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New @ibec_irl report out today on solving liquidity needs during Covid-19. Have talked to a lot of CFO/CEOs over the past week on this of companies big and small. Bit of a thread on what is happening and how the State can help: 1/
Many orders fulfilled in Q1 have not been paid for, payment timelines are stretched, credit facilities provided by large firms are coming under strain, and the need for cashflow has greatly increased 2/
In the coming weeks, bills, rents, and other fixed costs will go unpaid as a result of this cashflow freeze. For companies of this will put increased pressure on their ability to trade and finance their operations. 3/
Left without intervention, there will be significant spike in liquidations over the coming months and a very slow return to normal operations, investment and expansio firms who stay open through the crisis. i.e. There is no V-shaped recovery. 4/
How do we head this off? One word - cash. We outlined four ways policy can broadly help keep liquidity in the economy.
- tax forbearance
- low interest loans & finance
- direct cash infusions for small firms
- state backed guarentees
5/
- tax forbearance
- low interest loans & finance
- direct cash infusions for small firms
- state backed guarentees
5/
Now for the detail. On liquidity support, it& #39;s all about using existing transmission mechanisms to pass the low cost of State borrowing to SMEs. Lown interest loans. Interest rate subsidies. Commercial paper purchases for mid-caps. Making sure money gets out quick. 6/
Put in place guarantees (I know, but for SMEs this time). This will help de-risk credit to SMEs. It would also make sure export and invoice financing doesn& #39;t dry up like it did in the crisis. This might not require the State to spend a lot directly but it gives cover 7/
Forbearance measures is bucket three. Some of this is already happening in an ad-hoc way. Formalise it. Show maximum flexibility to reliable taxpayers to ensure they survive to pay more in future. Explore binding arbitration models & increased protection for commercial rents. 8/
Finally, small firms employ a lot of people around the country. They keep local towns ticking over. They can& #39;t afford debt or complicated financial instruments. Custom has disappeared & they dont have options. The State should give viable small firms cash. No strings attached. 9/
There is a lot here. Enough to help underpin ~€26bn in liquidity. But the total potential cost to the State would be €6bn at a max - if things got really bad, a lot less if they don& #39;t. & once loans are repaid the total cost would be around €3-4bn. 1.5% of national income 10/
11/ These are big numbers. But downward velocity in the economy is enormous. No action means a long drawn out recovery trying to rebuild a severely weakened SME sector. The alternative isn& #39;t less costly.
The full report is here if you& #39;re interested: https://www.ibec.ie/-/media/documents/media-press-release/covid-19-ibec-solutions-to-liquidity-crisis.pdf">https://www.ibec.ie/-/media/d...
The full report is here if you& #39;re interested: https://www.ibec.ie/-/media/documents/media-press-release/covid-19-ibec-solutions-to-liquidity-crisis.pdf">https://www.ibec.ie/-/media/d...
