Rs. 150 bn ‘Covid Equity Fund’ to revive economy - Cabraal | Daily News


 

Rs. 150 bn ‘Covid Equity Fund’ to revive economy - Cabraal

An Rs.150 billion Covid Equity Fund should be set up to bail out entrepreneurs said former Governor Central Bank and Senior Advisor to the Prime Minister Ajith Nivard Cabraal. He said Covid-19 has resulted in many business enterprises facing liquidity issues.

“This can help in financially assisting company’s facing liquidity crises caused by loss of business due to the lockdown.”

The lockdown has threatened most of the businesses with liquidity issues and most of them also finding it difficult to run their day to day activities such as paying loans, bills and staff salaries.

“Infusing new liquidity to stressed businesses is crucial as the economic shock may result in collective enterprise collapse leading to massive job losses, serious contraction of the economy, social unrest, liquidity risks and losses to banks and financial institutions and debt default,” Cabraal said.

Cabraal suggests that this Covid Equity Fund could be created through aid from foreign investors and asset management companies. “In addition Government and banks could collectively assist to set up the fund.”

The proposed fund once set up could assist to settle up to 25% of bank debt of enterprises. It could also help to receive new shares giving a reasonable ownership stake for investors in the enterprise. In return fund could account for a reasonable ownership stake in the company.

According to a specified ‘exit’ mechanism, Enterprises could sell and exit the Fund within three to five years.

Cabraal said that Covid Equity Fund should be managed by a top private sector Board and a CEO.

Enterprises which still enjoy the same old income levels will not gain by obtaining loans with new interest rates.

“Under this mechanism, it would help those entities to emerge out of the crisis in a few years, as during this period, they will also have the access to new ideas brought in by new board members.”

This will help make enterprises viable and also bring economic stability to the country. To help the economic revival Cabraal earlier proposed to release Rs.500 billion from the Employees’ Provident Fund (EPF). This is 20%of the EPF.

“As an alternative to providing a direct fiscal hand out, around Rs.5oo billion could be infused into the economy by unconditionally returning around 20% of the EPF member balances to the respective members,” Cabraal said earlier.


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