Trade Finance Gap Increases to US$2.5 Trillion – ADB
(12 September 2023 – Philippines) The 2023 global trade finance gap expanded to US$2.5 trillion in 2022 according to the Asian Development Bank (ADB), impacting economic growth and development.
The pandemic crisis, macroeconomic factors and geopolitical tensions all played a part in the global trade finance gap widening from US$1.7 trillion in 2020. The trade finance gap represents global unmet demand: the difference between requests and approvals for financing to support imports and exports. Although demand for trade finance surged on the back of the sharp post-pandemic recovery, heightened economic risks have made it more difficult to secure than before.
“Tighter credit due to higher interest rates is a major barrier to trade finance. Interest rates are certainly having an impact on the gap along with inflation, geopolitical and economic uncertainty. When you have got higher interest rates you have more scarcity of US Dollars and the vast majority of global trade is still conducted using USD, upwards of 90 percent, so that’s not going to be helpful” commented ADB Head of Trade Finance, Steven Beck.
“The global trade finance funding gap has now widened to well over US$2 trillion, as the global economy still struggles to rebound from the pandemic. That growing gap strangles the potential of trade to deliver critical human and economic development through jobs and growth” stated ADB Director General for Private Sector Operations, Suzanne Gaboury.
For the first time, the 2023 trade gap incorporated environmental, social, and governance (ESG) coverage, along with digitalisation, in a bid to assess their impact on relevant supply chains and the trade finance gap. The ADB reported that ESG alignment could potentially help reduce the trade financing gap.
“We need to drive some consensus around what the definition actually is of a ‘green’ trade and supply chain finance deal. We need to demonstrate clear methodology demonstrating compliance with those definitions of what is ‘green’. A lot of capacity and training is also building and is much needed to build progress” Beck added.
ADB is committed to achieving a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty. Established in 1966, it is owned by 68 members including 49 from the region.