Govt. fails to activate Economic Rehabilitation Fund

Zero progress in supporting quake-affected industries

Kathmandu, June 22: The devastating Gorkha Earthquake of 2015 inflicted huge damage not only to the country’s physical infrastructure but also to its commerce and industry sector.

But there has been almost zero progress in supporting the industries and companies, and rehabilitating them even after more than two years and two months of the quake, although every budget since has included plans and programmes to help in their rescue and recovery.

The process to support the businessmen has been so slow that the government has even failed to activate the Economic Rehabilitation Fund (ERF) worth Rs. 100 billion, announced by then Minister for Finance Dr. Ram Sharan Mahat in the budget unveiled just a few months of the earthquake.

He had earmarked Rs. 5 billion to the fund.

The successive Finance Ministers Bishnu Prasad Poudel and Krishna Bahadur Mahara also included the ERF in their budget, but the fund has been lying idle, and promises of business recovery have been unmet.

The major stakeholders of the fund – Nepal Rastra Bank (NRB), Ministry of Industry (MoI) and the Federation of Nepalese Chambers of Commerce and Industry (FNCCI) – admit that efforts to activate the fund have been sluggish, and are unhappy about it.

The central bank had established the ERF through the Monetary Policy of s016/17.

“The government has already earmarked Rs. 5 billion for this fund, and 44 banks and financial institutions have expressed their commitment to deposit Rs. 29.59 billion as of mid-June 2016,” the monetary policy read.

The fund was supposed to provide credits of up to Rs. 100 million, extended in specified areas, at a subsidised interest rate of 4 per cent and 2 per cent on loans of more than Rs. 100 million during the first six months of 2015/16.

“Likewise, BFIs can extend loans to earthquake victims at a maximum 5 per cent interest for a specific business. The refinance facility can be availed from the fund at 1.5 per cent. Such facility will be provided on the entire loan amount of up to Rs. 50 million, and above this limit, the refinance facility will be provided only on 20 per cent of the excess credit limit,” said the policy.

NRB spokesperson Narayan Prasad Poudel said that progress to realise the Fund couldn’t pick up momentum as the process was initiated very late after formulating the manual and asking the banks to send data of the quake-affected business to the central bank.

The NRB had issued a circular to the BFIs on January 24, 2016 in line with the Economic Rehabilitation Fund (Establishment and Operation) Manual, 2015. The manual was approved by the government just a day before the issuance of the circular.

“It’s been only a couple of months since we have actually worked on the ERF. The NRB is analysing the data collected from the banks,” he said.

The NRB also said that the banks and financial institutions had not demanded any fund support for the quake-damaged industries.

Meanwhile, there are chances that the ERF will not be mobilised for some time in the future as the budget of the next fiscal year plans to merge it with other government-run funds.

“A study will be carried out to establish a strong and effective institution by merging funds like the Youth Self Employment Fund, Rural Self Reliance Fund, and Economic Revival Fund,” reads the budget of the fiscal year 2017/18.

The MoI and FNCCI said that both institutions did not have data of the damaged businesses.

“The private sector is not enthusiastic about the Fund since it involves a very complex process to obtain financial support. We had recommended to the government and NRB to simplify the process, but they didn’t incorporate our suggestions,” said senior vice-president of the FNCCI, Shekhar Golchha.

According to Purushottam Nepal, spokesperson of the MoI, the ministry is waiting for the guidelines document from the NRB, and the former has not received any complaints or applications from the businesses seeking rehabilitation.

Director of the FNCCI Meena Shrestha said that no data had been demanded from the business body by the ministry or the NRB so far.

The Post Disaster Needs Assessment (PDNA) conducted by the government in the immediate aftermath of the tremors had estimated that the business sector witnessed damage of more than Rs. 36.22 billion in the 14 severely hit districts alone.

Damage to the commercial sector was estimated at Rs. 16.95 billion and industrial sector at Rs. 19.27 billion. 

(Published in The Rising Nepal, 23 June, 2017)