Concerns that Donohoe's Covid-19 recovery firepower will fall short

Concerns are growing that the recovery package promised by Finance Minister Paschal Donohoe will fall short if the firepower fails to match what the British government has delivered for its struggling businesses.
Concerns that Donohoe's Covid-19 recovery firepower will fall short
Austin Hughes, chief economist at KBC Bank Ireland, said he worried about the mixed messaging from Minister Paschal Donohoe around the costs of many of the interventions so far

Concerns are growing that the recovery package promised by Finance Minister Paschal Donohoe will fall short if the firepower fails to match what the British government has delivered for its struggling businesses.

The concerns from business groups and leading economists come as the UK Treasury released figures that showed that lending to UK firms has so far reached £41bn (€45.3bn) during the Covid-19 crisis.

Dermot O’Leary, chief economist at broker Goodbody, said lending through Britain’s Bounce Back Loan Scheme, the main source of funding for SMEs through a 100% government guarantee, implies €4.1bn in loans ought to have been made available to SMEs in the Republic, whereas an estimated total of only €95m of debt has been advanced.

The British scheme spluttered under the original plan under which the British state guaranteed less than 100% of the commercial loans but has since been hugely successful.

“In this context, the need for similar levels of support for Irish SMEs is highlighted once again,” Mr O’Leary said.

Brian Keegan, director of public policy at Chartered Accountants Ireland, said the Government will have to deliver a large package of grants to help businesses from closing down.

“Industry was told to shut down by Government and they have to make redress for that,” Mr Keegan said.

The thrust of the supports will need to be direct grants and not loans, even as the proposed programme for government by the three party leaders focused on loans and lending guarantees, he said.

“Businesses responded to the Government to shut down and they have to be helped back, and loans are not going to be sufficient,” he said.

Citing the cut in the €350 pandemic unemployment payment for part-time workers, Austin Hughes, chief economist at KBC Bank Ireland, said he worried about the mixed messaging from Minister Donohoe around the costs of many of the interventions so far.

“There does seem to have to be a very strong messaging that businesses, which were viable beforehand, will be given the opportunity to prove their viability in the new normal world,” Mr Hughes said.

“If your capacity is reduced by 50% you may no longer be viable. But you need some sort of guarantees that help businesses survive,” he said.

To boost consumer sentiment, the wage-subsidy scheme will have to continue even if it is renamed as a retraining scheme, and guarantee-loan schemes will have to be linked to the nature of the business, he said.

Ronan Lyons, assistant professor of economics at TCD, said he agreed with the business group Ibec chief economist Gerard Brady that any recovery package needs to target SMEs because the smaller firms will not survive otherwise.

“We do not need any further economic shock -- it was effectively a Government-imposed recession, for good reasons -- and the aim presumably is to get the unemployment rate down below 10% at the end of the year,” Prof Lyons said.

“The response has to be different. If we don’t supply the supports, there is no easy win.

"The taxpayer will have to pay one way or the other,” he said.

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