HARARE – Business says Government’s $18 billion economic recovery and stimulus package needs to be reviewed, as it contains deficiencies that could limit the fund’s effectiveness in addressing the negative impact of the Covid-19 pandemic.
Covid-19 is caused by coronavirus, which was first detected in China and has killed hundreds of thousands and infected millions of people in 185 countries. Its spread has left businesses around the world counting heavy costs.
The International Monetary Fund says the pandemic, which has shuttered global economies through months of national lockdowns, fall of global stock and commodity prices and job losses will see the world economy shrink by between 3 and 4 percent this year.
Confederation of Zimbabwe Industries (CZI) vice president Joseph Gunda told Business Weekly in an interview that business was unhappy about the interest rate threshold as well as the grace period for loan repayments.
The Zimbabwe Chamber of Commerce (ZNCC) weighed in with its own reservations with chief executive Takunda Mugaga poking holes in the bailout for focussing almost entirely on extension of cash rescue packages at the expense of incentives as well as tax reliefs.
CZI’s Gunda said the interest rate of 20 percent per annum was too high for bailout purposes and competiveness from a regional perspective, while the grace period of 90 days was too short as business will need more time to recover.
Gunda’s remarks come after the Government last week published the terms and conditions of the recovery and stimulus package to help businesses and the economy shake off the effects of the Covid-19 global pandemic.
“Business at the moment would require longer repayment period, a shorter period would impact on them heavily, we are struggling right now with forex, raw materials and what have you.
“And for us to have a very short period to repay a loan, especially 90 days, it is too short and if I look at what other countries are offering, 20 percent interest is quite high as well.
“Relative to inflation I would say it’s reasonable, but I am comparing, remember we are in a competitive world and if we have interest rates of 20 percent and our counterparts in the region are getting interest rates that are lower than that, then it makes us very uncompetitive,” he said.
Gunda said interest rates were among the major contributors to the major production costs for industry and impinged a lot on the industry’s ability to service the loans and compete on the regional and global markets.
“So, I think there is much we need to do; the repayment period is too short and the interest rate a bit on the high side and I think a review would be necessary; further engagement between Government and industry is necessary ,” Gunda said.
The rescue package, Gunda noted, was very critical to get industry and the economy out of the deep rut they find themselves in due to the Coronavirus, but the major challenge was that the bailout was predominantly in local currency.
“It depends on what you want to do; but if you want to buy raw materials, working capital for your business, is there assurance that you will get the equivalent of the Zimbabwe dollars in foreign currency on the interbank market?
“If I cannot get it, I will end up with funding I have received from Government and I cannot use it or it will be wiped out by inflation before I use it because there is that parallel market rate that is causing havoc, which needs to be controlled,” he said.
Mugaga on the other hand zeroed in on failure by Government to tailor the bailout to the needs of industry and commerce by designing it largely to take the form of financial loans instead of incentives and tax relief.
“When talking of a stimulus package, you do not necessarily have to loan out just money; why can’t they also talk about tax reprieves; the mistake they are also making right now is just doling out money.
“The challenge business are facing is not just the (funding) variable; the money that actually hits their account, but taxes,” he said.
Mugaga drew parallels with the bailout Germany designed for its own economy and industry to deal with the challenges brought about by the Coronavirus induced national lockdowns.
“They introduced a US$130 billion stimulus package but if you analyse it US $20 billion was VAT cuts, almost US$25 billion if I am not mistaken for SMEs financing, US$10 billion was investments, about US$6 billion was for municipality services and the last portion was tax incentives for corporates,” he said.
Mugaga said that ZNCC had since advised the Government through the Ministry of Finance and Economic Development not to focus solely on loan bailouts, but a range of relief measures as well.
“We have businesses that are failing to pay tax and you see that one of the conditions for these loans is a clean tax record/clearance; that is why we are saying what better to access money or save a business that is struggling to pay its taxes,” he said.
