The International Monetary Fund (IMF) has warned that there could be a 300 percent increase in the number of small- and medium-sized businesses that may face bankruptcy this year due to the lack of adequate government which may trigger a stall of the economic recovery and cause financial instability.
In a report, IMF said that a staff analysis of 17 countries suggests that bankruptcies for the firms could surge to 12%, from 4% before the pandemic.
IMF observed that Italy would see the biggest increase due to a large drop in collective demand and a high share of production in contact-intensive industries. Across the Group of 20, relief from taxes and social security contributions, grants and interest rate subsidies have been an important salve, the IMF said.
Bankruptcy rates in the services sector in the average country may climb by more than 20 percentage points in administration services, arts, entertainment and recreation, and education. Essential activities like agriculture, water and waste, may experience only small growth in bankruptcy rates, the IMF said.
According to the Washington-based fund, more than 33 percent of small businesses in Canada, South Korea, the U.K. and the U.S. are worrying about the feasibility or expect to close permanently within the next year.
Managing Director Kristalina Georgieva in a related blog post said that while the fiscal costs of support for firms are substantial and rising debt levels are a serious concern, the costs of premature withdrawal are greater than the cost of continued support where needed.
