Economic Stimulus Plan: A broken promise for now?

The much-awaited Economic Stimulus Plan (ESP), designed to breathe fresh life into our ailing economy post-Covid-19, is in a mess. The rollout of low-interest ESP loans through the financial institutions is particularly mired in red-tape, cumbersome process, documentation hassles, and reluctance of financial institutions to lend.

The numbers say it all. As of October 8, only 12 projects have been approved out of 193 applications. And a meager Nu 8.3 million has been disbursed so far while a whopping Nu 5.3 billion has been injected into the financial institutions as part of the ESP.

This is not just a minor hiccup. It is a glaring sign of initial failure to effectively deliver the ESP. The government is to be blamed for hastily launching the ESP, without a clear implementation strategy, and for trusting financial institutions with the responsibility of delivering the ESP loans. Given the huge financial risks involved, the financial institutions are anything but willing to participate in the ESP. And that’s precisely why they wilfully crafted a process that is insanely complicated and cumbersome.

The ESP criteria actually create more obstacles, particularly for many startups and CSIs, which lack the collateral required to secure financing. The delay in raising capital has severely impacted their businesses, many of which are now under non-performing loans (NPL).

The situation for businesses burdened with NPLs is particularly dire. Even if they manage to clear their debts, they are required to undergo mandatory waiting periods of three to six months before they can access new loans. This effectively locks them out of the very relief they so desperately need. Such cooling-off periods render the ESP’s timeline for effective impact nearly impossible to meet, especially for those hoping to take advantage of its provisions by December.

Businesses with NPLs also have limited alternatives under the ESP’s reinvigorating window. While they can apply for interest subsidies to ease their financial burden, these options often come with the added requirement of collateral, further complicating their ability to recover.

The current ESP structure, as it stands, fails to adequately address these fundamental issues.

Revising the risk-sharing mechanism must be a top priority. The government must rethink the 100 percent risk burden placed on financial institutions. A more equitable risk-sharing model, where the government absorbs a portion of the risk, would incentivise banks to lend more freely.

Next, simplifying the application process is paramount. The government must reduce documentation requirements and implement a ‘one-stop-shop’ for sectoral clearances. This would minimise the bureaucratic hurdles, particularly in rural areas.

For companies grappling with NPLs, the ESP can be repurposed as a means to clear these debts, providing a fresh impetus for revival. This approach will not only alleviate immediate financial pressures but also enable these companies to restart their growth trajectories.

The government can also explore alternative funding windows, such as grants or equity financing, for startups and small businesses that continue to struggle with current loan requirements. These options can reduce the pressure of loan repayments and stimulate growth without adding to existing debt burdens.

As of now, the current state of ESP is untenable at best. It fails to provide the economic lifeline that businesses so badly need.