Wind-down of pandemic supports set to bring on a rash of insolvencies
Central Bank governor warns many firms will fall after State aid rug is pulled out
Central Bank governor Gabriel Makhlouf: Government faces some hard policy choices when it comes to continuing or jettisoning Covid-19 supports. File photograph: Dara Mac Dónaill/The Irish Times
One of the most striking features of the pandemic to date has been the lack of business insolvencies. The main business unit of the Irish economy is the small business. Some 70 per cent of the workforce – 1.6 million workers – are employed in small and medium-sized firms (SMEs), many in what are called micro enterprises – those with 10 staff or fewer.
Think of your local pub, newsagent, hairdresser and building contractor, and you’ll begin to see the Irish economy not as a multinational-driven juggernaut, as the international headlines suggest, but as a complex tapestry of small local enterprises, surviving on a small volume of local trade.
These enterprises tend to have limited cashflow and limited resources and certainly couldn’t survive for long without sales. The fact that many are still extant after a year of on-off lockdown is a testament to the Government support measures put in place last year. There are currently over 900,000 people in receipt of income supports of one form or another.
Central Bank governor Gabriel Makhlouf, however, delivered something of a dire warning on Monday, suggesting that many of these businesses simply won’t survive when the rug of State aid is pulled from beneath them, and that the Government faces some hard policy choices when it comes to continuing or jettisoning these supports.
He told a webinar event hosted by the University of Limerick that “while policy choices have led to an avoidance of widespread insolvency up to now, it is an unfortunate reality that the effects of the pandemic on SME balance sheets, combined with structural changes that have either been created or exacerbated by it, mean that some SMEs will be unviable.”
To coincide with the event, the Central Bank and the Economic and Social Research Institute (ESRI) published a survey, detailing the revenue shock felt across the SME sector from Covid.
Most worrying of all, it suggested that almost a quarter of SMEs could be vulnerable to liquidation when insolvency criteria begin to normalise.