Coronavirus changes business support policy

The amount of business support has multiplied during the ongoing COVID-19 pandemic and, at the same time, the policy objectives for business support have completely changed from those applicable in normal times, said the Ministry of Economic Affairs and Employment in a report.

At the beginning of the crisis, the main aim was to help companies with liquidity problems avoid bankruptcy. In the longer term, financial business support should be directed to the development of business activities, said the ministry in a press release on Tuesday.

The report drawn up by the Research Division on Business Subsidies focuses on the COVID-19 financial support for businesses.

The report does not include a detailed assessment of the COVID-19 support, but provides guiding principles for future evaluation by the Research Division.

In the report, the COVID-19 pandemic is divided into three stages and the focus is on the impact on the economy and businesses. These stages are the partial closure of the economy, the recovery phase and the return to normal conditions.

In the early phase of the COVID-19 crisis, the economy partially closed down, strict restrictive measures quickly weakened companies’ liquidity but uncertainties about the depth and duration of the crisis restricted companies’ willingness and possibilities for borrowing.

This also reduced the effectiveness of guarantees and loans as forms of business support. This speaks in favour of using direct financial support for businesses.

In the recovery phase, the role of business support will decrease as the economy returns towards normal conditions. Once companies and their financiers are able to anticipate the future and business risks again, the importance of guarantees and loans as forms of support will increase substantially and the importance of direct support diminish.

The report also compares the COVID-19 crisis with the two previous recession periods which began with the 1990s economic depression and 2008 financial crisis. The findings are very preliminary, as the coronavirus pandemic is still ongoing.