COVID19: Government withdraws loan guarantees scheme

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Nicosia has withdrawn a scheme for €1.5 bln in state-backed borrowing for businesses following disagreements with opposition parties, which sought numerous amendments that rendered it “unenforceable”.

The scheme would have essentially provided state guarantees to cover loans with low interest to be given to coronavirus-struck businesses by banks.

After two months of haggling, this has now been abandoned after government and MPs could not find consensus on the specifics of the scheme.

Following a cabinet meeting on Thursday, Finance Minister Constantinos Petrides said the government will be announcing next week a number of policies and measures to support small and medium businesses after the scheme fell through.

Reportedly the government is mulling over subsidising interest rates of loans to be taken out by coronavirus-struck businesses as an alternative to guaranteeing loans.

The Ministry of Finance is thinking about subsidising interest rates, possibly at a rate close to 1.5%, which is about half of the interest rate at which business loans are currently granted (3%).

The government sought to inject €1.5 bln in state-backed loans: €300 mln for small businesses with up to 10 staff, €1 bln for small and medium enterprises, and €200 mln for larger entities.

The withdrawn scheme also provided for €100 mln worth of grants for small businesses, with up to 10 staff, and the self-employed.

“Unfortunately, despite the effort, significant differences remain with the parties, while many amendments tabled have completely changed the philosophy of the plan,” said Petrides.

He assured, “employees and the business world that the government will continue to support them by all possible means”.

“The Government will be announcing next week policies and measures in a comprehensive framework to support the business community.”

The government said it could not accept amendments tabled by the parties, as it found a number of them to be in violation of the constitution.

It also reduced its initial proposal of €2.5 bln to €1.5 bln to appease MPs, but this did not work.

Parties appeared distrustful towards banks and their mechanisms for giving out loans, which led the government putting a ceiling of €200 mln in loans for larger companies.

The amount of €300 mln for very small businesses was introduced at the request of the parties.

The government was also not willing to accept a proposal to have the Auditor General supervising the scheme.

Auditor-General Odysseas Michaelides was to be given the task of supervising and approving which companies would get the loans.