## COVID-19 and SME Failures

_IMF Working Papers, September 25, 2020_

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**Canonical URL:** [COVID-19 and SME Failures](https://www.imf.org/en/publications/wp/issues/2020/09/25/covid-19-and-sme-failures-49753)

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## Bibliographic details
- Authors: Sebnem Kalemli-Ozcan, Pierre-Olivier Gourinchas, Veronika Penciakova, Nick Sander
- Published: September 25, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513557748.001

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### Overview and methodology
- Study objective: estimate the impact of the COVID-19 crisis on business failures among small and medium size enterprises (SMEs) in seventeen countries.
- Data and approach:
  - Uses a large representative firm-level database.
  - Employs a simple model of firm cost-minimization to measure each firm’s liquidity shortfall during and after COVID-19.
  - Framework allows for a rich combination of sectoral and aggregate supply, productivity, and demand shocks.

### Key findings on SME failures and sectoral impacts
- Increase in SME failure rate under COVID-19:
  - Estimated increase of nearly 9 percentage points, absent government support.
- Most affected sectors:
  - Accommodation & Food Services
  - Arts, Entertainment & Recreation
  - Education
  - Other Services

### Employment consequences
- Jobs at risk due to COVID-19 related SME business failures:
  - Represent 3.1 percent of private sector employment.

### Financial sector effects
- Non Performing Loans (NPLs):
  - Share of Non Performing Loans on bank balance sheets would increase by up to 11 percentage points.
  - This increase represents 0.3 percent of banks’ assets.
- Bank capital impact:
  - Resulting decline in the common equity Tier-1 capital ratio of 0.75 percentage point.
- Overall characterization: despite large SME and employment impacts, effects on the financial sector are estimated to be moderate.

### Policy evaluation: cost and effectiveness
- Targeted intervention:
  - Fiscal cost of an intervention that narrowly targets at risk firms can be modest: 0.54% of GDP.
- Non-targeted subsidies:
  - At a similar level of effectiveness, non-targeted subsidies can be substantially more expensive: 1.82% of GDP.

### Implications
- Results have important implications for:
  - The severity of the COVID-19 recession.
  - The design of policies to support SMEs.
  - The speed of the recovery.

*Source: "COVID-19 and SME Failures", Sebnem Kalemli-Ozcan, Pierre-Olivier Gourinchas, Veronika Penciakova, Nick Sander, September 25, 2020.*

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_Source: https://www.imf.org/en/publications/wp/issues/2020/09/25/covid-19-and-sme-failures-49753_