ADB: Continued support for MSMEs needed amid repeated lockdowns

Nearly a year after the coronavirus disease 2019 (Covid-19) outbreak, the pandemic continues to pose a significant risk to micro, small and medium enterprises (MSMEs) and necessitates continued financial support in view of the repeated lockdowns, according to economists.

“MSMEs are a backbone of the national economy but fragile entities against external shocks. It is critical for the government to understand their real conditions to set right policy measures,” said Shigehiro Shinozaki and Paul Vandenberg of the Economic Research and Regional Cooperation Department at Asian Development Bank (ADB).

The economists had conducted online surveys in April and May 2020 to assess the immediate impact of the Covid-19 on MSMEs’ operations during the pandemic in four Southeast Asian countries: Indonesia, Laos, the Philippines and Thailand.

In their online presentation of the results late last year, the experts found there was immediate temporary shutdown of business in the majority of MSMEs in the Philippines (70.6 percent) and Laos (61.1 percent), while less than half in Indonesia (48.6 percent) and Thailand (41.1 percent) temporarily closed down.

On MSMEs’ business conditions after the outbreak, the study found there was greater disruption in the production/supply chains in the Philippines (34.2 percent) and Thailand (36.9 percent) compared to Indonesia (19.8 percent) and Laos (12.1 percent).

Majority of MSMEs in the Philippines reported immediately that they had no revenue in April and May, caused by the strict lockdown measure.

On employment, 40 percent of MSMEs in the Philippines, Thailand and Laos reported they reduced their workforces immediately after the outbreak.

Moreover, temporary staffing cut was a major action by MSMEs, with 66.2 percent of those in the Philippines temporarily laying off their workers, and 53.5 percent in Laos, 51.0 percent in Indonesia, and 42.3 percent in Thailand doing the same.

Many MSMEs also reduced the working hours of employees in all the countries observed.

In addition, more than half of MSMEs suspended wage payments to employees after the outbreak in Indonesia and the Philippines.

The surveys also found that MSMEs in all observed countries faced a serious lack of funds to retain their business and had difficulty raising funds due to the crisis.

To obtain funding, they relied on their own funds and close relatives to survive as getting credit from banks was still limited for most MSMEs.

On their main concerns and obstacles, MSMEs in all observed countries reported a lack of working capital to retain their business as their top concern, followed by supply disruptions as the second ranked concern for the Philippines.

Other worries raised included a further decline in domestic demand, loan repayment issues, and requirements of tax payments.

Around half or more of the MSMEs sought the deferral of loan repayments in all countries, while more than half sought deferred tax payments in the Philippines and Laos.

In addition, many considered further layoffs and wage cuts and thought to apply for bankruptcy.

Asked what policy measures they desired, all the respondents said financial assistance was what was required most.

More than 90 percent of MSMEs desired zero interest rate and/or collateral-free loans in all countries, while subsidies, cash transfers and grants were also a major request.

The ADB research underlined the importance for policymakers to continue assisting the MSMEs and providing differentiated policy measures by firm size. It also urged assistance for work from home schemes and for MSMEs’ business shift to digital.

Governments are also asked to remain focused on their efforts in both business and employment retention and to continue monitoring MSMEs’ business conditions to find more ways to rescue them. CURRENTPH

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