Taming the Wave of Small and Medium Enterprise Insolvencies

The pandemic has hit small and medium enterprises particularly hard, partly because they are predominant in some contact-intensive sectors like hotels, restaurants, and entertainment. As a result, many advanced economies risk experiencing a wave of liquidations that could destroy millions of jobs, damage the financial system, and weaken an already fragile economic recovery. Policymakers should take novel and swift action to alleviate this wave.

“Quasi”-equity injections

Compared to past crises, this time around there is a clearer case for solvency support by governments. Because of the sheer magnitude of the problem, the costs of bankruptcies to society far exceed their costs to individual debtors and creditors. For example, if a wave of insolvencies overwhelms the courts, these could fail to restructure viable firms and push them into liquidation instead. Undue losses in valuable productive networks, human capital, and jobs would follow.

https://blogs.imf.org/2021/04/02/taming-the-wave-of-small-and-medium-enterprise-insolvencies/?utm_medium=email&utm_source=govdelivery