How governments are helping small businesses through COVID-19

A number of small and medium sized business have closed down permanently since the pandemic and the resulting lockdowns.
These businesses account for two-thirds of private sector employment in the United States and the European Union.
From financial aid to tax relief, governments have taken a variety of measures to help small businesses weather the pandemic, says the IMF.

The economic downturn caused by the pandemic has taken a painful toll on small businesses. Scores of retail businesses have permanently closed in cities around the world since the Great Lockdown in the spring of 2020.

Small and medium enterprises have an out-sized impact on local economies. They account for half to two-thirds of private sector employment in the United States and the European Union, respectively, and contribute close to 40 percent of national income in emerging economies.

But small companies face greater constraints in accessing finance than larger firms, especially during economic crises. So governments have taken a variety of measures to help small businesses weather the pandemic. Without such support, the failure rate of small businesses could increase by as much as 9 percentage points.

Our chart of the week, based on the IMF’s Financial Access COVID-19 Policy Tracker, reveals the most common government support measures used by 130 countries to help cash-strapped small businesses. The data show that overall, financial assistance such as grants was the most used policy measure (adopted by 77 percent of countries), followed by public guarantees on loans (50 percent), delays in loan repayments (30 percent), tax relief (28 percent), and lower interest rates (24 percent).

The pattern of these policy responses, however, varies across different income groups. Many high- and middle-income countries adopted multiple measures, averaging 2.5 and 1.9 measures, respectively. About 80 percent of these economies implemented financial assistance, while other measures account for a smaller share, ranging from 20 to 60 percent. Bolivia, Botswana, and India are among the several middle-income countries that adopted both financial assistance and loan guarantees, for example.

On the other hand, no low-income country in the policy tracker adopted more than two measures. Financial assistance and tax relief were the most used measures, adopted by 75 percent and 33 percent of low-income countries, respectively, including Mali, Rwanda, and Uganda.

As the pandemic continues, monitoring policy measures to support people and small businesses affected by the pandemic will be critical as countries prepare for the recovery. The policy tracker can help policymakers identify effective policies, share experiences, and learn from each other.