The ESRI’’s Kieran McQuinn has backed calls for the Government to provide guarantees to allow banks to lend to small firms at "rock-bottom" interest costs to help them survive the severe Covid-19 economic crisis.
Business groups have said that Ireland stands out as one of the few jurisdictions that doesn’’t offer some sort of ultra-cheap or zero-rate interest loans during the crisis.
Mr McQuinn, research professor at the Economic and Social Research Institute, said that guaranteed-loan schemes are "another part of the jigsaw", which other jurisdictions have brought in to help their businesses.
He told the Irish Examiner that the interest rates charged would need to be significantly lower than banks currently charge Irish SMEs and would need to be set "at rock-bottom" or zero-interest rates.
Mr McQuinn noted that the Government can borrow at close to zero interest rates on the international debt markets and that "the same should apply" to Irish small firms too during the crisis.
"It is one thing to offer loans but if SMEs come out of the crisis with huge levels of debt they will not operate too well after the crisis," he said.
He said any scheme would need to be operated by the banks because they have the relationships as existing lenders to SME customers.
Irish business groups have long complained that Irish banks charge SMEs among the highest rates for their loans in the eurozone.
They also say that small firms will be reluctant to take on more expensive debt during the crisis following their experience of the last financial crisis of over a decade ago.
Business groups have also said that the deal secured by EU finance ministers last week under which Ireland will likely tap loans from the European Investment Bank will have little to no benefit for most Irish SMEs.
Under the UK Covid-19 business interruption scheme, small businesses in the North can avail of loans from commercial banks.
The bank loans are guaranteed by the London government covering 80% of the risk that the business borrower will default.
The purpose of the scheme is to keep banks lending to firms that are at risk of going under as their liquidity dries up during the crisis.
However, there has been criticism of the way the scheme was set up and over the small amounts that UK banks have since loaned out.
Meanwhile, a survey survey has found that Irish businesses are more concerned about the fallout from the Covid-19 economic storm than their international peers.
Almost all chief financial officers here expect the crisis to do great harm, according to the PwC survey.
"In line with global counterparts, the top concern with respect to Covid-19 for Irish CFOs is the financial impacts on their organisation’s operations, liquidity and capital resources," the survey found.
"Two-thirds are concerned about the possibility of a global recession, though these fears are less amongst international peers.
"Surprisingly, just 4% of Irish respondents are concerned about cyber security risks, in spite of increasing threats of cyber attacks during this time," it said.