the same time period last year), and about a fifth to a quarter in lower-middle-income countries.<sup>20</sup> In addition, between a third into half of firms expect to fall in arrears in the coming six months or are already in arrears.

There is no robust and clear relationship between overall government support and the expectations about future revenues at the firm-level. The data suggest that there are few differences in terms of revenues expectations between firms that received government support and those that did not. Averaging across countries, firms without government support report an expected drop of 16 percent, while firms with government support expect a decline of 14 percent (Figure 8), but this difference falls within the confidence interval. When controlling for observable characteristics such as size, sector and country, firms that have received government support expect lower sales than those that did not receive support, but these differences fall within the confidence intervals and are statistically insignificant. Since sales are to a large extent driven by demand and given that many policies are focused on covering acute cash shortfalls, we can expect government support to only play a small role in increasing sales at least in the short term.

There is a stronger relationship between government support and expectations around insolvency. Using the predicted likelihood of whether a firm has access to support programs as a measure of the probability that a firm can access public support, Figure 9 shows that firms that are more likely to access government support are also those that report to be less likely in arrears or expect to fall into arrears. This relationship is robust to controlling for the change in sales experienced by the firm during the previous 30 days, indicating that having access to government support could play a key role in helping prevent firms from insolvency even when facing higher drops in sales.

# **8.2 Policy interventions and uncertainty**

Public policies can also play an important role in reducing the uncertainty faced by firms. This is a potentially important channel that could influence recovery because high degrees of uncertainty are likely to adversely affect firm investments and incentives to innovate, by reducing the appetite for entrepreneurial risk taking (see e.g., Bloom et al. (2007)) and limiting jobs growth and reallocation. The survey provides some suggestive evidence that public policies could reduce uncertainty and improve growth expectations. The right panel in Figure 9 shows a negative correlation between the predicted probability that firms have access to public support programs and their uncertainty, measured as the average standard deviation of the firms’ sales prediction based on (Altig et al., 2019). This cross-sectional correlation though may be driven by a lot of different factors, and as shown by Figure 8 when we control for size, country, sector and timing of the survey (relative to the peak of the crisis), and the size of the experienced drop in sales, we find that uncertainty is not any different between firms that received support versus those that did not.<sup>21</sup> While public policies may play an important role in reducing uncertainty towards the future, it is possible that the large uncertainty associated with the duration of the pandemic is at play during the COVID-19 crisis, which could explain our results. Applying to some of these public programs is costly and often

> 20These figures are higher than seen in high-income countries. For example, the Federal Reserve Bank of Atlanta’ Survey of Business Uncertainty reports expected drops in sales of between 0 and 3 percent for March and April 2020. 21This pattern is identical across countries with different income levels, as well as different sizes and sectors as shown in our online appendix.

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