Reviving and Restructuring the Corporate Sector Post-Covid published by Group of Thirty (12/2020)
“The coronavirus pandemic, by dramatically changing consumption patterns and business operations, is triggering a major corporate solvency crisis in many countries. Apart from policies directly supporting employment, initial policy responses to support businesses focused heavily on liquidity issues. Some liquidity support is still needed, but the crucial issue now is solvency.
Policymakers need to act urgently, as the solvency crisis is already eroding the underlying strength of the business sector in many countries. The problem is worse than it appears on the surface, as massive liquidity support, and the confusion caused by the unprecedented nature of this crisis, are masking the full extent of the problem, with a “cliff edge” of insolvencies coming in many sectors and jurisdictions as support programs lose funding and existing net worth is eaten up by losses. However, the difficulty of predicting the duration and recovery path after the pandemic, and of differentiating between structural versus temporary changes in demand, makes it hard to determine the long-term viability of enterprises during the pandemic. This complicates the targeting and design of measures to support the corporate sector.
This solvency crisis differs sharply from the global financial crisis, which centered on the financial system and on liquidity problems. Some of the answers from that previous crisis are valid now, but new approaches are also needed…”
