World trade has been an engine of the world economy, with developing countries posting nearly 8 percent growth and attracting a record $1 trillion in net private capital flows in 2007. But in 2009, world trade could decline for the first time since the eighties. The global economy is forecast to grow by only 1 percent, with developing country growth expected to fall to 4.5 percent from a previously projected 6.5 percent. The World Bank estimates each 1 percent drop in growth could trap another 20 million people in poverty.
"World trade, an engine of the world economy, is now dropping due to falling global demand and lack of trade credit," said Danny Leipziger, World Bank’s Vice President for Poverty Reduction and Economic Management. "If you can’t get financing to ship your goods, exports will slow down and worsen the economic climate."
The International Financial Corporation (IFC), the World Bank Group’s member institution that lends to the private sector in developing countries, plans to double its Global Trade Finance Program from US$1.5 billion to US$3.0 billion. The trade guarantees issued under the program will have an average tenor of six months, thereby supporting up to US$18 billion for short-term trade finance over the next three years. The expanded facility would benefit participating banks based in 66 countries, including some of the world’s 78 poorest countries. The program offers banks partial or full guarantees covering the payment risk in trade related transactions.
Issues like trade, the current financial crisis and a looming global recession are issues being discussed at the United Nations International Conference on Financing for Development in Doha, Qatar, November 29 – December 2. The conference is a follow up to the 2002 meeting in Monterrey, Mexico, which set important new targets in development cooperation.
"It’s really incumbent on all countries to keep international trade and finance flowing, because that can limit the damage of the global downturn," said Leipziger. "All stand to benefit, especially developing countries."
This trend is worrying for the World Bank as developing countries, and low income countries in particular, already suffered from high food and fuel prices over the last year. Already 100 million people have been driven into poverty as a result of high food and fuel prices.
According to the World Bank, keeping markets open is key. Governments should avoid protectionism and strive to use the crisis as an opportunity to invest in trade-related infrastructure, implement measures to facilitate trade, and maintain trade finance credit lines.
The World Bank welcomed the pledge G20 participants made at the Washington Summit on November 15 that "we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports."
Helping Countries Improve Trade Prospects
In addition to the IFC’s Global Trade Finance Program, the World Bank is currently expanding its trade facilitation services, including the establishment of a Trade Facilitation Facility (TFF). This Facility will strengthen the delivery of capacity building and technical assistance in trade facilitation to low-income countries for US$30 million over the next three years. It will help developing countries reduce the costs of engaging in international trade and thereby take better advantage of global trade opportunities, including the reaching import standards so that their exports can successfully enter world markets.
Likewise, the World Bank, already one of the largest providers of assistance to low-income countries, is helping create new trade opportunities through its "Aid for Trade" activities. They include the support to country programs on trade and competitiveness, trade-related infrastructure, trade finance, trade facilitation, training and capacity building, and knowledge and research.
