike on top of it a large number of factories were compelled to downsize or to shut down their operations, they said.

Some 533,858 workers have lost their jobs in 2022 due to the closure of factories due to high operating costs making it difficult for owners to continue their business entities amidst a decline in foreign orders as well as reduction in margins, statistics show.   

The other reasons of the shutdown of factories were the high cost of raw materials and the migration of a large number of owners and high management staff to foreign countries.

At this juncture the Asian Development Bank (ADB) has stepped in to provide financial assistance for badly-hit SME’s revival by providing financing facility as an urgent relief for their recovery, Finance Ministry sources disclosed.  

The ADB has agreed to provide US$100 million for a new ‘Small and Medium Enterprise Development Finance Project’ to be launched by the Sri Lankan government, an official of the ministry confirmed

The project aims to assist those entrepreneurs of SMEs who find it difficult to finance their businesses by providing investment and working capital loans to them at concessional interest rates

Meanwhile, the establishment of a ‘National Credit Protection Institute’ was also agreed on, through which banks will prioritise asset-based lending over cash-flow based lending, he said. (Bandula)