Economic measures taken by North American countries to help SME APRIL 09, 20205 MIN READ
Economic measures taken by North American countries to help SME

The spread of the COVID-19 virus has disrupted trade world-wide. Many SMEs (small and medium enterprises) are the life-blood for sellers on and so here we have documented the fiscal measures taken by North American and also significant Caribbean and Atlantic Island countries to help SMEs continue trading in an effort to help our sellers continue trading with them through these difficult times.


United States of America

The US Federal Reserve has implemented facilities to support the flow of credit, in some cases backed by resources from the Exchange Stabilization Fund. The facilities are: Commercial Paper Funding Facility to facilitate the issuance of commercial paper by companies and municipal issuers; Primary Dealer Credit Facility to provide financing to primary dealers collateralized by a wide range of investment grade securities; Money Market Mutual Fund Liquidity Facility to provide loans to depository institutions to purchase assets from prime money market funds (covering highly rated asset backed commercial paper and municipal debt); Primary Market Corporate Credit Facility to purchase new bonds and loans from SMEs; Secondary Market Corporate Credit Facility to provide liquidity for already-issued corporate bonds; Term Asset-Backed Securities Loan Facility (TALF) to support the issuance of asset-backed securities backed by student, auto, credit card, and loans to SMEs. Regulatory agencies indicated their support for banking organizations that use their capital and liquidity buffers to lend and undertake other actions to provide support to and SMEs.

The US government has implemented a US$8.3 billion Coronavirus Preparedness and Response Supplemental Appropriations Act and US$104 billion Families First Coronavirus Response Act which together provide 0.5 percent GDP to help small business loans, and international assistance. The Coronavirus Aid, Relief, and Economic Security Act provides for transfers to households, extended unemployment insurance, food assistance, incentives for SMEs to maintain employees on payroll, loans and grants for SMEs, funding for hospitals and health care infrastructure, transfers to state and local governments, and deferral of payroll tax obligations. Also, tax filing deadlines have been delayed, federal funds rate have been lowered by 150bp to 0-0.25bp. Purchase of Treasury and agency securities in the amount as needed. Expanded overnight and term repos. Lowered cost of discount window lending. Reduced existing cost of swap lines with major central banks and extended the maturity of FX operations; broadened U.S. dollar swap lines to more central banks.



Key measures adopted by the Bank of Canada include: reducing the overnight policy rate by 100 bps in March (to 0.75 percent); an extension of the bond buyback program across all maturities; launching the Bankers' Acceptance Purchase Facility; expanding the list of eligible collateral for Term Repo operations to the full range of eligible collateral for the Standing Liquidity Facility (SLF), except the Non-Mortgage Loan Portfolio (NMLP); supporting the Canada Mortgage Bond (CMB) market by purchasing CMBs in the secondary market; announcing a temporary increase the amount of NMLP a participant can pledge for the SLF and for those participants that do not use NMLP; announcing an increase in the target for settlement balances to $1,000 million from $250 million.

The Canadian government has implemented key tax and spending measures (6.0 percent of GDP, $138 billion CAD) include: $1.125 billion (0.05 percent of GDP) to the health system to support increased testing, vaccine development, medical supplies, mitigation efforts in direct support to SMEs, including tax deferrals and wage subsidies. The federal government is expected to announce additional measures with the release of its budget for 2020/21.

Other measures in the financial sector include: OSFI, the bank regulator, lowered the Domestic Stability Buffer for D-SIBs to 1 percent of risk weighted assets (previously 2.25 percent); under the Insured Mortgage Purchase Program, the government will purchase up to $50 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC); the federal government announced a $10 billion (around 0.4 percent of GDP) credit facility at 2 Crown Corporations to lend to SMEs under stress.



The Mexican monetary policy rate has been dropped by 50bp to 6.5 percent. The non-deliverable forward hedging program (NDF, in domestic currency) was extended by $10 billion to $30 billion; two NDF auctions were conducted offering $2 billion each (allocated $2 billion total, 0.2 percent of 2019 GDP); conducted two government bond exchanges, shortening maturities (total offered was MXN 85 billion, 0.4 percent of 2019 GDP). They have also announced additional measures to provide MXN and USD liquidity to the banking system and improve the functioning of the domestic financial markets and reduce reserve requirements with Banxico (by 50 billion pesos, or about 15 percent of the current stock) halve the cost of repos; provide USD liquidity (via auctions) to banks by drawing on the $60 billion swap line with the Fed; and in conjunction with the Ministry of Finance, seek to strengthen market making in the government bond market in order to strengthen the position of SMEs.



The Bank of Jamaica has taken additional actions to ensure uninterrupted system wide liquidity, such as the recent removal of limits on the amounts that deposit taking SMEs can borrow overnight without being charged a penalty rate and a broadening of the range of acceptable repo collateral. The authorities are also encouraging the banking sector to reschedule loans and mortgages, in addition to the mortgage rate cuts already announced by the National Housing Trust.

The Jamaican Minister of Finance announced tax cuts of around 0.6 percent of GDP, along with targeted measures for up to 0.5 percent of GDP to counteract the effects of COVID19. This is largely expected to be financed by ongoing asset divestment. Additional measures have been announced to support the most affected sectors by the virus and contain labor shedding, including SCT and custom duty waivers on medical supplies and sanitizers and a COVID-19 Allocation of Resources for Employees (CARE) program, which envisages (i) temporary cash transfers to businesses in targeted sectors based on the number of workers employed; (ii) temporary cash transfer to individuals where loss of employment can be verified since March 10th.



Trinidad and Tobago

Trinidad and Tobago is being hit by the spread of COVID-19 and the sharp decline in oil prices. The fiscal package (TT$5 billion or about 3¼ percent of GDP) announced on March 23rd include salaries for up to 3 months for temporarily unemployed workers; VAT and income tax refunds to individuals and SMEs; liquidity support to individuals and SMEs via credit union loans at reduced interest rates and long repayment periods; and grants to hoteliers to upgrade of their facilities.

On March 17th, the Trinidadian central bank reduced the policy rate by 150 bps to 3.5 percent, and the reserve requirement on commercial bank deposits by 300 bps to 14 percent. Commercial banks are expected to reduce the prime lending rates (currently at 9¼ percent) by the same amount. Additionally, commercial banks have agreed to provide a 1-month suspension on mortgage loan and instalment loan payments, without any penalty; and to waive penalty interest on overdraft facilities. Other government housing institutions will provide similar relief to their customers with 2 to 6 months payment deferrals.


The Bahamas

The Central Bank of The Bahamas has arranged with domestic banks and credit unions to provide a 3-month deferral against repayments on credit facilities for SMEs and households that were negatively impacted by the pandemic. Forbearance will be provided for borrowers who maintained their accounts in good standing before the onset of the pandemic. The Bahamian government’s fiscal response is under preparation. So far, support measures totalling is B$24 million (0.2 percent of GDP) have been announced, including B$4 million (0.03 percent of GDP) for the health sector and B$ 20 million (0.16 percent of GDP) in support for business loans to SMEs.



Following discussions with the government of Barbados, commercial banks have agreed to provide forbearance in the form a 6-month debt-payment suspension for individuals and SMEs directly impacted by COVID-19. In addition, the government intends to boost priority capital spending and introduce social programs for displaced workers to mitigate the effects of COVID-19 on the economy. This includes infrastructure investment to renovate schools, government buildings, and a key industrial complex (0.6 percent GDP) and the introduction of a Household Survival Program (0.2 percent of GDP). The latter involves a minimum income for households made unemployed by COVID-19 and supplemental unemployment benefits though the National Insurance Scheme.


Dominican Republic

The economic measures announced by Dominican Republic’s President Medina amounted to RD$32 billion (about US$576 million, or 2.5 percent of GDP). These include: higher healthcare spending (purchases of medical supplies and equipment, tests in private laboratories, rent of two private medical centres, support of the pharmaceutical industry); higher social spending (“solidarity card” benefits for 811,000 families, at RD$5,000 (US$90) per month, until May 31; payments to SMEs affected by the national emergency (up to RD$ 8,500 or US$153 per month for two months); and tax relief through extended payment deadlines and some tax benefits. In a meeting on March 16th, the monetary policy council of the Central Bank of the Dominican Republic (BCRD) eased its monetary policy stance and took a series of measures to provide additional liquidity and support the economy. Interest rate measures include the monetary policy rate cut (from 4.5 to 3.5 percent per annum), reduction of the 1-day REPO facility rate (from 6.0 to 4.5 percent), and the overnight deposit rate cut (from 3.0 to 2.5 percent). Banks were allowed to cover reserve requirements with public and BCRD bonds up to an amount of RD$22.3 billion (about 1¾ percent of GDP), which is equivalent to a 2 percent reduction in reserve requirements; these resources will be directed as credit to households and SMEs at an interest rate capped at 8.0 percent.



In Haiti the central bank moved immediately to ease conditions in the financial system, including reducing the refinance and reference rates, reducing reserve requirements on domestic currency deposits, easing loan repayment obligations for three months, and suspending fees on interbank transactions. The Haitian authorities launched a public health preparedness plan for containment and treatment; they plan to boost some social programs and are also considering supporting wage payments temporarily in some sectors as well as support for SMEs.


Republic of Marshall Islands

The Marshall Islands government has formulated a Coronavirus Disease Preparedness and Response Plan and is preparing preventive measures amounting to about US$7 million (3.1 percent of GDP), including construction of quarantine units, purchases of medical equipment, instalment of washing stations, and funding for overtime of health workers. The authorities are currently working with multilateral and bilateral development partners in search for financial support. To ensure food and other supplies, container vessels and fuel tankers have been exempted from entry restrictions, but with strict safety requirements including prohibition of human contacts and a minimum of 14 days between departure from ten restricted countries and arrival in RMI. Though small, the hotel and tourism SME sectors are experiencing significant losses.



Source: International Monetary Fund

By Apr 9, 2020