Big businesses urge furlough system to avoid lay-offs

With the prolonging coronavirus pandemic and its economic fallout, big businesses have started making the case for cash contribution from the government to put in place a furlough system for labour to avoid big lay-offs and insolvency challenges.

Informed sources said that leading businessman Mian Mansha led a delegation of his business group and met the Prime Minister’s Finance Adviser Dr Abdul Hafeez Shaikh.

The meeting aimed to sensitise the federal government about the upcoming challenges in labourintensive sectors, such as the textile industry, arising from the global economic downturn.

Sources said that the business magnate informed the government team that the majority of workers in the textile industry would fall into poverty if businesses send them on leave at 50% salaries while using various schemes of the government and the State Bank of Pakistan (SBP) under the Covid-19 Relief and Stimulus Package.

Also, it was pointed out that there is a lot of fixed cost in labour-intensive sectors in the form of paid leave, slow economic recovery, interest payments, utilities and so on, and many businesses might be facing solvency issues in the near future.

Mansha suggested that labourers could survive with 80% of their salary, for which a furlough system could be put in place, provided the government takes responsibility for the additional 30% financial burden.

Some examples, including that of Thailand, were quoted to the government, where support came from the government while in some other countries such as Germany there are inbuilt contract provisions for sending workers on half paid leave.

An official statement said the delegation of the Nishat Group met the finance adviser to apprise the latter about the damage inflicted by the coronavirusrelated economic downturn on large scale manufacturers.

Adviser to the Prime Minister on Commerce Razak Dawood, Minister of Industries Hammad Azhar, Adviser to the Prime Minister on Institutional Reforms Dr Ishrat Husain, Finance Secretary Naveed Kamran Baloch, and Federal Board of Revenue (FBR) chairperson Nosheen Javed Amjad were also at the meeting.

The delegation reported that owing to the pandemic-induced demand compression, the size of balance sheets of large manufacturers was not maintainable.

“Any arrangements of avoiding permanent laying off or furloughs are putting excessive strains on the liquidity position of businesses, which are anticipating slow economic recovery, hence hedging against potential solvency issues,” the official statement said.

The delegation head stressed “on enhanced role by the government to ease liquidity position of large businesses and the need for crafting scheme for cost sharing between public and private sectors”, it further added.

Finance Adviser Shaikh updated the delegates about the current status of prime minister’s stimulus package worth Rs1,240bn.

He asked the delegation to put up a precise case for financial facilitation and its parameters, as the SBP is already running a scheme for payroll protection.

On the occasion, Commerce Adviser Dawood referred to the US-China trade tensions and asked the delegation to work out the impact of reversion of orders by the US from China to other countries, and its impact for manufacturers in Pakistan.

Industries Minister Azhar pointed out that there may be a number of other labour-intensive sectors that could be looking for similar avenues.

He asked the delegation to provide details of proposal in terms of cost-sharing arrangements, along with requirements of different sectors so that the government could ensure balanced treatment to all key contributors to gross domestic product.

Shaikh directed that specific proposals be crafted regarding upscaling of the SBP’s existing scheme, as too many interventions carry the risk of diluting the impact.

He further directed that upper bounds of additional liability be calculated through defined parameters so that evidence-based decision may be shaped before next budget.