TRADE FINANCE

Heads of WTO and Development Banks Voice Support for Trade Finance Amid COVID-19 crisis

The heads of the WTO and six multilateral development banks on 1 July issued a joint statement promising to address shortages in trade finance, so that financial market stresses arising from the COVID-19 crisis do not prevent otherwise-viable trade transactions, including for essential goods such as food, drugs and medical equipment. They committed to do more to support trade finance providers in the coming months, and urged other institutions to join their ongoing efforts to provide vital financing support for cross-border trade.

In a joint statement, the seven agency heads said that the COVID-19 pandemic was severely disrupting the provision of trade finance, which was already in short supply in developing countries and for smaller businesses. Under normal financial circumstances, trade finance is low risk, which is reflected in its cost. But as economic conditions around the world deteriorate, banks have become increasingly risk-averse. They are particularly skittish about financing cross-border transactions for fear of non-payment.

The joint statement stressed that in many developing countries, trade finance shortages impede imports of essential food and medical goods as well as exports of key income-generating products. Such shortages disproportionately weigh on the micro, small and medium-sized enterprises (MSMEs) that account for the bulk of employment, which means they have a particularly strong effect on the livelihoods of poor people.

The agency heads highlighted how multilateral development banks have ramped up support for trade finance programmes since the onset of the crisis. However, they emphasized that more support would be needed “as the steep decline in the real economy starts to impact the financial system through loan defaults and corporate bankruptcies”.

Looking ahead, the agency heads vowed to “continue to assess market developments as needs evolve and … act within our respective mandates to reduce trade finance gaps that emerge during this crisis”. They called on other players to join their efforts, with a view to boosting trade and driving a strong economic recovery.

Director-General Roberto Azevêdo said: “Inadequate trade finance would not just make it harder for countries to import essential food and medical equipment in the short term. It would make it harder for trade to help drive the strong economic recovery the world will need once this health crisis starts to recede.

“This marks the first time the major multilateral development banks have lined up together in support of trade finance markets. This will serve as a force multiplier for their future efforts on trade financing, as well as for the sizeable programmes they have already rolled out individually,” he added.

The joint statement was signed by the WTO, International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Asian Development Bank (ADB), African Development Bank Group (AfDB), Islamic Trade Finance Corporation (ITFC) and the InterAmerican Development Corporation (IDB Invest).