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© 2022 International Monetary Fund
WP/22/71
IMF Working Paper
Middle East and Central Asia
Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of the COVID-19 Pandemic
Prepared by Nordine Abidi and Mohamed Belkhir*
Authorized for distribution by S.Pelin Berkmen
April 2022
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.
ABSTRACT: 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.
RECOMMENDED CITATION: Abidi, N. and M. Belkhir (2022), Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of the COVID-19 Pandemic, IMF Working Paper WP/22/71, Washington DC: International Monetary Fund.
| JEL Classification Numbers: | G01,G3,G17, E65 |
| Keywords: | MENAP, COVID-19 crisis, non-financial corporate vulnerabilities, stress tests, “zombification”, policy support. |
| Author’s E-Mail Address: | NAbidi@imf.org: MBelkhir@imf.org |
| JEL Classification Numbers: | G01,G3,G17, E65 |
| Keywords: | MENAP, COVID-19 crisis, non-financial corporate vulnerabilities, stress tests, “zombification”, policy support. |
| Author’s E-Mail Address: | NAbidi@imf.org: MBelkhir@imf.org |
Title Page
WORKING PAPERS
Corporate Vulnerabilities in the Middle East, North Africa, and Pakistan in the Wake of the Covid-19 Pandemic1
Prepared by Nordine Abidi and Mohamed Belkhir
Contents
I. Introduction
II. Data and Sample
III. Empirical Strategy and Projections
IV. Results of Scenario-based NFC Stress Tests
V. Triage of Firms
VI. Conclusions and Policy Recommendations
References
The authors are thankful to Pelin Berkmen and Cesar Serra for their guidance and comments during the preparation of this work. The authors would also like to thank Thierry Tressel and Xiaodan Ding of the Monetary and Capital Markets Department and Sahra Sakha of the Middle East and Central Asia Department of the International Monetary Fund for their valuable and insightful comments. The views expressed in this paper are solely the responsibility of the authors.