Last week, the Economic and Social Research Institute (“ESRI”) announced the publication of “SME Financial Distress and the Macroeconomic Recovery”, a working paper co-authored by officials from the Department of Finance.
The paper examines the unprecedented impact of the COVID-19 pandemic on the world economy with a particular focus on the effect of the pandemic on SMEs, identifying the key factors threatening their survival. Notably, the paper is written based on data collected on firms experience during the pandemic rather than data sources dating pre-pandemic.
Minister for Finance Paschal Donohoe welcomed the paper, stating “[the] publication … highlights how this vital sector of our economy has been impacted by the pandemic”.
The paper suggests that circa 58 percent of firms which were loss-making in the pre-pandemic period are at a high risk of financial distress by 2024 versus a 12 percent risk for firms that were profit-making when the pandemic hit. Similarly, the likelihood of severe distress increases systematically where there were pre-existing debt burdens. The paper goes on to suggest that in the absence of COVID-related supports, the share of loss-making firms throughout the pandemic period may have been 72 percent higher. A key finding of the paper suggests that although the impact of the pandemic on revenues was broad based, the risk of severe financial problems post-pandemic is intimately linked with pre-pandemic loss-making and indebtedness of companies.
Read more about the publication of the working paper here.
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