According to a recent survey by the Asian Development Bank, the global trade finance deficit reached an unprecedented $2.5 trillion in 2022, increasing from $1.7 trillion in 2020. The surge in the deficit is attributed to various factors, including rising interest rates, economic uncertainty, inflation, and geopolitical volatility, all of which have constrained banks' capacity to offer trade financing.
The 2023 Trade Finance Gaps, Growth, and Jobs survey found that despite the difficulties posed by the COVID-19 pandemic, worldwide goods exports saw an increase of 26.6% in 2021 and 11.5% in 2022. The swift economic rebound led to heightened demand for trade finance, though the availability of such financing has been hampered due to increasing economic risks.
While global trade has shown resilience in the post-pandemic period, the overall environment remains challenging for international trade participants. Data reveals a 3% decline in the value of global trade exports as of April 2023, following zero growth in the last quarter of 2022.
Suzanne Gaboury, Director General for Private Sector Operations at the Asian Development Bank, commented, "The widening gap in trade finance funding is currently over $2 trillion and impedes trade's potential to catalyze essential human and economic development."
The geopolitical landscape, marked by events like the Russian invasion of Ukraine, has also influenced trade finance portfolios, affecting around 60% of the banks surveyed. This disruption is primarily due to heightened geopolitical uncertainties and rising commodity prices.
Businesses identified insufficient funding as the most significant challenge facing their supply chains. Access to adequate funding, efficient logistics, and the adoption of digital technologies were cited as essential elements for resilient supply chains.
The report reveals that approximately 20% of the surveyed banks rejected some trade finance applications, citing reasons such as high country risk, insufficient collateral, inadequate documentation, and know-your-customer compliance issues.
To address the burgeoning trade finance gap, the survey proposed several solutions, including the advancement of trade finance as an investable asset class and the active involvement of alternative financiers and multilateral development banks. The study also endorsed the continued promotion of trade financing as an "effective and proven crisis response mechanism."
The 2023 survey takes a comprehensive approach by examining the role of environmental, social, and governance (ESG) factors, as well as digitalization, in impacting supply chains and the trade finance deficit. A significant portion of surveyed institutions believe that aligning with ESG principles could potentially mitigate the trade finance shortfall.