Outstanding loans to small and medium-sized businesses in 48 countries surveyed by the Organization for Economic Co-operation and Development rose sharply in 2020 – the first year of the Covid-19 pandemic – a report shows.
The outstanding loan is the debt SMEs owe to creditors or financial institutions.
The average stock of SME loans rose 4.9 percent in 2020, the highest annual increase since the OECD began collecting the numbers some 10 years ago, the Paris-based agency said in its latest report report.
Outstanding loans have grown at a compound annual rate of 1.2 percent over the period 2015-2019.
Underpinning the 2020 surge was an increase in government-led loan guarantees, which rose 110 percent annually that year, debt moratoria and direct lending to SMEs, which rose 17 percent annually, the report said.
The latest OECD report provides insights into SME financing trends and policies for 48 countries, including OECD member countries, for the period 2007 to the first half of last year.
“Support measures and favorable credit conditions have led to higher levels of debt for many SMEs, which must be addressed in the future,” said OECD Secretary-General Mathias Cormann.
Emergency measures – including monetary policy intervention by central banks – also pushed interest rates to record lows, with the median SME interest rate falling 0.4 percentage point in 2020, the sharpest fall since 2009.
In most of the economies covered by the report, unprecedented support measures also helped avoid a wave of bankruptcies.
“The majority of support measures were broad in scope and accessible to all SMEs… this allowed most companies to continue operating… insolvencies fell in most countries in 2020, with the median insolvency rate falling by 11.7 per cent,” said the OECD.
Alternative sources of finance used by SMEs before the crisis declined in 2020. For example, the decline in both leasing and factoring has been “unprecedented” during the pandemic.
“The decline in leasing represented a reversal of the positive pre-crisis trend, while the decline in factoring compounded the pre-crisis slowdown in this activity,” the report said.
“SMEs need better access to alternative financing instruments to reduce their reliance on debt and provide greater flexibility and resilience in these volatile economic times,” Cormann said.
The pandemic, which turned the global economy on its head and crippled many small businesses, led to widespread lockdowns and supply chain disruptions affecting SMEs worldwide.
The global economy contracted 3.5 percent in 2020 as movement restrictions squeezed demand and introduced disruptions in value chains. It hit developed and developing countries alike, with almost all economies reporting negative growth, the report said.
Although the global economy recovered to 5.6 percent last year, the recovery differs significantly across countries and is expected to continue to diverge, said the OECD, which has 38 members.
“Most developed and emerging economies have already reached pre-crisis real GDP [gross domestic product] Per capita levels, while other developing countries are projected to reach that level by 2022,” the report said.
SMEs make an important contribution to the labor market and have the potential to play a key role in driving the green transition and ensuring energy security. According to the report, they need access to a wider range of financial tools and tools to build resilience.
“SMEs account for the bulk of employment and output in the OECD economies. They must thrive if we are to ensure a strong, sustainable and resilient recovery.”
Russia’s military offensive against Ukraine will also affect the economic outlook.
While the main consequences were the loss of life and the humanitarian crisis related to the large number of people besieged and displaced, there are “significant economic impacts”, according to the OECD report.
The economic impact of the conflict is highly uncertain, but as of this month it is estimated that it could reduce global growth forecasts by 1 percent in the first full year after the conflict began, while global inflation could rise by almost 2.5 percentage points.
Before the war broke out, most major global macroeconomic variables were expected to normalize over the course of this year and next.
Global growth was on track to return to pre-pandemic rates in 2023, with most OECD countries reaching full employment, inflation converging at levels close to policy targets, and monetary and fiscal conditions normalizing.
However, this has changed with the recent conflict between Russia and Ukraine. Although relatively small in terms of output, the two countries are large producers and exporters of essential foods, minerals and energy, the report added.
Updated March 30, 2022 at 4:30 am