Despite the size of fiscal supports, many SMEs are likely to continue to experience financial distress. Recent research from the Central Bank has tried to model the effect of the pandemic on SMEs’ capacity to meet their operational losses or service interest on their debt.
For example, how far interest rates need to be raised to bring about a given slowing in the economy will depend partly upon how stretched asset markets are, and how exposed the banking system is to them. Similarly, the extent to which a currency depreciation can be accommodated will depend on banks’ and businesses’ exposure to short-term foreign currency borrowing.