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Sunday, May 11, 2025

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National

Delay in rollout of Rs50b rehabilitation package affects businesses

Change in the leadership of the Ministry of Finance and transfer of secretaries behind the delay, officials say. Delay in rollout of Rs50b rehabilitation package affects businesses
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Prithvi Man Shrestha
Published at : November 1, 2020
Updated at : November 1, 2020 17:14
Kathmandu

Manika Kayastha, a Bhaktapur-based entrepreneur, is waiting for government support to continue running her woodcarving business badly affected by Covid-19 pandemic.

Before the pandemic, she used to sell products worth over Rs3.5 million each year to Nepalis and foreign tourists, and also export merchandise by air.

As the domestic market reopened after months-long lockdown and international flights also resumed last month, she expected things to get back to normal. But she now faces a financial crunch to get her business back on its feet. “Due to the coronavirus pandemic, Nepalis are not buying woodcraft, and foreign tourists are not coming,” said Kayastha.

“I am waiting for the government’s support. But that hasn’t been forthcoming,” said Kayastha.

It has been five months since the government announced the creation of a Rs50 billion rehabilitation fund through its budget for the current fiscal year (2020-21) to provide subsidised loan to the pandemic-affected cottage, small and medium industries and tourism enterprises.

However, as the government is yet to come up with a working procedure, it is uncertain when many enterprises affected by the pandemic will get money from the fund.

According to the government, the fund, to be set up at the Nepal Rastra Bank, will be used to inject working capital into affected businesses to help them pay their employees and run their business. As per government provisions, pandemic-affected sectors will get finance at five percent interest rate while any interest rate above the cut-off rate will be borne by the government.

Hotels, as a part of the tourism industry, are one one of the targeted beneficiaries of this rehabilitation fund. But hoteliers say most of them are waiting for the funds from the government to pay their employees given the lack of cash flow.

“We have agreed to pay our workers who have been sent home due to lack of work Rs4300 to Rs10,000 by December,” said Binayak Shah, first vice-president of Hotel Association of Nepal, a grouping of hoteliers. “But, many of us have failed to pay them the agreed amount with the government not making available the subsidised money.”

He said that an agreement was signed with the trade unions after assurances from the government that it would provide funds to pay the workers. “With the government’s delay, we feel the money won’t help us when we need it the most,” said Shah.

According to him, they have approached both the government and the central bank to mobilise the announced fund. “Central bank officials told us that they can’t provide money from the rehabilitation fund as the government is yet to provide funds for the purpose,” said Shah.

The government has so far allocated Rs1 billion to the fund, but it is yet to come up with working procedure regarding the disbursement. According to a finance ministry official, a draft of the working procedure is currently with the economic and infrastructure committee of the Cabinet.

“It has remained pending there although we had sent the draft more than a month ago,” said Jhakka Acharya, joint secretary at the Ministry of Finance. “Part of the reason behind the delay, according to Acharya, is the change of finance minister and transfer of secretaries from the Prime Minister’s Office.”

As per the proposed working procedure, the government plans to provide up to Rs50 million to mildly affected enterprises while up to Rs70 million will be made available to enterprises that faced medium level of impact and the worst-affected enterprises will get up to Rs100 million.

The government plans to disburse half of the fund to help businesses pay salaries to their staffers and the other half to be used as working capital. Pandemic-affected sectors will get the funds for two years, according to the finance ministry. The government is, however, facing problems generating resources for the fund as revenue collection is drying up.

However, Acharya said that the government has the option of collecting funds as the various government entities have funds which can be made available at cheaper interest rates. The government also plans to mobilise resources from donors for the purpose.

As the pandemic mostly affected micro, small and medium enterprises, this fund is important for them. During the lockdown, 61 percent of the enterprises surveyed by 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.

Over 80 percent of micro, small and medium enterprises suffered from a slump in sales amid the COVID-19 pandemic, a survey of the International Finance Corporation released in late September revealed.

While the government announced rehabilitation fund is yet to be utilised, Nepal Rastra Bank has, however, started providing refinance facilities it had in its monetary policy for the current fiscal year.

……………………………...end…………………………...

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.

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. 


Prithvi Man Shrestha

Prithvi Man Shrestha was a political reporter for The Kathmandu Post, covering the governance-related issues including corruption and irregularities in the government machinery. Before joining The Kathmandu Post in 2009, he worked at nepalnews.com and Rising Nepal primarily covering the issues of political and economic affairs for three years.


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