As the prolonged pandemic-induced quarantine and recession continued to hurt small businesses, they should receive targeted assistance instead of loans from government financial institutions, Tokyo-based think tank Asian Development Bank Institute (ADBI) said.
“Given the different abilities of MSMEs (micro, small and medium enterprises) for coping with the pandemic and quarantine measures, the government should pay more attention to implementing policy measures that are differentiated by firm size, type, location, and sector and devising an optimal approach that neither impedes national revenue nor increases the budgetary burden post-COVID-19,” said Shigehiro Shinozaki, senior economist at the Manila-based Asian Development Bank’s (ADB) economic research and regional cooperation department.
In a blog posted by ADBI on Friday, Shinozaki said “instead of subsidies, having more public-private sector coordination and a market-based approach would be worthy of consideration for business support programs.”
For example, he said, the government could consider putting up a business restructuring fund to be backed by a special tax on firms or groups that benefited from the lockdown. The fund, he added, could be used to rescue contracting firms that were hurt badly.
At the height of the most stringent enhanced community quarantine from mid-March to May last year, the government gave away small businesses wage subsidy (SBWS) to cover salaries of affected MSME workers.
Loans not the answer
The government also offered loans through the COVID-19 Assistance to Restart Enterprises as well as injected additional capital into state-run lenders Development Bank of the Philippines and Land Bank of the Philippines under the Bayanihan to Recover as One Act or Bayanihan 2 law for MSME lending. But Trade Secretary Ramon Lopez last week said MSMEs had been shying away from borrowing due to fears they might be unable to pay them back.
Also, Shinozaki said “the deterioration of banks’ balance sheets is another concern.”
“Instead of capital injections to banks, the government could encourage banks to strengthen their self-funding such as through the issuance of asset-backed securities based on MSME loan assets,” Shinozaki said.
As more small businesses move online to offer their goods and services, “assistance for MSMEs to adapt to digital platforms is also a policy priority as traditional business models require physical and personal contact,” he added.
“Digital transformation is an inevitable action for MSMEs to survive given the potential third and fourth waves of the pandemic,” Shinozaki said.
A World Bank survey last year showed 52 percent of Philippine businesses used for the first time or increased usage of digital platforms; 23 percent jacked up digital sales, and 20 percent ventured into new digital investments amid the COVID-19 pandemic.
Sharp drops in demand
Two rounds of surveys conducted by the ADB among domestic MSMEs last year showed that while the Philippine government had acted quickly to address the health and socioeconomic crises inflicted by the COVID-19 pandemic, “the devastated business environment had yet to recover, with continued sharp drops in demand and revenue,” Shinozaki said.
The Philippine economy shrank by 9.6 percent in 2020, its worst post-war recession.
By the time the government gradually reopened the economy in August to September last year, he said “employment conditions were mixed by firm size, but MSMEs started preparing for a new business environment under the new normal and began to adopt work-from-home arrangements.”
“However, the working capital shortage in three to six months had risen at the time of the [August to September] survey. This elevated the demand from MSMEs for further financial assistance from the government, especially for addressing loan repayments and tax payments,” Shinozaki said.
A World Bank report titled “Productivity in the Time of COVID-19: Evidence from East Asia and Pacific” cited a survey of Philippine firms in July 2020 that showed that, just like across the region, smaller firms had posted the largest drop in sales—58 percent among microenterprises and 60 percent among SMEs, compared to the 51-percent posted by large corporations at the height of the lockdown. INQ