Aid scale back must be gradual as business insolvencies are at record lows: CIBC's Tal
Record-low insolvencies may be a metric pointing to good news, but it may come with an asterisk as once government supports are lifted, the country will see a wave of business closures, according to CIBC Deputy Chief Economist Benjamin Tal.
Tal said insolvency rates are falling by about 30 per cent from last year thanks to various government programs that would otherwise lead to a sharp rise in bankruptcies.
Tal also wondered to what extent those assistance programs are keeping hard-hit businesses alive artificially, regardless of COVID-19’s impact, because of the safety net. He added that the number of anticipated insolvencies that should inevitably happen will come with challenges, advising that the government should carefully lift its funding support to curb a sudden wall of bankruptcies.
“If we have all of [the businesses] going under at the same time… when the government support is not there, it will be chaotic,” Tal said in a broadcast interview. “That’s why the government’s approach should be there at the exit in a gradual way.”
With the pandemic wreaking havoc on the small business community, Tal also expects business owners' attitudes towards business insolvencies will also shift.
“I think that the stigma of declaring bankruptcy will not be as bad this time around than say 2019 or 2018 before the crisis,” Tal said. “If you are going down, it’s not really your fault you will shut down… So you cannot really be blamed for that. That’s not bad management, that’s reality.”