The World Trade Organization, International Finance Corporation, European Bank for Reconstruction and Development, Asian Development Bank, African Development Bank Group, Islamic Trade Finance Corporation, and the InterAmerican Development Corporation released a joint statement on COVID-19 and trade finance.
The institutions promise to address shortages in trade finance, and outline financial commitments and actions already taken, but acknowledge that additional effort is needed to combat COVID-19’s economic impacts.
The World Trade Organization (WTO) and six multilateral development banks (MDBs) issued a joint statement highlighting measures taken to step up trade finance programmes to combat the impacts of the COVID-19 pandemic.
The 1 July 2020 statement, 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), promises to address shortages in trade finance and outlines actions already taken.
These actions, the statement notes, will ensure that the pandemic does not “prevent otherwise-viable trade transactions, including for essential goods such as food, drugs and medical equipment.” While trade finance is generally seen as “low risk,” deteriorating economic conditions have caused banks to become increasingly risk averse, a WTO press release highlights. Accordingly, banks and financial institutions have become wary of financing cross-border transactions out of “fear of non-payment.”
The joint actions will serve as a force multiplier for future programmes on trade finance.
Such behavior change, the statement emphasizes, not only impedes import of essential goods, but also stymies export of key income-generating products, placing disproportionate strain on micro-, small and medium-sized enterprises (MSMEs) and the livelihoods of poor people. The statement’s annex highlights signatories’ actions taken to date, including: a USD 6 billion trade and working capital finance initiative by the IFC as part of a USD 14 billion COVID-19 crisis response facility by the World Bank; a USD 2.45 billion trade and supply chain programme as part of the ADB’s USD 20 billion package to support developing member countries; USD 1.5 billion in financing for trade from the EBRD; USD 1 billion in trade finance liquidity and risk mitigation support from the AfDB to local banks in member countries; and a USD 850 million intervention by the ITFC.
Despite these actions, the statement underscores that additional effort is needed, especially “as the steep decline in the real economy starts to impact the financial system through loan defaults and corporate bankruptcies.” The signatories commit to continue assessing market developments as needs evolve and to act within their respective mandates to reduce trade finance gaps that emerge during this crisis.
WTO Director-General Roberto Azevêdo described the efforts as marking “the first time the major multilateral development banks have lined up together in support of trade finance markets.” He noted that the joint actions “will serve as a force multiplier” for future programmes on trade finance. The signatories urge other institutions to join them in their efforts. [WTO Press Release] [Joint Statement]