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Ukraine Crisis and Economic Turbulence Amplify Global Trade Finance Challenges

According to the 2023 Trade Finance Gaps, Growth, and Jobs Survey published by the Asian Development Bank (ADB), the global trade finance gap increased to a record $2.5 trillion in 2022 from $1.7 trillion two years earlier as rising interest rates, dimming economic prospects, inflation, and geopolitical volatility decreased banks’ ability to provide trade financing.

The study serves as the top global indicator of the state of trade finance. Information from 137 banks and 185 businesses in almost 50 different countries is included. Respondents reported that in addition to geopolitical unrest and a global economic downturn, they would still experience limits in 2022 as a result of increased interest rates and financial market turbulence.

The global economy is still struggling to recover from the epidemic, and the funding shortfall for trade finance has grown to well over $2 trillion.Suzanne Gaboury, director general for operations in the private sector at ADB.

“That widening gap chokes off trade’s ability to generate vital employment and economic growth that promote human and economic development.”

The invasion of Ukraine by Russia reportedly had an effect on their trade finance portfolios due to rising commodity prices and greater geopolitical unpredictability, according to almost 60% of responding institutions.For the first time, the 2023 trade gap study places particular emphasis on environmental, social, and governance (ESG) concerns as well as digitalization in an effort to gauge their influence on pertinent supply chains and the trade finance deficit. ESG alignment is viewed as possibly having a positive impact on reducing the trade finance gap, according to the majority of banks and businesses who participated in the poll.

Insufficient funding was listed as the biggest supply chain problem by the businesses questioned. They named the three most crucial elements of resilient supply chains as having access to enough funding, having dependable logistics, and using digital technologies.

The Trade and Supply Chain Finance Program (TSCFP), supported by ADB’s AAA credit rating, offers loans and guarantees to more than 200 partner banks in order to encourage trade and increase imports and exports that promote growth. Since 2009, in marketplaces where it has been difficult for the private sector to operate, the TSCFP has supported $57 billion in trade over 45,510 transactions. TSCFP strives to create global supply chains that are eco-friendly, inclusive, robust, and socially conscious.

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