The global trade finance deficit increased to a record $2.5 trillion in 2022, up from $1.7 trillion in 2020, as rising interest rates, deteriorating economic forecasts, inflation, and geopolitical unpredictability limited banks’ ability to provide trade financing, according to a survey by the Asian Development Bank.
The 2023 Trade Finance Gaps, Growth, and Jobs survey noted that, following the COVID-19 pandemic, worldwide goods exports increased by 26.6 percent and 11.5 percent in 2021 and 2022, respectively.
Demand for trade finance surged as a result of the quick rebound, but increased economic risks made financing more difficult to obtain than previously, according to the survey.
Despite the post-pandemic resurgence, the global trade environment remains daunting for traders. The survey revealed that global trade exports in value slowed year-to-date, showing a 3 percent decline as of April 2023 after experiencing zero growth in the fourth quarter of 2022.
“The global trade finance funding gap has now widened to well over $2 trillion, as the global economy still struggles to rebound from the pandemic,” said Suzanne Gaboury, director general for private sector operations at ADB.
“That growing gap strangles the potential of trade to deliver critical human and economic development through jobs and growth,” Gaboury added.
The Russian invasion of Ukraine had an impact on the trade finance portfolios of about 60 percent of the surveyed banks, primarily due to heightened geopolitical uncertainties and surging commodity prices.
The survey also highlighted that inadequate funding was identified by polled businesses as the biggest supply chain challenge. They identified easy access to sufficient funding, efficient logistics, and the adoption of digital technologies as the three most critical elements of resilient supply chains.
The 2023 trade deficit study takes a unique approach by focusing on environmental, social, and governance factors and digitalization, assessing their impact on relevant supply chains and the trade finance shortfall.
A significant portion of the surveyed banks and firms believed that aligning with ESG principles could potentially help alleviate the trade financing deficit.