Systemic shocks call for better credit access, targeted support

PHILIPPINE COMPANIES need targeted liquidity support, wage subsidies and better credit access to cushion the negative impacts of global shocks such as the coronavirus pandemic, a study showed, with some firms yet to fully recover years after the crisis.

A discussion paper by researchers from the Bangko Sentral ng Pilipinas (BSP) Research academy and the Philippine Institute for Development Studies (PIDS) showed that the pandemic affected companies in varying degrees, highlighting the need for tailored support and recovery strategies during systemic crises.

“In the Philippine corporate sector, resilience manifested in large firms’ ample short‑term liquidity, relatively stable asset levels, and the resumption of revenue generation even after prolonged periods of mandatory closures and operational restrictions,” the researchers said.

“However, our empirical results also indicate that the recovery in revenues did not translate into a full recovery in profitability or employment.”

Based on the paper, financially constrained businesses were more vulnerable to shocks across both real and financial metrics.

“Liquid asset buffers played a positive role in supporting firm resilience, especially among unconstrained firms in both tradable and nontradable sectors,” the researchers said.

They also noted that several businesses in the country failed to generate ample profit to allow them to rehire or employ new workers despite resuming operations.

According to the study, businesses that were forced to close during the pandemic-driven lockdowns lost about 65% of their annual earnings, or about 5.4% monthly.

“For liquidity‑constrained firms, the decline is larger in magnitude, suggesting that the lack of liquidity impairs a firm’s ability to cope with the crisis and withstand business closures,” the researchers added.

These show the need for more precise liquidity and wage support or conditional grants for the hardest-hit sectors, instead of “blanket interventions” that tend to benefit less-affected firms, they said.

Financially constrained companies also need better credit access to address their liquidity gaps and similar vulnerabilities, they added.

“Given the heightened vulnerability of these firms, liquidity support may be enhanced through temporary and targeted loan moratoria and tax relief, reductions in policy interest rates and reserve requirements, the creation of emergency lending facilities, and the expansion of collateral frameworks to improve access to financing,” they said. “Broader access to working capital and supplier finance can also bridge liquidity gaps during future downturns.”

Affected sectors must likewise invest in training and reskilling initiatives as well as digitalization incentives, such as grants and tax credits, to create safety nets for their workers, the researchers said, as these crises’ impact on employment are usually sector-specific.

“Policies that facilitate productivity-enhancing reallocation can help firms pivot and respond quickly to future pandemic-like crises.” — Katherine K. Chan