108,100 MSMES Shut Down Due to 2022 Economic Crisis

108,100 MSMES Shut Down Due to 2022 Economic Crisis

By Paneetha Ameresekere Ceylon Today February 16, 2024 

The 2022 economic crisis saw the closure of 108,100 micro, small and medium enterprises (MSMEs) resulting in job losses amounting to a minimum of 119,100 to a maximum of 475,800, extrapolation of data provided by the Census and Statistics Department (CSD) showed. 

In a publication titled Impact of Economic Crisis on MSMEs 2022 released by CSD this week, segmentalising the MSMEs closed, said that 105,600 businesses in micro sector, 2,400 in small sector and about 100 in medium sector have been closed due to the economic crisis.

MSMEs play a pivotal role narrowing the socioeconomic divide within the counties. In Sri Lanka, the MSMEs contribute significantly, accounting for more than 50 per cent of the country’s GDP, the report said.

“However, the scarcity of foreign exchange (FX) and the increase in exchange rates are both having a negative impact on MSMEs in Sri Lanka,” the CSD report warned. These problems are making it difficult for MSMEs to import raw materials, equipment and software, which are slowing down their production and growth. The problems are also making it more expensive for MSMEs to do business, which are reducing their profits. These findings indicate that Government of Sri Lanka (GoSL) needs to take a comprehensive approach to addressing the scarcity of FX and the increase in exchange rates, it said. 

In summary, the prominent challenge encountered by enterprises across all scales is ‘increasing of interest rates’ where an overwhelming proportion of nine out of every 10 enterprises surveyed have undergone a substantial ordeal due to the exacerbated interest rate surge, CSD said. 

Overall, the most common areas of support expected by MSMEs are all related to financial assistance, to help them cope with the economic crisis, CSD said. Therefore, the Government needs to provide financial assistance, as well as other forms of support, to help MSMEs survive and thrive, the report further said. 

In summary, the prominent challenge encountered by enterprises across all scales is ‘increasing of interest rates’ where an overwhelming proportion of nine out of every 10 enterprises surveyed have undergone a substantial ordeal due to the exacerbated interest rate surge, CSD said. 

‘Decrease in repayment capacity due to reduction in income’ is notably afflicting 70 per cent of enterprises across all scales in light of the prevailing economic crisis. Subsequently, the third salient challenge manifests as the ‘restriction of credit facilities by banks and financial institutions’, impacting slightly over 50 per cent of enterprises surveyed. ‘Inability to find assets or guarantors for collateral’ is  the fourth major challenge which is approximately one out of every three enterprises in micro and small scale and one out of every five enterprises in medium scale enterprises faced, the report said.

“This report presents findings of the survey conducted to access the Impact of ‘Economic Crisis on MSMEs engaged in Non-Agricultural Sector of Sri Lanka’ upon the request of the Presidential Secretariat,” CSD said.

In extrapolating the job losses, they are based on the fact that the CSD defined as ‘main economic sector scale criteria (No. of Persons Engaged)’ as ‘Industry and Construction’: ‘Micro’ 1 – 4, ‘Small’ 5 – 24 and ‘Medium’ 25 – 199. ‘Trade’: ‘Micro’ 1 – 3, ‘Small’ 4 – 14 and ‘Medium’ 15 – 34 and ‘Services’ Micro 1 – 4, ‘Small’ 5 – 15 and Medium 6 – 74 respectively and averaging those employment numbers.

Afterwards, extrapolating those numbers to the numbers of micro, small and medium enterprises closed, CSD hasn’t segmentalised the number of ‘Industry and Construction’, ‘Trade’ and ‘Services’ categories closed due to the economic crisis, nor how many of such belonged to the ‘micro’, ‘small’ and ‘medium’ sectors either.⍐