ECC approves Rs50bn support package for SMEs

Updated 28 Apr 2020

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Authorises economic affairs ministry to start negotiations with 11 G20 creditors for suspension of bilateral debt. — DawnNewsTV/File
Authorises economic affairs ministry to start negotiations with 11 G20 creditors for suspension of bilateral debt. — DawnNewsTV/File

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Monday approved a support package of over Rs50 billion for small and medium enterprises (SMEs) and allowed negotiations with 11 countries for putting on hold repayment of $1.8bn debt for about a year.

A meeting of the ECC presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh also approved Rs3.02bn additional funding for fencing the Pakistan-Iran border on a demand made by the Ministry of Defence.

Minister for Industries and Production Hammad Azhar told reporters after the meeting that the Rs50.69bn package approved by the ECC would provide indirect cash flow support to the SMEs through pre-paid electricity and would benefit about 3.5 million people. He said the cumulative bills of May, June and July of last year would be used as a benchmark to be financed by the government whenever these businesses start working. The facility would remain available for six months.

The minister said the scheme titled ‘Chota Karobar-o-Sanat Imdadi Package’ was prepared by the Ministry of Industries and Production in consultation with the Small and Medium Enterprises Development Authority and it targeted to cover approximately 95 per cent commercial consumers with connected load of up to 5KW and 72pc of industrial consumers with connected load of up to 70KW.

Authorises economic affairs ministry to start negotiations with 11 G20 creditors for suspension of bilateral debt

The amounts will be credited to the consumer accounts of 3.2 million commercial and 350,000 to 400,000 small industrial connections. The Ministry of Finance said commercial consumers would be given support of up to Rs100,000 and industrial consumers up to Rs450,000 for three months under the scheme.

The base period for estimating electricity consumption would be May-July 2019 and for meters whose electricity consumption data is not available for the full base period, appropriate average will be used. Pre-paid electricity bills of three months or total bills during the base period will be required for availing of the facility. The period of consumption of the extended financial support would be six months starting from May-June 2020.

The ECC also allowed Rs2.5bn block allocation for Azad Kashmir and Gilgit-Baltistan for disbursement through special arrangement under the scheme. It directed the Ministry of Industries and Production to introduce similar relief packages for the agriculture sector, including tubewells, as well as transporters and the microfinance sector.

Hammad Azhar said the government was also working on a loan package without security or collateral for small businesses once the two packages — Rs75bn for labourers and daily wage earners announced a few days ago and Rs50bn approved on Monday — came into full effect after which applications would be invited.

Foreign debt

The ECC authorised the Ministry of Economic Affairs to engage with G20 countries for debt relief announced by them for poor countries and formally start negotiations with 11 creditors for suspension of bilateral debt payable between now and June 2021. The meeting decided that agreements with the bilateral creditors (G20 members) would be subsequently brought to the ECC for approval.

A senior official of the Economic Affairs Division told Dawn that the overall debt relief would mean suspension of $1.8bn payable by Pakistan to 11 countries from May 2020 to June 2021 in the shape of principal loan and interest. These amounts would then be built into the remaining repayment schedule. He said Pakistan’s total payable to these nations amounted to about $20.7bn under 155 loans.

Pakistan does not have any loan from the remaining nine members of G20.

The ECC was informed that about $415 million, including $320m principal and $95.3m interest, was due for payment in May and June 2020. Likewise, an amount of $1.380bn, including $1.178bn principal, would become payable between July and December. As such, total payable between now and December works out at $1.795bn, including $1.409bn principal and $386m interest.

The country’s total debt payable to 11 bilateral lenders between May 2020 and June 2021 currently stands at $2.580bn. The biggest amount payable during this period is $625m to Saudi Arabia, followed by $615m to China, $578m to Japan, about $281m to France, $193m to the United States and $148m to Germany. Other debt payable during this period includes $73m to Korea, $34.5m to Canada, $21m to Russia, $9m to Italy and $ 1.32m to the United Kingdom.

The ECC also approved a credit loss subsidy of Rs30bn as Risk Sharing Facility for State Bank of Pakistan’s Refinance Scheme to support employment and prevent layoff of workers.

Under the scheme, financing would be extended to businesses with maximum sales turnover of Rs2bn, while the government would bear 40pc first loss on distributed portfolio (principal portion only) for eligible borrowers, in case of repayments, after being classified as “loss” as per classification criteria under the respective SBP prudential regulations. The banks and development finance institutions assigned limits under the SBP scheme would be eligible executing agencies.

Published in Dawn, April 28th, 2020