The heads of the World Trade Organization (WTO) and six of the world’s multilateral development banks have released a joint statement promising to address shortages in trade finance, so that financial market stresses arising from the Covid-19 crisis do not prevent otherwise viable trade transactions.

In the statement, released yesterday, the WTO, International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD), Asian Development Bank (ADB), African Development Bank Group (AfDB), Islamic Trade Finance Corporation (ITFC), and the Inter-American Development Corporation (IDB Invest), say they will do more to support trade finance providers in the coming months, and urged other institutions to join their ongoing efforts to provide vital financing support for cross-border trade.

“This marks the first time the major multilateral development banks have lined up together in support of trade finance markets,” says Roberto Azevêdo, outgoing director-general of the WTO. “This will serve as a force multiplier for their future efforts on trade financing, as well as for the sizeable programmes they have already rolled out individually.”

The statement comes after a recent warning from the International Chamber of Commerce (ICC) that as much as US$5tn of trade credit market capacity will be needed to return trade volumes back to 2019 levels, and that, without rapid interventions, the market may not be able to meet this demand.

“Many developing countries were experiencing significant trade finance gaps even before the Covid-19 crisis; they face even tighter access to trade credit,” the joint statement says. “A further decline in trade finance supply would, in the short term, make it harder for imports of food and medical equipment to reach economies where they are urgently needed. In the medium-term, it would impede the ability of trade to help drive economic recovery.”

The organisations highlighted the work already done by multilateral development banks since the onset of the crisis. Most recently, the IFC partnered with Citi on an US$800mn risk-sharing deal to support emerging market trade and commodity flows and finance businesses that are struggling to cope with the devastation caused by Covid-19. This deal forms part of the IFC’s US$8bn Covid-19 fast-track financing support package, announced in March, which included US$2bn for the GTLP.

Meanwhile, April marked a record month for financing under the EBRD’s Trade Facilitation Programme (TFP), topping €500mn for the first time in its history.

In the same month, the ADB launched a US$20bn comprehensive support package to assist its developing member countries in their fight against Covid-19. Over an 11-week period from April 1 onwards, ADB supported 1,700 transactions valued at US$1.2bn, addressing shortages and expanding the supply of essential goods, including coronavirus test kits, medicines and personal protective equipment, through its trade and supply chain programmes.

Despite all of these initiatives, the agency heads emphasise that more support will be needed as the steep decline in the real economy starts to impact the financial system through loan defaults and corporate bankruptcies.

“Risk perceptions about non-payment in international trade are at the highest levels in a decade; banks are increasingly reluctant to take on payment risks in many countries where economic conditions are deteriorating,” they say.

The seven institutions are now calling on other financial institutions to join them in supporting essential trade finance transactions, and say they will continue to act within their respective mandates to try to reduce the trade finance gaps that are emerging during this crisis.