Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic

April 29, 2022

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Nordine Abidi, and Mohamed Belkhir. Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of COVID-19 Pandemic, (USA: International Monetary Fund, 2022) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper analyzes corporate vulnerabilities in the Middle East, North Africa and Pakistan (MENAP hereafter) in the wake of the COVID-19 pandemic shock. Using a sample of nearly 700 firms from eleven countries in MENAP, we assess the non-financial corporate (NFC) sector’s liquidity and solvency risk and viability over the medium term under different stress test scenarios. Our findings suggest that the health crisis has exacerbated vulnerabilities in the corporate sector, though the effects are heterogenous across the region. Small firms, which entered the pandemic in a more vulnerable position, would remain under high liquidity stress over the medium term, putting a substantial share of these firms’ debt at risk of default. Similarly, liquidity needs of firms in contact-intensive sectors have also worsened and would remain elevated in 2022-23. We also show that an adverse scenario of subdued growth and premature withdrawal of policy support would impair the capacity to service interest expenses, especially among small firms, resulting in higher insolvency risk. Overall, our results indicate that some segments of the MENAP corporate sector could remain reliant on policy support during the recovery phase and that structural reforms are critical to save distressed but viable firms from bankruptcy and ensure an efficient liquidation of “zombie” firms.

Subject: Asset and liability management, Corporate sector, COVID-19, Economic sectors, Financial sector policy and analysis, Health, Liquidity, Solvency, Stress testing

Keywords: “zombification”, Corporate sector, COVID-19, COVID-19 crisis, Global, Liquidity, Liquidity needs, MENAP, Middle East, Middle East and Central Asia, NFC stress tests, Non-financial corporate, Non-financial corporate vulnerabilities, North Africa, Policy support., Solvency, Solvency risk, Stress testing, Stress tests, Vulnerabilities in the Middle East

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/071
Stock No:

WPIEA2022071
ISBN:

9798400204982
ISSN:

1018-5941

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