A new study by the Center for Global Development (CGD) and the Inter-American Development Bank (IDB) finds that many companies in the Caribbean survived the pandemic by slashing investment. However, this decline now threatens to constrain the region's economic recovery.
To reverse the situation and prevent it from leading to a type of "economic long COVID," where a weak private sector fails to create jobs and stimulate economic growth, governments in the region are being encouraged to actively pursue a series of policies to help companies boost investment and hire new employees.
These are among the key findings of the new report which examined the balance sheets from a large number of companies across the region and discovered that, despite an economic recovery in 2020 and 2021, capital levels at companies are still 20 per cent lower than they were before the pandemic began.
"While it is good news that relatively few larger firms failed, the drop in their productive capital implies significant scarring and threatens the region's economic growth," said Andrew Powell, principal advisor of the Research Department at the IDB.
"Rebuilding capital is essential for firms after the pandemic. But with global and local interest rates rising and major uncertainties in international capital markets, it's clear that firms will find it a challenge to obtain the necessary financing for investment," director of the Latin America Initiative and senior fellow at the CGD Liliana Rojas-Suarez added.
The study was written as the result of discussions of an expert group of top economists and lawyers drawn from the region.
The study sampled balance sheet data from larger businesses across the region and found that investment fell sharply while debt levels remained high, especially in sectors hit the hardest by the novel coronavirus pandemic. In addition, the demand for formal workers diminished and informal employment rose steeply during the recovery.
SOURCE: https://www.jamaicaobserver.com/business/caribbean-firms-need-help-idb/
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