Sri Lanka to provide SME debt relief from next week: Treasury Secretary

ECONOMYNEXT – Sri Lanka will provide debt relief to small and medium enterprises from next week, Treasury Secretary S R Attygalle has said.

“Many businesses have collapsed. Their assets are about to be foreclosed,” Treasury Secretary S R Attygalle was quoted as saying at a meeting of staff in a New Year ceremony.

“About 60 percent of businesses in the country are SMEs. That is why the government is keen to give them several reliefs.

“From next week we will give them relief from the banks.”

Sri Lanka’s President and Finance Minister had ordered banks to give a moratorium on debt to loans of up to 300 million rupees to all those who make request, though the central bank directive has to be issued.

Customers however have to keep paying interest.

The Treasury has already cut value added tax, which will increase the margins of all businesses that does not lower retail prices.

Many businesses have not raised retail prices despite a currency collapse in 2018 raising the cost of inputs due to weak demand in the aftermath.

Sri Lanka’s bad loans edged up to 4.9 percent in the September quarter, in the aftermath of a currency collapse in 2018, coming from so-called dual anchor conflicts in the monetary policy.

Whenever there is a currency collapse bad loans go up both in Sri Lanka and elsewhere and a negative output shock follows.





However the level of bad loans at 4.9 percent is about half the levels seen in earlier crises. In East Asia currency collapse sent up bad loans close 20 percent.

In Indonesia whose central bank did not manage to tighten liquidity in time, leading to a complete meltdown of the rupiah, bad loans went up to around 50 percent.

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Sri Lanka bank bad loans spike to 4.9-pct, non-banks 9.7-pct in Sept

Sri Lanka rupee to Indonesia’s Rupiah, the consequences of state failure

The negative output shock from the currency collapse reduced growth in 2019 to around 3 percent. In East Asia and in Sri Lanka after the 2000 currency collapse, the economy contracted. (Colombo/Jan20/2020)

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