By : Abu Kadir Mubarak Ali
Exco Member of Malaysia Youth Council (MBM)
We have been told that the economy is losing RM2.5 billion daily and that means government is also collecting less tax to fund its operations and to enhance its stimulus package.
More businesses are expected to halt operations and Malaysian Institute of Economic Research (MIER) has reported that the rate of unemployment may reach up 2.5 million. That’s quite a bleak future especially for our graduates and youth.
The crisis has brought many sectors of the economy to a halt. SME’s have little to zero revenues while the restricted movement control order is in place, they are still obliged to pay salaries (for those responsible employers), rents, and loans.
Few things to consider for businesses to stay afloat and maintain paying salary to their employees: looking a temporarily suspend bankruptcy procedures, design a post-crisis restart process (exit strategy may not be the appropriate term since a vaccine is yet to be ready), explore assisted income replacement system for those who lost their jobs (akin to Universal Basic Income (UBI)) and are low income earners and a hiring/wage incentive for both employer and employee. (it’s a win-win situation)
Albeit government assistance programmes are taking place, several previously solid firms may find themselves unable to re-open and keep paying salaries once the crisis is over although few notable sectors are thriving (Ecommerce, groceries retailers and technology-based companies)
How do we prevent this possibility?
These government initiatives inject much-needed liquidity in SME’s, but do not resolve a bigger looming issue: insolvency. The gap between lower-than-expected revenues and piling loan debts. It also exposed the lack of reserves liquidity for time of crisis. The COVID-19 crisis has exacerbated existing vulnerabilities in other industries and will slow down their recovery (airlines, travel agencies and hotels).
To keep businesses afloat. Firstly, government need to temporarily suspend bankruptcy procedures to avoid SME’s closing shop. Several countries have just taken this step. For instance, in France bankruptcy law normally gives 45 days from the moment a debtor can no longer pay its debts to filing for bankruptcy. President Macron issued an order that the firms will have three months after the end of the state of emergency (i.e. as things now stand, until September 2020) to file for bankruptcy if needed. The Germany parliament passed a temporary suspension of the firms’ obligation to file for bankruptcy. The suspension is valid until September 2020, with an extension to March 2021 – a one-year delay so firms can stand on their feet. Similar suspensions have taken place in Australia, India, Spain and the United Kingdom. Others will eventually follow. Wondering when will follow suit?
Second, governments can design a post-crisis restart procedure, whereby everyone who plays a major rule in the economy recovery including government and banks agree on a method for reducing the debt burden on businesses. Reduction realistically means writing off a portion of the debt interest and restructuring the loans.
Thirdly, wage and hiring incentive for employee and employers to increase take-home pay while reducing the burden of doing business in this trying time. It’s a win-win solution at the expense of the government coffers. Some might argue we might be heading towards a welfare state. The question is, after all that we have seen, is it a really bad thing? Perhaps it’s the way forward. Something to ponder upon.
Date: 17th May 2020