Treasury flooded with loan requests worth Rs. 18 bn

The Treasury has received requests worth Rs. 17.29 billion, asking for letters to be issued to construction sector contractors and suppliers which they could then use to obtain concessionary loans from banks, The Sunday Morning Business learns.

The requests have been sent to the Treasury through several ministries on behalf of their contractors who are in severe financial strife due to long-outstanding dues for state construction projects, according to the Ministry of Finance.

Taking into account the financial struggles endured by the country’s construction companies for the past few years and the outstanding payments to the sector from the Government, the Central Bank on 26 June introduced a liquidity facility scheme to support the construction sector through licensed commercial banks (LCBs) following a directive from the Treasury.

Accordingly, backed by a “Letter of Acceptance of Payments of Outstanding Bills Due to Contractors (LAPC)” from the Treasury, LCBs were directed to provide promissory notes secured by pledged Treasury bills and Treasury bonds in their own holding to the Central Bank to obtain credit facilities at a concessionary interest rate of 4% to construction companies.

As of Thursday (16), the Treasury has received requests from four ministries and two departments – the Ministry of Roads and Highways; the Ministry of Urban Development, Water Supply, and Housing Facilities; the Ministry of Health and Indigenous Medical Services; the Ministry of Fisheries and Aquatic Resources Development; the Department of Agriculture; and the Department of Sport Development.Â

Requests received from Sri Lanka Air Force had to be sent back to them by the Treasury due to several pieces of missing information, according to the Treasury.

Nevertheless, on Monday (13), the Treasury had approved 14 requests submitted by the Ministry of Roads and Highways, and the number of outstanding payments to these 14 contractors/suppliers stand at Rs. 54.7 million.

According to the Treasury, they have received two requests from the Ministry of Fisheries, amounting Rs. 122 million, which was said to be approved by Friday (17), while they have received 6,724 requests from the Ministry of Health and the number includes requests from contractors and suppliers.

“We will check with our lists and give a decision to the Ministry of Health by today (Thursday, 16) or tomorrow (Friday, 17). We ask ministries and departments to send us outstanding analyses every month. We at the Treasury have a list of outstanding payments that need to be made by the Treasury. We will update that list regularly and submit it to Parliament every now and then,” a Deputy Secretary to the Treasury told us.

The Deputy Secretary added that it is premature to disclose the expected number of requests and the value of those requests. Nevertheless, the Deputy Secretary added that these are outstanding payments only since mid-2019, which would be less than Rs. 50 billion.

“Most of the ministries and departments have recently settled the contractors and suppliers directly,” the Deputy Secretary added.

Meanwhile, The Sunday Morning Business spoke to Construction Chamber of Commerce Sri Lanka (CCC) President Eng. Maj. Ranjith Gunatilleke. He confirmed that contractors have been receiving several direct payments from ministries and departments in the past few weeks.

“We have received some direct payments from certain government institutions. For other state project payments, contractors have to give their details through the Finance Ministry and then the Ministry gives us a certificate which we can give to any licensed commercial bank and request our money as a loan. The Finance Ministry letter will act as a security or guarantee for the lending bank to release money.

“Once we receive the due payment from the state institution, we have to give an assurance for the bank that such a payment will come via the bank and they will get it straight away,” Gunatilleke added.

A circular issued on this facility by the Central Bank states that LCBs are required to enter into a loan agreement and a pledge agreement with the Monetary Board of CBSL each time the liquidity facility to the construction sector (LFCS) is drawn by the LCB.

Under LFCS, the Central Bank grants loans to LCBs at a concessionary interest rate of 1% per annum for a period not exceeding 180 days for on-lending to construction sector enterprises upon the receipt of promissory notes from LCBs secured by pledged Treasury bills and Treasury bonds with the Central Bank.

Outstanding payments from the Government to the construction sector stands were supposed to be settled before the presidential election in November last year. Nevertheless, since the payments were not made last year, the Government has decided to provide this facility for six months, within which period the Treasury is expected to settle pending payments to respective companies. Therefore, they can settle the loan they obtained under this facility.

Even though the ongoing pandemic has worsened their struggles, the construction sector’s financial struggles go back to 2018 due to a large number of unpaid bills by the Government to contractors. These issues were exacerbated by the October crisis in 2018 and the Easter Sunday incidents last year that drove away foreign direct investment (FDI), according to industry stakeholders.