Heads of the WTO and six multilateral development banks yesterday 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.
Under normal financial circumstances, trade finance is low risk, which is reflected in its cost, according to the joint statement. “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.”
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,” said WTO Director-General Roberto Azevêdo .
“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).