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As revenue dries up, government aims to borrow loans from public enterprises to inject funds into struggling businesses

The government plans to borrow loans from various public enterprises to inject funds into the pandemic-affected cottage, small and medium industries and tourism enterprises.

The government has announced the creation of a Rs50 billion fund through the budget for the current fiscal year 2020-21. Initially, it has allocated Rs1 billion to the fund.

Through this fund to be established at the central bank, the government plans to ensure availability of loans at five percent interest rate to the enterprises affected by the coronavirus pandemic to pay wages to their employees and get working capital to run the business.

As the revenue dried up due to restrictions in economic activities amid resurgence of coronavirus cases, the government is considering taking loans from public enterprises, Dhaniram Sharma, chief of Budget Division at the Ministry of Finance, said.

“As the pandemic has affected the government’s revenue, we are considering taking loans from the public enterprises like Employees Provident Fund, Nepal Oil Corporation and Citizen Investment Trust to inject money into the relief fund,” Sharma told the Post. “It is not that we need to have Rs50 billion immediately, the amount can be increased up to Rs50 billion based on the demands from the market.”

He said that the government could inject resources in the fund through its treasury if revenue collection surges.

During the first month of the current fiscal, the revenue collection decreased by 12 percent to Rs58.82 billion compared to the total revenue collection during the same period last fiscal year, according to the finance ministry.

Cottage, small and medium enterprises and the tourism sector have been badly affected by the pandemic, which has infected 56,788 people while killing 371 people so far in Nepal.

The government also expects to generate resources from donors for the relief and rehabilitation fund besides putting money from its treasury and borrowing from public enterprises.

For receiving funds from domestic and international agencies, the government will bear the cost of paying interest to the creditors and interest subsidies to the sector affected by the pandemic.

A ministry official said that the government has not formally asked the donors to inject money in the fund.

“Even in the recent meeting with the representatives of Nepal-based donors agencies, no specific request was made to provide resources for the relief fund,” said Narayan Dhakal, under secretary at International Economic Cooperation Coordination Division at the ministry.

On September 3, the ministry had conducted a virtual meeting with the representatives of residential donor agencies which. The meeting, according to the ministry, had revolved around the issue of financing the efforts to combat the Covid-19 pandemic.

The finance ministry has prepared a working procedure on utilising the fund, which has been sent to the Law, Justice and Parliamentary Affairs for its opinion.

“Once we get the opinion of the law ministry, we will send it to the cabinet for approval,” said Jhakka Prasad Acharya, chief of Financial Sector Management Corporation Coordination Division at the finance ministry.

As per the proposed working procedure, half of the proposed fund will be available for paying salaries to the staff and half will be given to use as working capital to run businesses. The pandemic-affected sectors will get the funds for two years, according to the finance ministry.

During the nearly four-month long lockdown, 61 percent of the enterprises surveyed by the Nepal Rastra Bank were closed completely, 35 percent were partially operating and only four percent of the industries were operating fully.

Among the different sectors of economy, 91 percent of hotels and restaurants were closed completely, 89 percent of real estate and rental services, 76 percent of transport and storage services were also completely closed, making them the most affected sectors.

In terms of size of industries, the worst affected industries are—cottage and small industries with capital upto Rs150 million, according to the central bank survey. The relief fund is expected to help the most affected sectors.

These sectors also have options to get loans through other channels. 

The monetary policy has prioritised providing refinance facilities and subsidised loans and has also made provision of separate credit facilities for micro and small enterprises.  

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