Global trade finance gap widened to record $1.7 trillion in 2020
The record financial gap was driven by the pandemic heightened economic and financial uncertainties and devastated global trade
The global trade finance gap grew to an all-time high of $1.7 trillion in 2020, a 15% increase from two years earlier, according to the latest Asian Development Bank (ADB) survey.
The record financial gap was driven by the pandemic heightened economic and financial uncertainties and devastated global trade, the ADB 2020 Trade Finance Gaps, Growth, and Jobs Survey noted.
The survey showed that small and medium-sized enterprises (SMEs) were hardest hit as trade finance dried up with the spread of the Covid-19, accounting for 40% of rejected trade finance requests.
Moreover, women-owned SMEs found it particularly difficult to get finance, with a reported 70% of their applications totally or partially rejected.
The gap, which represents the difference between requests and approvals for financing to support imports and exports, was $1.5 trillion in 2018.
"Trade is critical for the global economy to recover from the pandemic, but the financing shortfall makes it much harder to create jobs and growth," said ADB Trade and Supply Chain Finance Head Steven Beck.
"The challenges of trading businesses may be even steeper than our survey indicates, as many of them were deterred by the economic uncertainty from even applying for trade finance. Higher prices for food and energy will exacerbate the gap, eating into country and counterparty finance limits in place to support trade."
The survey is the world's leading barometer of trade finance health.
The seventh survey includes 79 banks and 469 firms, covering all regions of the world.
Weaker balance sheets and macroeconomic uncertainty during the pandemic enlarged the gap, according to the survey report.
Additionally, regulations designed to curb money laundering and fraud continued to inadvertently pose obstacles to servicing trade finance needs.
Meanwhile, banks took extra measures to support SMEs, with 27% reporting that they offered debt moratoriums and 23% increasing capital availability levels. More than 40% of firms expected their revenues to return to pre-pandemic levels in 2022.
Closing the gap for women-owned firms could be helped by attracting, retaining, and promoting more women in finance, the survey finds.
Further digitalization of trade will also help through new efficiencies, but much more public sector support and global standards are required to realize this potential.
"To close the gap, we need to bring trade fully into the digital world through greater coordination with the private sector as well as global agreement on common standards, practices, and legislation," said Steven Beck.
Backed by ADB's AAA credit rating, the Trade and Supply Chain Finance Program (TSCFP) provides loans and guarantees to more than 200 partner banks to support trade, creating import and export opportunities for enterprises across Asia and the Pacific. TSCFP transaction numbers increased by 50% in 2020 to fill enlarged market gaps left by a retrenching private sector. In 2021, TSCFP will support over 7,000 transactions valued at over $6 billion in markets where the private sector has most trouble operating.
