The government gave wage subsidies to small businesses during the strict lockdown in April. — PHILIPPINE STAR/EDD GUMBAN

By Beatrice M. Laforga, Reporter

THE Philippine government should consider extending the wage subsidy program for small firms, the Asian Development Bank (ADB) said, after a survey showed more than half of businesses are facing a cash crunch amid the pandemic.

In its study “The COVID-19 Impact on Philippine Business” published Monday, ADB said enterprises faced a “sharp deterioration of financial conditions after the COVID-19 (coronavirus disease 2019) outbreak,” with only 9.35% of firms surveyed saying they had savings to run their businesses for over six months.

The survey showed 33.6% of firms no longer have cash or savings to cover operation costs, while another 36.5% said they might run out of working capital within three months.

The ADB’s Economic Research and Regional Cooperation Department conducted the enterprise survey, together with the Finance department, from April 28 to May 15 in order to assess the impact of pandemic and strict quarantine measures on businesses. The government placed Luzon island, which accounts for 70% of national gross domestic product, under an enhanced community quarantine (ECQ) starting mid-March.

The survey of 2,481 businesses showed microenterprises suffered the “most serious shortage of working capital,” while larger companies have enough liquidity to survive for more than six months.

The ADB recommended the government extend the wage subsidy program, as the survey showed this was the most requested government support measure by enterprises.

The payment of wages and social security contributions was the “single most important payment concern” for most firms surveyed.

“Micro and small enterprises were about 10 percentage points more likely to request a wage subsidy than large enterprises,” it said.

As most businesses were forced to shut operations during the lockdown, the government rolled out a wage subsidy program in May. Under the program, employees of small businesses received up to P8,000 per month for two months to compensate for the lost income. Around P45.6 billion in cash aid was distributed to about 3.1 million workers.

“The use of online payment systems greatly increased the efficiency of getting payments to workers, with about 97% of payments made by early June. It would be useful to extend the program, particularly for sectors hardest hit by the downturn, notably in retail, transport, and tourism,” ADB said.

Other support measures sought by enterprises include deferment of tax payments, low interest or subsidized loans, and tax reductions or credits.

“Businesses and their employees will need to be protected against the spread of the virus even if lockdown measures are lifted and businesses reopened,” ADB said.

Many firms reported experiencing difficulty in accessing short-term loans, with around 53% finding it harder to borrow P50,000 within a week compared to a year ago.

“These figures suggest that overall credit constraints are becoming more binding even for a relatively small amount of liquidity,” ADB said.

The survey showed the majority (53.8%) of firms used their own funds or retained income to continue business operations during the enhanced community quarantine (ECQ) which started in mid-March. Another 22.3% borrowed from relatives and friends and 15% applied for loans from banks, while the rest either got support from a business partner, borrowed from other financial institutions or received financial aid from the government.

“While critical in safeguarding public health against the spread of COVID-19, the ECQ and other quarantine/lockdown measures dramatically limited business activities throughout much of the Philippines,” the ADB said.

Two-thirds of firms closed temporarily once ECQ began on March 16, while 29% continued limited operations. Of those with limited operations, 78% reported less than 50% of their business was operational.

Nearly 40% of the respondents experienced “severe bottlenecks in the product supply chain” during the lockdown, hampering their production.

“There was no change in the cost of supplies and raw materials after the ECQ began for 52.6% of enterprises; 26.1% reported an increase in cost; while 21.3% reported a decrease,” ADB said.

The survey showed businesses are willing to adapt as the country shifts to new normal which include implementation of safety protocols such as wearing face masks, limiting group interactions, routine check of temperatures, and keeping a record for contact tracing.

Businesses are open to digitalization, as nearly half of respondents asked regulators to reassess regulations on digital transactions.

ADB said businesses should also be encouraged to go online, with only 14% of respondents currently using digital means to sell their goods or services.

“Getting connected in this way will not only assist businesses to keep operating in the current situation but will also help during a possible second wave later, and more generally to expand their customer base under normal and ‘new normal’ business conditions,” it said.

As part of recovery programs and policies, the ADB suggested facilitating debt restructuring for many businesses.

“Commercial banks and the central bank should closely monitor debt levels and repayment capabilities. In many cases, debt will need to be further restructured to give firms time to repay,” it said.

The ADB said follow-up surveys will be rolled out every two months, with surveys already scheduled this month and September.