Targeted approach the way to go

IT is a move many have been waiting for and in the end, the government together with the banks agree that the best way forward from a blanket loan moratorium for everyone is a targeted approach come October.

It matches what the banks have been seeking and in a way, the new moratorium agreement will see a loan reprieve granted to those who need it the most.

An interesting take away from the announcement yesterday was it was made two months before the end of the current blanket loan moratorium.

That will give people enough time to talk with their banks to reschedule and restructure their loans with new flexibilities beginning October, should they qualify.

A blanket moratorium for three months starting October will now only be extended to those who are jobless.

It’s perfectly understandable why those who are unemployed should be given assistance in managing their liabilities as they will still be able to utilise whatever savings they have for basic necessities instead of repaying their loans while searching for a new means of gaining income.

A new facet being introduced is for those who have had a pay cut during the Covid-19 pandemic.

By matching their debt repayments with the quantum of the pay cut for six months from October, households that have seen a drop in their monthly income would be able to match their reduced cashflow with that of a reduced payment in their debt obligations.

It will also mean that if one member of a household loses their job, then the reduction of the monthly repayment will match the drop in that household’s income.

SMEs, which have been hit hard, will also be given some leeway.

They will be able to restructure and reschedule their loans where they can pay just the interest, lengthen the tenure of the loan or provide other flexibilities until the borrower is able to repay their loans in full.

This way, small businesses can match their cashflow with their debt obligations, making sure that businesses be given all the assistance they need to stay in business.

As for hire purchase, borrowers will be offered revised schedules of repayment.

Granting another blanket extension would have sent the wrong message where bankers have said that it would have created a moral hazard when it comes to repaying their debt.

There are a lot of people who have the ability to start paying off their debt and they should do just that.

The economy is on the mend and the percentage of people returning to the workforce is now at more than 82%.

The new loan moratorium also takes into account the rising unemployment in the country.

The latest unemployment rate is 5.3% and that is way higher than in the previous economic crisis in 1997/98 where the rate of unemployment hit 4%.

No one knows how those seeking work will be absorbed back into the economy but the numbers are looking good at this time for some to start feeling a little optimistic.

Exports in June rose 8.8% from a year ago and rebounded strongly from a collapse of 25.5% in May.

Sales of passenger cars in June was 43,405 units compared with 34,756 in the same month in 2019. Sales are up thanks to the sales tax exemption but there is also other anecdotal evidence that other expenditures are also up.

Although retail sales have rebounded strongly on a month-on-month comparison in May, banks have said that retail sales in some segments exceeded pre-Covid-19 numbers and that credit card spending has returned in a big way.

Maybe it’s because people cannot travel abroad and are spending here, but it is trends such as these that give some hope that the economy is on the mend and a return to hopefully some normalcy will ease a lot of the pain employees and businesses have had to endure during the trying months of the Covid-19 pandemic.