HONG KONG -- Asia must focus on sustaining small businesses to support economic recovery from the coronavirus pandemic, according to a top World Bank Group official for the region.
"This is a crisis we have never seen before," Vivek Pathak, director for East Asia and the Pacific at the International Finance Corp., the bank's private-sector finance arm, told the Nikkei Asian Review in an interview Monday.
"There is no playbook and people are still learning how to respond," he said. "The focus is on keeping the SMEs (small and medium-sized enterprises) afloat as they are big employment generators. They are the backbone of most economies in the region."
The IFC has provided more than $1 billion in coronavirus-related funding so far this year to support SMEs and farmers in the region. This includes $554 million of financing for companies in the manufacturing, agriculture and services sectors in the fiscal year ended June 30 and $492 million for trade finance lines, banks, microfinance companies and tourism and health care companies. More help will be forthcoming in the current year, Pathak said.
In June, the World Bank updated its economic forecast for Pathak's region, forecasting overall growth of 0.5% for the year, the slowest rate of expansion since 1967. The bank cited the impact of lockdowns, falling commodity prices and tightened global financial conditions, warning that most regional economies other than China would contract with the risk that the impact would be magnified by an extended outbreak.
The organization focused on SMEs in Asia as most of the billions of dollars in government COVID stimulus programs were not reaching them and commercial banks were reluctant to extend more credit in fear of heightened loan losses.
Vietnamese property company Phu My Hung Development was one of the companies that received IFC backing to extend financial relief to clients, suppliers and contractors.
The IFC also made an $175 million investment in Sri Lankan conglomerate John Keells Holdings to support the growth of its supermarket operations and the expansion and refurbishment of its hotels there and in the Maldives.
In that country, the IFC supported the Bank of Maldives, a commercial lender, in providing liquidity to the hard-hit tourism sector as well as other SMEs. Some $270 million was provided to six banks in Sri Lanka, Vietnam, Cambodia and Bangladesh to support 17,500 small businesses through the IFC's working capital solutions program, Pathak said.
He said that the IFC is also working with authorities around Asia to improve regulatory systems for rehabilitating financially troubled small businesses. Generally, the region's insolvency regimes are geared around large companies.
In the new fiscal year, the IFC is working to revive product markets in Asia and to remove barriers to private sector activity. Staffers are working with tourism organizations to boost domestic travel to offset some of the losses from the lack of international visitors. It is also working with governments and companies to mitigate the impact from disruptions in supply chains, Pathak said.
"Initially, governments were just interested in, 'How do we get liquidity out there and support the economy?'" he said. "The question really was, 'How do we keep things afloat really now?' Once we see the bottom, we can look at more stimulus measures."