Initial COVID business aid allocation could have been improved

Coronavirus business support helped companies survive the pandemic but initial allocation of aid could have been improved, according to an assessment report published on Tuesday, said the Ministry of Economic Affairs and Employment in a press release.

The report ‘Assessment of Support Policy during the Coronavirus Pandemic,’ published by the Research Institute of the Finnish Economy (Etla) for the Ministry for Economic Affairs and Employment.

Business cost support granted during the coronavirus crisis increased companies’ turnover, turned them profitable and lowered the risk of debt restructuring, said the report.

Due to the support for business costs, some of the loss-making companies became profitable during the coronavirus epidemic.

However, the new rounds of support have slowed down a beneficial structural change of the economy.

In future, more attention should be paid to the support measure deadlines, their discretionary nature and better targeting.

The support measures taken in Finland as a result of the coronavirus pandemic have been relatively effective and well-suited.

Business cost support has increased companies’ turnover, turned some companies profitable and reduced their risk of debt restructuring.

The support measures assessed in the report included public business subsidies, i.e. grants, loans and guarantees as well as market-based financing.

Other measures were also introduced, including the temporary amendment to the Bankruptcy Act and increased flexibility to the lay-off system, which were important parts of the support package.

Some of the companies that otherwise would have been loss-making during the coronavirus pandemic turned profitable due to business cost support. About one in four or five companies that would have posted a negative result without the business cost support became profitable thanks to the support.

Per month, turnover grew by 13‒15 per cent more in companies that received business cost support than in similar companies that received another kind of subsidy.

The Finnish economy recovered to the level preceding the pandemic already in the previous year.

With regard to the coronavirus, the aim is to keep the society and economy open. Provisions for temporary regulation should be made only in exceptional cases.

“Direct subsidies and temporary amendments to bankruptcy legislation can effectively protect economic structures in sudden crises, but more attention should be paid to the continuity of subsidies,” said Etla’s Research Director Heli Koski, who was responsible for the study.

“The majority of Finland’s coronavirus support instruments were used to preserve old business operations. Especially in a prolonged pandemic, the continuous new rounds of support slowed down a beneficial structural change of the economy. Economic renewal could have been more swift if the Government had been able to commit to a clear deadline for ending coronavirus support,” Koski added.

For persisting crises, it would be important to formulate an exit strategy that includes a clear deadline for ending crisis support measures in order to accelerate economic renewal, according to Koski.

In all, Finland’s coronavirus support policy has been reactive in nature and it has lacked a comprehensive strategic vision. Many support measures therefore seem somewhat improvised and even inconsistent, according to the report.

“In particular, support that focused on business renewal at the very beginning of the pandemic, such as the funding granted by Business Finland and the ELY Centres for disruptive situations, was problematic because its criteria for support were open to interpretation. It also was not targeted particularly well at companies that needed the support most. The business cost support appears a more justifiable form of support, but its details could be improved,” Koski said.