Global trade finance gap at $2.5 trillion as global trade tensions rise, ADB says

SINGAPORE: Financial institutions globally failed to meet $2.5 trillion in financing that companies ‍needed for trade last year, holding back the global economy, according to a new survey ⁠by the Asian Development Bank.

Though the figure was unchanged since the last survey in 2023, ADB head of trade and supply chain finance Steven Beck said the persistently large gap represented a lost ‌opportunity to drive global ‌growth and development. The gap has also widened since 2015, when it stood at $1.5 trillion.

"Without the financing to ‌back trade, imports, and exports, we're just not going to be able to realise the kind of growth and development that we can from trade," he said.


Beck added that the current policy environment created by tariffs imposed by the United States will drive greater demand for capital as companies diversify their trading relationships and reconfigure supply chains.

"If we don't have sufficient financing to back that ‌sort of transition into ‍this sort of new world of trade, then the transition ‍is going to be more bumpy than it needs to ‌be," Beck said.

In its report released on Thursday, ADB said the trade finance gap could also reflect cyclical factors rather than a lack of access, saying that falling commodity and energy prices since 2023 might have reduced working capital requirements, especially for small and medium-sized enterprises.

Fintech platforms that emerged from a boom five years ago may also be helping to fill the gap, Beck noted, adding ‍that deeper study was needed into their impact on financing.

The report also noted a gradual growth in alternative currencies used, including China's yuan. ‍Though the ⁠U.S. dollar was still used ⁠in over 82% of traditional trade finance transactions, ADB found that nearly 57% of bank respondents perceive a growing need for the use of local currencies.

Beck said this was partially a result of supply chain reconfigurations, with some trade no longer passing through the United States, but the lack of access to the U.S. dollar was also a factor.

"So if we can increase availability of local currency financing solutions then, presumably, we'll be able to reduce that gap, at least to some extent," he said.