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Bold measures needed to help businesses save jobs and support workers — economist

TheEdge Thu, Mar 26, 2020 05:38pm - 2 weeks ago

(March 26): The Second Stimulus Package to address the economic crisis caused by the Covid-19 pandemic must be one that is bold and fast, focusing on easing cash flows and operating costs of SMEs and employers while helping to save jobs and support workers to preserve wages.

The economic and business disruptions aggravated by the 14-day Movement Control Order, which has been extended by another two weeks to April 14, have caused companies with low cash reserves or unstable cash flows to be particularly vulnerable, given the persistent sharp economic slowdown envisaged in the greater part of this year.

With no revenue and sales for the non-essential services and slower sales for essential services, this poses a big crunch time for the cash strapped SMEs to meet big payroll checks in addition to rental expenses, utilities bills, loans repayment, etc. Even businesses that appear to be in good financial shape may not be immune, depending on how the situation progresses and how long it takes for demand and supply shocks to subside and markets to return to normalcy.

Businesses are seeking for the government’s financial assistance to preserve cash flow and capital as well as protect employees as they respond to unprecedented supply and demand shocks as well as the global pandemic while preparing for the eventual upturn.

SMEs will run out of cash within two to three months, and will not be in financial good shape for the next six months to a year, if the crisis and the Covid-19 pandemic do not abate. SMEs have to bear high fixed employees' salaries and wages even as sales decline. A prolonged MCO would push the companies on the brink of bankruptcy, resulting in more layoff of workers.

SMEs currently make up 98.5% of total business establishments in Malaysia; 38.3% of GDP; 17.3% of total exports and 66.1% of total employment.

The biggest problem is cash flow, especially for the payment of wages and salaries to prevent massive retrenchments. The rising number of retrenchments not only causes hardship to households but also inflicts downward spiral effects on domestic demand and would grind the economy to a halt.

It is a long-haul battle. The fiscal and monetary as well as financial supports need to save businesses, preserve jobs and strengthen our economic resilience.

It is proposed that the government provide wage credit support or a 70% wage subsidy to employers per employee up to a period of six months to ease their employment cost and help to retain employees. At least, the wage subsidy should be given to businesses during the MCO period, as a majority of SMEs are facing acute cash flows due to plunging sales and even no revenue, but still have to pay wages and salaries, rental expenses, utility bills and other commitments.

The government can also consider establishing A Designated Payroll Fund to address the cash flow needs for the pay checks. The criteria and conditions for approving the loan application must be made simpler and with less stringent credit risk assessment.

(a) Companies can provide proof to banks of their payroll statements for the past six months and be given an immediate loan facility at 1-2%pa interest rate for an amount equivalent to 12 months’ payroll. This will help them to retain their employees for at least the next one year. The government to provide guarantee on the loan and Bank Negara Malaysia to implement KPI for the financial institutions to facilitate this loan facility.

(b) Less stringent credit risk assessment. The loan facility will be approved based on the proof of payroll statement of the said applicant and the company must be in business for 5-10 years.

(c) This loan facility to be drawn down solely to pay salaries and wages, and be credited directly to the employees’ salary account opening with the respective banks. This is to ensure that NO company/employer will abuse this special facility.

Governments worldwide have provided wage subsidy to help businesses ease their employment cost and keep the workforce during this hardship period.

(a) The UK has announced that the government will cover 80% of lost wages (up to 2,500 pounds/month);
(b) Canada has announced a 60%-70% (range from C$50-C$1,300 a week) cover for those having or being exposed to Covid-19; and
(c) The Singapore government provided an offset of 25% of the wages for every local worker in employment, up to a monthly wage cap of S$4,600, for three-quarter months, given to employers.

** Lee Heng Guie is executive director of The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM)’s Socio-Economic Research Centre


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