EDB requests President for ‘Malaysian’ stimulus

By Charindra Chandrasena

Considering the impact of coronavirus (COVID-19) on Sri Lanka’s raw material imports, the Export Development Board (EDB) has formally requested the Government to provide a stimulus package similar to that offered by the Malaysian Government.

This request has been made by EDB Chairman Prabhash Subasinghe from President Gotabaya Rajapaksa in a letter, seen by The Sunday Morning Business, dated 3 March.

Imports from China account for 21% of Sri Lanka’s overall imports, much of which is used as raw materials for its exports. China is Sri Lanka’s largest source of raw materials such as fabric, cotton machinery, iron, steel, and plastics.

The stiumulus package Subasinghe refered to was announced by the Malaysian Government on 27 February to cushion the impact of COVID-19 and reinvigorate economic growth and is titled “Economic Stimulus Package 2020”.

The stimulus package comprises three main strategies. Firstly, mitigating the impact of the COVID-19 outbreak; secondly, catalysing economic growth for Bank Rakyat, an Islamic co-operative bank in Malaysia; and thirdly, promoting quality investment.

Under the package, the Malaysian Government will restructure or reschedule the loans of borrowers in tourism and other affected businesses, thereby easing the financial strain on them due to COVID-19.

Furthermore, it says the 100% exemption of stamp duty will be given on loans between borrowers and financial institutions from 1 March 2020 to 31 December 2020.

The Central Bank of Malaysia will establish a Malaysian ringgit (RM) 2 billion “Special Relief Facility” to assist the cash flow of affected small and medium-sized enterprises (SMEs). It will be offered to them as loans for working capital at an interest rate of 3.75% per annum to borrowers. For further assistance, the Malaysian Government will provide banks an 80% guarantee on loans under this facility at a concessionary fee of 0.5% per annum.

In order to cushion the impact of COVID-19 on small businesses, Bank Simpanan Nasional (BSN) will offer a RM 200 million microcredit scheme for companies in the tourism and other affected sectors at an interest rate of 4%. The repayment of instalments only begins after six months of disbursement of the loan.

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EDB Chairman Prabhash Subasinghe

Photo Krishan Kariyawasam

Businesses in the tourism industry, such as travel agencies, hoteliers, and airlines, will be given a deferment of their monthly tax instalments for six months from 1 April 2020 to 30 September 2020.

For a period of six months from 1 April 2020 to 30 September 2020, a special discount of 15% on monthly electricity bills will be given to six categories of businesses, namely hotel operators, travel agencies, local airlines offices, shopping malls, convention centres, and theme parks.

To protect the retail businesses at the Malaysian airports, the eligibility period for the purchase of duty-free goods by tourists or individuals entering Malaysia is reduced from 72 hours to 48 hours and the threshold for duty-free goods is increased from RM 500 to RM 1,000 from 1 April 2020.

Malaysia is also providing a one-off cash incentive of RM 600 in April 2020 to taxi drivers, tour bus drivers, tour guides, and trishaw drivers who are active and registered since 31 December 2019.

In his letter, Subasinghe has also recommended an advisory panel headed by President Rajapaksa be set up urgently to mitigate the impact of the epidemic before it is too late and to consider financial assistance to the affected industries. EDB has predicted that the drop in exports due to the coronavirus could be as much as 25% in the next quarter, resulting in a reduction of $ 750 million in merchandise exports in the second quarter of 2020 which would be “a great blow to the economy of the country”.

“The export target of $ 18.5 billion set for 2020 will be difficult to achieve. The industry states that imported raw materials are sufficient only for two months. Local manufacturers have begun to shut down their production facilities due to the lack of imported raw materials and buyers’ demand. The companies are presently trying to change their production formula to sustain continuous production,” Subasinghe noted in the letter.

In addition to Malaysia, countries such as South Korea and Indonesia have also announced stimulus packages to offset the impact of Covid-19 on their respective economies.