Press release
Minister Donohoe welcomes publication of ESRI paper on ‘SME Financial Distress and the Macroeconomic Recovery’
Published on
Last updated on
Published on
Last updated on
The Economic and Social Research Institute (ESRI) today published a working paper, co-authored by officials from the Department of Finance, entitled “SME Financial Distress and the Macroeconomic Recovery.”
The paper uses a model-based approach with application of data from the Department of Finance’s Credit Demand Survey, to assess the impact of the pandemic on firm survival and levels of financial distress over the medium-term.
One of the paper’s key findings is that in the absence of the extensive government support provided to SMEs throughout the pandemic, the distress rate of firms would have been 72 per cent higher. Moreover, by 2024 and without such support the distress rate is estimated to be around 20 per cent higher relative to the baseline. Overall, the paper estimates that the share of firms making losses throughout 2020 and 2021 could have been around one-third higher if supports were not available, showing the hugely positive impact of measures introduced by Government throughout the pandemic in supporting SMEs.
Commenting on the release, Minister for Finance, Paschal Donohoe T.D. said:
“I welcome today’s publication which highlights how this vital sector of our economy has been impacted by the pandemic. The working paper is also evidence of the continuing engagement between my Department and the ESRI as part of the Joint Research Programme on Macro-economy, Taxation and Banking.
The paper shows how the public sector balance sheet has been deployed to great effect in replacing lost income in the private sector and in minimising the long-term damage – or ‘scarring’ – caused by the pandemic. So far, the Government has spent over €9.8 billion on the two main business supports – the Employment Wage Subsidy Scheme (and it’s predecessor the Temporary Wage Subsidy Scheme) and the Covid Restrictions Support Scheme. Including funds allocated in Budget 2022, the total level of budgetary support made available between 2020 and 2022 to mitigate the impact of the pandemic stands at approximately €48 billion. A combination of direct public expenditure, taxation changes and ‘below the line’ measures, this represents an extraordinary and unprecedented level of budgetary support into the real economy.
As the paper highlights, without these supports the situation with SMEs — the backbone of our economy — would be much worse, not only at the present time but also into the future. But the paper also shows that not all firms will survive, some companies will not be able to adapt to the many social and economic changes that the pandemic has brought. The Government will need to ensure that future supports are tailored to liquidity constrained but solvent and viable firms.
We have a strong, dynamic and open economy. If we continue to make the right choices around investment, taxation and budgetary policy we can ensure that the economy as a whole returns better than ever when finally the pandemic recedes.”
ENDS