When the government unveiled the Economic Stimulus Plan (ESP), it was received with much fanfare and excitement. For obvious reasons, that is. The ESP—the much-needed panacea to our current economic woes—is an intervention that would revitalise the  economy ravished by the Covid-19 pandemic. With a substantial financial injection of Nu 15 billion into the economy, the ESP is designed to revive struggling businesses, support promising start-ups, and drive growth across major sectors.

A significant chunk of the ESP,  Nu 5.3 billion, is being facilitated by the financial institutions through two distinct funding windows. The first window includes Nu 3.3 billion for concessional credit lines and the second window includes Nu 2 billion as reinvigoration fund.

While the financial institutions began accepting applications on September 2, the process is anything but simple, with a long list of criteria and documentation requirements. Businesses that have eagerly waited for financial support through the ESP will now have to endure an exhaustive review process, one that is likely to delay the release of funds.

There is also no clarity on turnaround time for application processing. This uncertainty, combined with the ambiguity surrounding the approval of business proposals, further exacerbates the situation for businesses, particularly those in urgent need of capital.

The current application process also reflects the typical risk-averse attitude of financial institutions. Our traditional banking system operates in a zero risk environment, reluctant to invest in any business projects without guarantees or mortgages. They have never done that. And now the ESP is making them jittery, particularly with the requirement that financial institutions must repay the principal amount of ESP to the government.

While prudence is a necessary evil, it should not come at the cost of the programme’s broader objectives and goals.

The opportunity cost associated with the ESP loans is another critical concern for financial institutions as they must balance the increased workload involved in reviewing, assessing, and vetting applications against the lower returns offered by these concessional loans.

The additional administrative burden, coupled with lower returns compared to traditional loan portfolios, will only lead to unnecessary delays in fund disbursement. And these delays will slow the recovery process, undermining the goals of the ESP.

Some banks that participated in the National Credit Guarantee Scheme (NCGS), initiated by the previous government to stimulate the economy during the Covid era, are also wary of the pitfalls. A large number of NCGS projects has reportedly failed, resulting in non-repayment of loans, and non-performing loans.

While this cautious approach might safeguard the interests of financial institutions, it could undermine the ESP’s goals to drive economic growth in the short and the immediate term. Simplifying the loan application process, setting clear guidelines, and providing transparent turnaround time are crucial steps in ensuring that the ESP funds are disbursed in a timely manner. It is also high time for financial institutions to take some risks.

There is no doubt about the potential of the ESP to revitalise the economy. But we must also understand that a complicated process might undermine the outcomes. Ultimately, since ESP is the government’s brainchild, it needs to play an active role in overseeing the allocation of ESP funds to ensure that the ESP achieves its intended goal—reviving the economy.