The International Finance Corporation (IFC) has announced that it will put billions towards supporting countries cope with the economic fallout from Covid-19, having also raised trade finance limits in Vietnam last month.

The World Bank announced today that it would make US$12bn available in immediate support to help countries deal with the health and economic impacts of the outbreak, with IFC – the sister organisation that aims to foster private sector development in emerging countries – putting up US$6bn.

The IFC says it will work with commercial bank clients to expand trade finance and working capital lines, with a focus on strategic sectors including medical equipment and pharmaceuticals in order to “sustain supply chains and limit downside risks”.

This comes after the organisation boosted trade finance limits in February to US$294mn for four commercial banks in Vietnam, in the wake of reports that exports were softening and supply chains were being hit, with trucks being “backed up at the border”.

An IFC spokesperson tells GTR: “The expanded trade finance lines will help mitigate trade finance risks, thus softening some of the impact of Covid-19 on local companies, mostly small and medium enterprises, a key source of jobs and economic growth,” adding that the IFC’s decision is a “signal of support to pre-empt liquidity constraints that may arise from de-risking, showing confidence in the local partner banks and of the supervision of the Vietnamese banking sector.”

The idea is that by raising trade finance limits, the development finance institution will enable local banks to improve their capacity to cover payment risk in granting trade financing to local companies.

Vietnam’s manufacturers in particular have found themselves “severely impacted” by the novel coronavirus, according to IHS Markit. The research firm’s latest monthly PMI survey for the country shows that factory output has contracted for the first time in four years, with Rajiv Biswas, APAC chief economist, telling GTR that the sector has been “particularly affected by weak export sales.”

Biswas says that the situation in China, which is a “very important export market for Vietnam”, will have played a role. Factories and offices were shut for weeks there on government orders, while transport links out of major cities such as Wuhan were closed.

He adds: “Two of the main Vietnamese exports that have really grown very substantially in recent years are electronics and textiles. These are very large exports out of Vietnam into many different markets. So, both of those could be disrupted if Chinese demand is weaker than normal, because they won’t be buying as much of those products, and Vietnam’s production of those items to send to other countries could potentially be disrupted if some Chinese factories are not operating to full capacity.”

Further remedial measures are on the cards, with IFC commenting that it might use longer-term tools like risk-sharing facilities for local banks, or credit lines to businesses. The World Bank Group member adds that its Vietnamese response could serve as a template for action in other countries.

HSBC is one major bank to act however, announcing last month that it will provide more than HK$30bn (US$3.9bn) in liquidity relief for businesses in Hong Kong, including cash flow support for trade finance customers.