The new government has the biggest opportunity to address the issues strangling the Rural Enterprise Development Corporation Limited (REDCL).
This was the understanding of both the ruling and opposition in objection to the economic and finance committee’s recommendation on the national budget 2018-19.
The committee during its interaction with the finance ministry inquired about basis of Nu 606M earmarked as subsidies, equities and transfers, including the Nu 376M RF (revolving fund) I and II.
“The committee felt the need to seriously consider the transfer of this Nu 376M including the need to reconsider the continuation of REDCL itself as an institution,” the committee’s chairperson, Athang Thedtsho MP, Kinley Wangchuk reported.
The committee’s recommendation was to divert the revolving funds to water supply and rural roads. The rationale was to reduce the debt burden to finance the fiscal deficit.
The RF I and II were introduced as a package of the Economic Stimulus Plan by the former government and Business Opportunity and Information Centre (BOiC) was set up as a special purpose vehicle.
After 20-months of operations, the BOiC went through lot of controversies and the government decided to close it down. The REDCL was set up to carry out micro lending activities for non-formal economic activities in the rural areas (RF II). RF-II has a fund of Nu 400M. The Nu 1.9B worth RF-I was injected into Bhutan Development Bank Ltd. (BDBL) to finance cottage and small industries through a special window.
During the discussion yesterday, Finance Minister Namgay Tshering said that previous government had started the REDCL with good intent and it would be wrong to close it down based on few issues.
The REDCL, he informed, had provided loans for some 3,900 projects worth Nu 485M and employment to about 4,000 people. The non-performing loan, he said, had come down to 13 percent from 28 percent. The threshold for NPL is 30 percent.
“REDCL has benefitted the people in rural areas and there are many others aspiring for subsidized loan,” he said. The government, he said has plans to convert and expand the REDCL into a CSI bank.
If the concern is the fiscal deficit, he said water was the top priority both in the local and central plan in addition to identifying it as a flagship program. “The Nu 376M would not make any difference to cap Nu 5B fiscal deficit,” he said, adding that agreements on concessional loans were already signed for external borrowing and talks were underway with the central bank to accommodate domestic borrowing.
Opposition Leader Pema Gyamtsho (PhD) said that closure of REDCL would send a wrong message and set a bad precedent. “REDCL is not an institution with five-year span. The new government must come up with strategies to strengthen the system and make it sustainable,” he said.
However, he said the loans provided for various activities would not qualify to be called a project. For instance, he said, buy a cow from the REDCL loan and it becomes a project and the cow herder is deemed as employed.
He suggested transforming the REDCL into a full-fledged agriculture bank maintaining the same interest rate of four percent.
While scanning the REDCL’s scope, the Kengkhar-Werringla MP Rinzin Jamtsho said the government should, once for all, address the loopholes that could give birth to political institutions at the cost of national exchequer in the future.
Some 4,000 jobs from 3,900 projects, he pointed out, was roughly one job per project. “This is not impressive,” he said, adding that more people could be employed. He also suggested the government to review whether the REDCL can run its current expenditure from the grant money, which is in contradiction to the Constitution.
The house unanimously abandoned the committee’s recommendations and decided to keep the Nu 376M as the RF and continue operation of REDCL with some revision in the loan procedure.
Discussion on the committee’s other recommendations will continue on Monday.