The unseen before coronavirus pandemic has highlighted the depth and breadth of the consequences of our globalised world: it is a clear indication of how a geopolitical, economic, social or health event on the one side of the world can wreak havoc across the globe as the supply, logistics and finance chains are so intensely inter-related.
The crisis threatens to overturn the recent positive economic trajectory of our local economy. The consequences on our economy will be directly impacted by the duration and intensity of the pandemic. All sectors of the economy, without exception, are expected to be affected, with the overall hospitality, tourism and travel sectors taking the biggest hit, with other sectors such as general trade, food and beverage, health and education, as well as the wider finance sectors also likely to be heavily affected.
The uncertainties surrounding the pandemic insofar as its proliferation, intensity and duration are concerned, will test the resilience of local businesses in terms of securing the continuity of operations, maintaining sufficient supplies and inventories, keeping the workforce in place whilst maintaining diligent health and safety conditions, and equally, or even more importantly, securing adequate levels of liquidity.
Reduced or non-existent cash inflows may jeopardise the viability of businesses. If inadequate cash reserves exist, businesses may become unable to pay their day-to-day obligations such as payroll and commercial creditors, as well as to meet loan commitments and obligations to state authorities. It is evident that such ‘cash drainage’ situations will have multiplier-effect repercussions on the economy, given that the entire economic chain, with the involvement of multiple stakeholders, is affected.
It is crises like this one that bring to surface the real importance of the existence of sound and prudent planning, robust corporate governance structures and the continuous and timely provision of management and financial information. Businesses with these characteristics will be in a much better position to ‘ride the storm’, as they are more resilient and well-prepared to cope with difficulties of this magnitude.
There is a need for immediate, active and collective response to the current emergency from an inter-related web of major economic stakeholders:
— Private businesses, using technocratic criteria and advice/support, if needed, should develop a strong contingency plan in order to ensure business continuity, by critically assessing and proactively managing the following:
- the key risks across operations and their entire supply chain,
- the effects on workforce planning and management,
- the existing cost structure in place,
- the impact on cash, liquidity and working capital needs, and
- the possibility of becoming unable to meet their bank and other obligations
with a view to forming a comprehensive action plan of managing the key issues and stakeholders which shall safeguard their viability.
— Banks, being the primary source of financing of local businesses, must demonstrate active and efficient fast-track support to operational businesses, in terms of loan commitments and covenants relaxations, the provision of short-term liquidity and the minimisation of the cost of borrowing in these critical times insofar as the survival of our economy is concerned.
— Governmental authorities, on the other hand, are expected to facilitate and contribute to the collective effort through the implementation of focused tax and other duty/levy relaxations, employment continuity incentives, the provision and/or facilitation (e.g. through state guarantees) of short-term liquidity to operational businesses, the subsidisation of key strategic sectors of the economy, the simplification of approval procedures and conditions for businesses and individuals for accessing aid, etc.
In conclusion, it is indisputable that the local economy will experience unprecedented imbalances and intense short to medium term challenges, which shall be impacted by the severity and duration of the pandemic. In times like these, all key economic agents must act collectively, with composure and prudent and diligent planning to safeguard the business, productive and socio-economic resilience of our country.
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