Macroeconomic Policy Responses to Impact of COVID-19 Pandemic on MSMEs

The importance of the Micro Small and Medium Enterprises (MSMEs) sector is well recognised worldwide due to its significant contribution to various socio-economic objectives, such as higher growth of employment, output, promotion of exports and fostering entrepreneurship. However, the
COVID-19 pandemic has led to unprecedented economic disruptions across private sector entities including the MSMEs. The sudden stop in economic activity places the MSMEs at a greater risk of collapse due to various causes including, higher levels of vulnerability and lower financial resilience owing to insufficient cash reserves to survive for a few months.

Despite swift responses from policymakers to minimise macroeconomic supply and demand imbalances, as well as ensuring stable financial systems, the nature and characteristics of MSMEs make these broader policy responses critical to address their specific challenges. This suggests that MSMEs require a unique approach to deal with insolvency challenges post the COVID-19 pandemic. The pandemic has introduced new dynamics which may tilt the new thinking in digital payments. The pandemic has also placed a unique strain on payment systems and the provision of payment instruments and services. This may also affect MSMEs that heavily rely on cash payments when executing transactions. The use of cash will likely experience large negative disruptions. It is against this background that MEFMI, as part of its efforts to assist member countries to address the challenges brought by the pandemic, conducted a webinar on 11 June 2020. The main objectives of the webinar were to discuss the impact of the recent lockdowns on MSMEs, the implications of macroeconomic policy responses to the COVID-19 pandemic on the MSMEs’ performance and explore the potential gaps that exist in these policy responses. The webinar also discussed how digitisation (particularly payment systems) can be reshaped to address specific issues faced by MSMEs.

As a key output, the webinar enhanced knowledge about the impact of the recent COVID-19 induced lockdowns in the region on MSMEs, the implications of macroeconomic policy responses to the pandemic. MEFMI expects member countries to continue exploring the potential gaps that exist in the current policy responses so as to make informed decision on how best the MSMEs sector can be served.

A total of 60 participants from various countries attended the webinar session. Half of the participants were from 12 of the 14 MEFMI member countries (i.e. Botswana, Eswatini, Kenya, Lesotho, Malawi, Mozambique, Namibia, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe). In addition, there were eleven (11) participants from MEFMI Secretariat. Consultants were drawn from Financial Sector Deepening Africa – Uganda GSMA, Industrial Development Corporation and Southern African Development Community-development Finance Resources Centre. The webinar was moderated by Mr. Patrick Mutimba, and had three panellists , namely Ms. Rashmi Pillai (Executive Director, FSD Uganda), Mr. Kennedy Kipkemboi (Mobile Money Regulatory Specialist – Africa), and Dr. Sehliselo Mpofu (Director, Macroeconomic Management Programme – MEFMI). Going forward, the Institute plans to support countries in priority areas that were identified through the feedback session at the end of the webinar. The proposed areas include remittances, collateral registries and credit bureaus, among others.

Prepared by Irene Nyamanza and Sayed Timuno