Financing Firms in Hibernation During the COVID-19 Pandemic
The coronavirus (COVID-19) pandemic has imposed a heavy toll on economies worldwide, nearly halting economic activity. Although most firms should be viable when economic activity resumes, cash flows have collapsed, possibly triggering inefficient b...
| Main Authors: | , , , |
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| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/228811586799856319/Financing-Firms-in-Hibernation-During-the-COVID-19-Pandemic http://hdl.handle.net/10986/33611 |
| Summary: | The coronavirus (COVID-19) pandemic has
imposed a heavy toll on economies worldwide, nearly halting
economic activity. Although most firms should be viable when
economic activity resumes, cash flows have collapsed,
possibly triggering inefficient bankruptcies with long-term
detrimental effects. Firms' valuable relationships with
workers, suppliers, customers, governments, and creditors
could be broken. Hibernation could slow the economy until
the pandemic is brought under control and preserve those
vital relationships for a quicker recovery. If all
stakeholdersshare the burden of economic inactivity, firms
are more likely to survive. Financing could help cover
firms' reduced operational costs until the pandemic
subdues. But financial systems are not well equipped to
handle this type of exogenous and synchronized systemic
shock. Governments could work with the financial sector to
keep firms afloat, enabling forbearance as needed and
absorbing part of the firms' increased credit risk, by
implementing policies with proper incentives to keep firms viable. |
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