Central Bank liquidity facility extended to pharmaceutical suppliers

• CB issues fresh instructions to banks covering pharma firms with unsettled bills
• Govt.’s unsettled bill pile has now come down to Rs.20-25bn- Treasury Secy.
• Majority of outstanding bills owed to suppliers and contractors in construction and pharma sectors
• Rs.16bn worth of unsettled  bills to pharmaceutical sectors: Pharma chamber

By Nishel Fernando
The Central Bank (CB) has decided to expand its liquidity facility for the construction sector to include the government contractors and suppliers in the pharmaceutical sector, to let them borrow at concessionary rates against the unsettled bills from the government. 

The Domestic Operations Department of the CB announced that the Monetary Board has decided to expand the scheme to cover the pharmaceutical sector and “other identified sectors” in the future. 

Accordingly, the CB has issued fresh operating instructions to banks, amending the earlier instructions, which covered only the construction sector.

“Liquidity facility to contractors and suppliers of the government in the construction, pharmaceutical and such other identified sectors to be granted upon the due issuance of the Treasury on behalf of the government, of letters of acceptance of payment of outstanding bills due to such contractors and suppliers of the government,” the amended instructions read. 

Speaking to Mirror Business, Treasury Secretary S.R. Attygalle noted that the total unsettled bills of the government has now come down to approximately Rs.20-25 billion, after settling a record Rs.90 billion worth  of bills accumulated in 2018 and 2019.

According to the Sri Lanka Chamber of Pharmaceutical Industry (SLCPI), there were over Rs.16 billion worth of unsettled bills to the sector from the government.

SLCPI Senior Vice President Sanjiva Wijesekera acknowledged that that the government settled part of these outstanding bills and said the delay in settling them 
remains a concern. 

The Treasury has already started issuing letters confirming the unpaid bills registered up to May 31, 2020, for the construction sector. 

Attygalle said that the Treasury has already issued Rs.3-4 billion worth of letters of confirmation to various suppliers and contractors in the construction industry.  Under the scheme, the CB lends to the banking sector at a concessionary rate of one percent for a period of six months, after the banks submit Treasury letters provided by various government contractors and suppliers.

The banks are allowed to maintain a maximum interest margin of 3 percent under the scheme. Hence, various government contractors and suppliers would be able to borrow at a concessionary interest rate of 4 percent.

However, the CB didn’t reveal the other sectors that would be eligible for the scheme. 

“Other identified sectors eligible under this facility will be decided by the Monetary Board from time to time, given the continuous exigencies and such decisions will be informed accordingly,” the CB stated.

According to the Treasury, the majority of outstanding bills are owed to state suppliers and contractors in the construction and pharmaceutical sectors. The scheme has been implemented by the CB as per a Cabinet decision taken in early June.