CB exploring ways to provide working capital funding to aid pandemic-hit SoEs

• A Cabinet decision was reached in Aug. to provide concessionary rate working capital for nearly 300 SoEs

The Central Bank is looking at how to meet the Cabinet decision to provide concessionary rate working capital for nearly 300 state-owned enterprises, whose finances are badly hit hard by the pandemic-induced stresses.

In the second week of August, the Cabinet of Ministers made a decision to extend working capital loans for 282 fully or partially-owned state-owned ventures under a concessionary loan scheme titled ‘Saubagya COVID-19 Rehabilitation Facility’, similar to the manner in which a refinance loan scheme gave out Rs.180 billion worth of loans to scores of businesses and people to provide them with instant liquidity to support the recovery of their income-generating activities, after the pandemic brought them to a grinding halt for two months. 

While no firm decision has yet been made as to how to go about this, the Central Bank indicated that it is looking at ways in which this could be handled. 

At the onset of the pandemic, last year, the Central Bank launched an instant liquidity access scheme via the Saubagya COVID-19 Renaissance Facility, a refinance credit scheme. 

The scheme, which started off with an initial Rs.50 billion to be granted as working capital loans for two years at 4.0 percent, with a six-month grace period, soon tripled its quantum to Rs.150 billion in June, due to the severity of the damage the virus restrictions caused to businesses and self-employed individuals. 

By the time the scheme officially ended on October 15, the Central Bank had approved 61,907 applications for worth of Rs.178 billion. 

While the scheme has broadly been successful in providing a cushion for the recipients to get back up from the pandemic-induced stresses, the extension of similar liquidity support for the beleaguered state-owned enterprises is also intended at recreating the same outcome. 

However, it remains unclear whether the Central Bank is able to provide liquidity any longer in mammoth proportions it hitherto did, given the current imbalances in the country’s external sector and the price pressures, which have reached unbearable levels, spilling over into commodity shortages and black markets. 

The Central Bank on August 19 raised policy rates by 50 basis points and banks’ reserve ratio by 200 basis points to address the excesses emerged in the economy. Hence, more liquidity creation could blunt the effectiveness of the monetary policy decision.

However, Sri Lanka is facing an unprecedented economic challenge brought by a health crisis, which demands an equally unprecedented response.