Sunday, 6 December, 2020
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EDITORIAL

Loan Flow To Rescue Businesses In Trouble



The COVID-19 pandemic has triggered unprecedented economic crisis with the abrupt cessation of public mobility across the globe. Onerous lockdowns and other stringent measures, adopted to control the spread of novel coronavirus, disrupted supply chains and caused the closures of small and big enterprises. Like other South Asian nations, Nepal also suffered the economic shocks from the virus outbreak. However, Nepal’s condition is more precarious compared to its neighbours because of its excessive dependency on external sources for trade, employment and development. Its heavy geo-economic reliance on India and China has made it vulnerable to the economic fallout of virus. As the inadequate health infrastructure is cracking under the strain of the pandemic, the country stands to suffer greater economic losses with growing infections and fatalities.

Moreover, the shutdowns of small and informal enterprises have forced thousands of people into vicious cycle of poverty through the widespread loss of livelihoods and employment. The World Bank has noted that the economic consequences of the pandemic and impact on livelihoods across Nepal is expected to be the most acute for informal workers or those without social security or assistance, who are more at risk of falling into extreme poverty trap. According to an estimate, informal businesses constitute around 50 per cent of enterprises in the country and they are the key source of job for majority of labour force. As the informal workers fall out of the social security net, they are subject to acute financial difficulties which demands strong state intervention so that the vulnerable lot does not die of starvation and diseases during the recession.

Amidst the growing call for the support to slackened business and economy, the government has approved the Business Continuity Credit Flow Procedure 2077 B.S. to ensure concessional loan flow to sustain entrepreneurs and pay wages to the workers and employees of domestic, small and medium enterprises and tourism businesses hit hard by the pandemic. As per the procedure, the government will open a business operation continuity loan flow reimbursement account of Rs. 50 billion at Nepal Rastra Bank for the purpose. According to a news report of this daily, the enterprises hit by COVID-19 have been classified into three groups - highly affected, moderately affected and least affected. The highly affected company can secure maximum of Rs. 100 million as concessional loan. The second and third categories of enterprises can get up to a maximum of Rs. 70 million and Rs. 50 million, respectively. As per the procedure, the interest rate on such loans has been fixed at five per cent for the first year and six per cent for the second year.

Though the announcement of soft loans does not entirely substitute the large-scale stimulus package that includes lowering interest rates, increasing government spending and quantitative easing, among others, they can provide big respite to the ailing businesses in the present context. Medium- and small-scale companies have been closed down owing to the extended lockdown. Even the capital spending is quite dismal. The government’s initiative is praiseworthy as it is expected to revive economy that is projected to grow by only 0.6 per cent in 2021 and 0.2 per cent in 2020 according to the WB’s estimate. Now the efforts should be also concentrated to pay wages to informal workers who have been temporarily recruited by the small and medium level companies. 

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