IMF Warns Small- and Mid-Sized Business Bankruptcies will Increase

The International Monetary Fund warned that the rate of bankruptcy for small- and medium-sized businesses may triple this year in the absence of sufficient government support, threatening to stall the economic recovery and cause financial instability.

A staff analysis of 17 countries suggests that bankruptcies for the firms could surge to 12%, from 4% before the pandemic, the IMF said in a report on Thursday. Italy would see the biggest increase due to a large drop in aggregate demand and high share of production in contact-intensive industries. Across the Group of 20, relief from taxes and social security contributions, grants and interest rate subsidies have been an important salve, the IMF said.

Bankruptcy rates in the services sector in the average country may climb by more than 20 percentage points in administration services, arts, entertainment and recreation, and education. Essential activities like agriculture, water and waste, may experience only small growth in bankruptcy rates, the IMF said.

More than one third of small businesses in Canada, South Korea, the U.K. and U.S. worry about viability or expect to close permanently within the next year, according to the Washington-based fund. While the fiscal costs of support for firms are substantial and rising debt levels are a serious concern, the costs of premature withdrawal are greater than the cost of continued support where needed, Managing Director Kristalina Georgieva said in a related blog post.