The International Monetary Fund (IMF) has admonished the Nigerian government and other countries to shut down companies that do not have the capacity to survive the debt they piled up owing to the COVID-19 outbreak.
According to IMF, the government’s financial support should be more focused as central banks across the globe start to withdraw their fiscal support meant to cushion the adverse effect of COVID-19 on business operations.
In a recent statement, the Global Creditor said debt owed by Corporate organisations all over the world increased to $83 trillion in 2020 which recorded an increase of $8.9 trillion increase in the same year.
The $83 trillion corporate debt makes up 98% of the world’s gross domestic product at the end of 2020, COVID-19 breakout year and it was discovered that China and other advanced economies held 90 percent of the $8.9 trillion increase.
These debt servicing costs are set to grow as Central Banks plan to raise rates to tackle inflation – a move that could expose the vulnerabilities of the corporations.
In a statement, the IMF advised that financial support should be made available for companies that can survive and prepare to restructure to reduce the impact of corporate debt on economic recovery.
The statement read: “Corporate vulnerabilities will be exposed as governments scale back the fiscal support that they extended to stricken firms at the height of the crisis.
“Governments face difficult decisions as they manage these risks to the economic recovery. They may need to continue providing financial support to firms that can recover (but cannot raise the private financing to do so) while withdrawing support from firms that are so badly scarred that they should be restructured or liquidated.”
