Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies: Assessment and Policy Options

Author: Mr. Federico J Diez, Mr. Romain A Duval, Jiayue Fan, Jose M Garrido, Sebnem Kalemli-Ozcan, Chiara Maggi, Mr. Maria Soledad Martinez Peria, and Mr. Nicola Pierri

The COVID-19 pandemic has increased insolvency risks, especially among small and medium enterprises, which are vastly overrepresented in hard-hit sectors.

Volume/Issue: Volume 2021 Issue 002

Publication date: April 2021

ISBN: 9781513574561

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Topics covered in this book

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Finance , Economics- Macroeconomics , Money and Monetary Policy , Economics / General , Insolvency , Bankruptcy , “Quasi” Equity Injections , Small- and medium-size enterprises , COVID-19 , insolvent firm , cash position , equity injection , illiquid firm , firm exit , cash flow , Solvency , Small and medium enterprises , Stocks , Financial statements , Southern Europe , Asia and Pacific

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Summary

The COVID-19 pandemic has increased insolvency risks, especially among small and medium enterprises (SMEs), which are vastly overrepresented in hard-hit sectors. Without government intervention, even firms that are viable a priori could end up being liquidated—particularly in sectors characterized by labor-intensive technologies, threatening both macroeconomic and social stability. This staff discussion note assesses the impact of the pandemic on SME insolvency risks and policy options to address them. It quantifies the impact of weaker aggregate demand, changes in sectoral consumption patterns, and lockdowns on firm balance sheets and estimates the impact of a range of policy options, for a large sample of SMEs in (mostly) advanced economies.