UN calls for cooperation to bridge trade finance gap

Bridging the global trade finance gap, estimated at US$1.5 trillion, requires cooperation between a host of players according to the United Nations Conference on Trade and Development (Unctad).

In a statement released yesterday, Unctad noted that improving access to credit – a problem for businesses in developing economies – it needed to be addressed through cooperation in order to close this gap.

“The ability of businesses in developing countries to trade internationally can be seriously hampered by a lack of investment and finance, including export credit and insurance,” said Unctad expert Frida Youssef.

World Trade Organisation Economic Research and Statistics Division counsellor, Marc Auboin, said that challenges faced by developing economies in gaining access to trade finance or credit could be attributed to post-2008 financial crisis regulations and their impact on banks’ de-risking.

This led to the decline of correspondent banking relationships, which made it easier for companies to trade across borders.

However, Auboin pointed out that enhancing trade facilitation programmes of multilateral banks, reducing the knowledge gap in local banks, maintaining open dialogues regarding regulations, and monitoring trade finance provision were key policy responses that could be used to reduce the trade finance gap.

Additionally, it was proposed that a Letter of Credit Confirmation Facility amongst members of Unctad’s Global Network of Export-Import Banks and Development Finance Institutions be created.

Also, credit insurance could help to address the gap by attracting trade finance as they both would reduce the risk of a payment default.

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