Global Corporate Stress Tests—Impact of the COVID-19 Pandemic and Policy Responses PDF Download
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Author: Mr. Thierry Tressel
Publisher: International Monetary Fund
ISBN: 1513590820
Category : Business & Economics
Languages : en
Pages : 54
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Book Description
Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.
Author: Mr. Thierry Tressel
Publisher: International Monetary Fund
ISBN: 1513590820
Category : Business & Economics
Languages : en
Pages : 54
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Book Description
Corporate sector vulnerabilities have been a central policy topic since the outset of the COVID-19 pandemic. In this paper, we analyze some 17,000 publicly listed firms in a sample of 24 countries, and assess their ability to withstand shocks induced by the pandemic to their liquidity, viability and solvency. For this purpose, we develop novel multi-factor sensitivity analysis and dynamic scenario-based stress test techniques to assess the impact of shocks on firm’s ability to service their debt, and on their liquidity and solvency positions. Applying the October 2020 WEO baseline and adverse scenarios, we find that a large share of publicly-listed firms become vulnerable as a result of the pandemic shock and additional borrowing needs to overcome cash shortfalls are large, while firm behavioral responses and policies substantially help overcome the impact of the shock in the near term. Looking forward, while interest coverage ratios tend to improve over time after the initial shock as earnings recover in line with projected macroeconomic conditions, liquidity needs remain substantial in many firms across countries and across industries, while insolvencies rise over time in specific industries. To inform policy debates, we offer an approach to a triage between viable and unviable firms, and find that the needs for liquidity support of viable firms remain important beyond 2020, and that medium-term debt restructuring needs and liquidations of firms may be substantial in the medium-term.
Author: Mr.Christian H Ebeke
Publisher: International Monetary Fund
ISBN: 1513570919
Category : Business & Economics
Languages : en
Pages : 48
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Book Description
The spread of COVID-19, containment measures, and general uncertainty led to a sharp reduction in activity in the first half of 2020. Europe was hit particularly hard—the economic contraction in 2020 is estimated to have been among the largest in the world—with potentially severe repercussions on its nonfinancial corporations. A wave of corporate bankruptcies would generate mass unemployment, and a loss of productive capacity and firm-specific human capital. With many SMEs in Europe relying primarily on the banking sector for external finance, stress in the corporate sector could easily translate into pressures in the banking system (Aiyar et al., forthcoming).
Author: Carmody, Pádraig
Publisher: Policy Press
ISBN: 1529215889
Category : Social Science
Languages : en
Pages : 199
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Book Description
Available Open Access under CC-BY-NC-ND licence. Bringing together a range of experts across various sectors, this important volume explores some of the key issues that have arisen in the Global South with the COVID-19 pandemic. Situating the worldwide health crisis within broader processes of globalisation, the book investigates implications for development and gender, as well as the effects on migration, climate change and economic inequality. Contributors consider how widespread and long-lasting responses to the pandemic should be, while paying particular attention to the accentuated risks faced by vulnerable populations. Providing answers that will be essential to development practitioners and policy makers, the book offers vital insights into how the impact of COVID-19 can be mitigated in some of the most challenging socio-economic contexts worldwide.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN: 1498324029
Category : Business & Economics
Languages : en
Pages : 109
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Book Description
The October 2019 Global Financial Stability Report (GFSR) identifies the current key vulnerabilities in the global financial system as the rise in corporate debt burdens, increasing holdings of riskier and more illiquid assets by institutional investors, and growing reliance on external borrowing by emerging and frontier market economies. The report proposes that policymakers mitigate these risks through stricter supervisory and macroprudential oversight of firms, strengthened oversight and disclosure for institutional investors, and the implementation of prudent sovereign debt management practices and frameworks for emerging and frontier market economies.
Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1513569678
Category : Business & Economics
Languages : en
Pages : 92
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Book Description
Extraordinary policy measures have eased financial conditions and supported the economy, helping to contain financial stability risks. Chapter 1 warns that there is a pressing need to act to avoid a legacy of vulnerabilities while avoiding a broad tightening of financial conditions. Actions taken during the pandemic may have unintended consequences such as stretched valuations and rising financial vulnerabilities. The recovery is also expected to be asynchronous and divergent between advanced and emerging market economies. Given large external financing needs, several emerging markets face challenges, especially if a persistent rise in US rates brings about a repricing of risk and tighter financial conditions. The corporate sector in many countries is emerging from the pandemic overindebted, with notable differences depending on firm size and sector. Concerns about the credit quality of hard-hit borrowers and profitability are likely to weigh on the risk appetite of banks. Chapter 2 studies leverage in the nonfinancial private sector before and during the COVID-19 crisis, pointing out that policymakers face a trade-off between boosting growth in the short term by facilitating an easing of financial conditions and containing future downside risks. This trade-off may be amplified by the existing high and rapidly building leverage, increasing downside risks to future growth. The appropriate timing for deployment of macroprudential tools should be country-specific, depending on the pace of recovery, vulnerabilities, and policy tools available. Chapter 3 turns to the impact of the COVID-19 crisis on the commercial real estate sector. While there is little evidence of large price misalignments at the onset of the pandemic, signs of overvaluation have now emerged in some economies. Misalignments in commercial real estate prices, especially if they interact with other vulnerabilities, increase downside risks to future growth due to the possibility of sharp price corrections.
Author: Office for Budget Responsibility
Publisher: The Stationery Office
ISBN: 9780101797924
Category : Business & Economics
Languages : en
Pages : 164
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Book Description
The Office for Budget Responsibility was established to provide independent and authoritative analysis of the UK's public finances. Part of this role includes producing the official economic and fiscal forecasts. This report sets out forecasts for the period to 2015-16. The report also assesses whether the Government is on course to meet the medium-term fiscal objectives and presents preliminary observations on the long-run sustainability of the public finances. Since the June forecast, the UK economy has recovered more strongly than initially expected. The GDP growth was greater than expected in both the 2nd and 3rd quarters, but that unemployment levels have risen to levels that the June forecast did not anticipate until the middle of 2012. In general the world economy has also grown more strongly. CPI inflation has remained slightly higher than expected in June, whilst public finances have performed as forecast. The interest rates on UK debt are lower than in June. The OBR forecasts that the economy will continue to recover from the recession, but at a slower pace than the recoveries of the 1970s, 1980s and 1990s. The publication is divided into 5 chapters with two annexes.
Author: Lucyna Gornicka
Publisher: International Monetary Fund
ISBN: 1589065875
Category : Business & Economics
Languages : en
Pages : 31
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Book Description
To assess the resilience of India’s corporate sector against COVID-19-related shocks, we conducted a series of stress tests using firm-level corporate balance sheet data. The results reveal a differential impact across sectors, with the most severe impact on contact-intensive services, construction, and manufacturing sectors, and micro, small, and medium enterprises. On policy impact, the results highlight that temporary policy measures have been particularly effective in supporting firm liquidity, but the impact on solvency is less pronounced. On financial sector balance sheets, we found that public sector banks are more vulnerable to stress in the corporate sector, partly due to their weaker starting capital positions. When considering forward-looking multiperiod growth scenarios, we find that the overall corporate performance will depend on the speed of recovery. A slower pace of recovery could lead to persistently high levels of debt at risk, especially in some services and industrial sectors.
Author: International Monetary Fund. Secretary's Department
Publisher: International Monetary Fund
ISBN: 1513568817
Category : Business & Economics
Languages : en
Pages : 74
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Book Description
A recovery is underway, but the economic fallout from the global pandemic could be with us for years to come. With the crisis exacerbating prepandemic vulnerabilities, country prospects are diverging. Nearly half of emerging market and developing economies and some middle-income countries are now at risk of falling further behind, undoing much of the progress made toward achieving the UN Sustainable Development Goals.
Author: Torsten Wezel
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
Using a newly-compiled dataset of state-owned enterprises in Sub-Saharan Africa, we present aggregate information about profitability, liquidity and leverage. We find that 40 percent of the close to 300 surveyed SOEs are unprofitable, while larger firms also tend to be illiquid and overleveraged. In cross-sectional regressions we find that SOE debt stock sustainability is impacted by firms’ profitability and liquidity, while macroeconomic factors cannot be shown to matter, expect for some governance variables. Based on these findings and citing country examples, we also illustrate that weak SOE performance may have a macrofinancial impact affecting bank soundness through delinquent loan exposures.
Author: International Monetary Fund. Monetary and Capital Markets Department
Publisher: International Monetary Fund
ISBN:
Category : Business & Economics
Languages : en
Pages : 119
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Book Description
The FSAP took place against the background of a strengthened financial sector in Iceland amid heightened uncertainty in the global economy. The Icelandic financial landscape has undergone significant structural transformation since the global financial crisis with a contracted banking sector. The banking sector has deleveraged swiftly and curtailed cross-border exposure since the GFC with asset reduced from ten times of GDP to 410 percent of GDP from 2007 to 2022Q3, while pension funds have gained systemic importance with assets at 176 percent of GDP2 as of end-2022 with large holdings of public debt and close ties with the banking system. The financial system has also weathered the global pandemic on the back of strong fundamentals, while leaving uneven sectoral impact across the economy. Nonetheless, the intensified fragmentation of the global economy coupled with continued tightening of financial condition and volatile market sentiment has amplified the downside risks which may prompt knock-on effects on the Icelandic economy and financial sector going forward.
