The International Finance Corporation (IFC), a member of the World Bank Group, and Citi Group have established an $800 Million fund to facilitate trade finance in emerging markets. The fund will support trade flows in developing countries and help businesses cope with the effects of COVID-19 pandemic.
This follows massive disruptions caused by the COVID-19 pandemic. Businesses have shut down, demand for goods and services has declined, and supply chains have been cut off.
IFC and Citi will share the risks in the $800 million portfolio of trade-related assets on a 50-50 basis.
“By rapidly increasing our capacity to deliver trade finance, IFC and Citi can help businesses maintain their operations during the current crisis and speed their recovery when the pandemic eases. Supporting the sustainability of the supply chains and stimulating the international trade flows have been a critical priority for us as we deal with the impact of the COVID-19 pandemic,” said de Bolle.
“Citi’s partnership with the IFC on this transaction will enable the recovery of trade flows in the emerging markets while mitigating the extended disruption to the supply chains of many industries across the globe,” said Ebru Pakcan, Global Head of Trade, Citi Treasury and Trade Solutions.
The signing marks the extension of an existing facility under IFC’s Global Trade Liquidity Program, bringing the size of the facility to $2 billion. Before the COVID-19 pandemic, the global trade finance gap was an estimated $1.5 trillion in 2018.
On March 17, IFC’s Board of Directors approved $8 billion in fast-track financing to help companies affected by the outbreak.
The bulk of that financing, including $2 billion for the Global Trade Liquidity Program, will go to client banking institutions, enabling them to continue to offer trade financing, working-capital support, and medium-term financing to private companies.
In 2019, IFC invested more than $19 billion in private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty, and boost shared prosperity.
The World Trade Organization (WTO) in its outlook for trade in 2020/21, says governments have intervened with monetary and fiscal policy tools to counter the downturn and provide temporary income support to businesses and households.
It says, however, that restrictions on movement and social distancing means that labor supply, transport, and travel are directly affected in ways they were not during the financial crisis.
Whole sectors of national economies have shut down, including hotels, restaurants, non-essential retail trade, tourism, and manufacturing.
WTO projects a strong rebound after COVID-19 if businesses and consumers view the pandemic as a temporary, one-time shock.
Trade is likely to fall more steeply in sectors characterized by complex value chain linkages, particularly in electronics and automotive products.
Services sector may be the component of world trade most directly affected by COVID-19 through the imposition of transport and travel restrictions and the closure of many retail and hospitality establishments.
However, some services may benefit from the crisis. This is true of information technology services, demand for which has boomed as companies have their employees working from home and people socializing remotely.