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Wednesday, June 19, 2024

WTO Report: Increased local trade finance in Vietnam could boost annual trade by $55 billion

According to a new report by the International Finance Corporation (IFC) and the World Trade Organization (WTO), enhancing access to affordable trade finance could significantly boost imports and exports in Vietnam.

The report suggests that with improved access to trade finance, imports and exports in Vietnam could increase by up to 6% and 9%, respectively. This projected growth translates to an estimated annual increase of $55 billion in merchandise trade, highlighting the substantial economic benefits that could be realized through enhanced trade finance accessibility.

It is estimated that improving access to affordable trade finance could lead to a 6% increase in imports and a 9% increase in exports in Vietnam, resulting in a substantial annual growth of $55 billion in merchandise trade.

Focus on Coverage Over Cost Reduction:

The report emphasizes that increasing trade finance coverage is more crucial than reducing the cost of trade finance for enhancing international trade activities in Vietnam.

Challenges in Local Trade Finance:
Local trade finance in Viet Nam is described as scarce, costly, and segmented, largely offering traditional services. Domestic banks supported only 21% of the country’s total merchandise trade in 2022, with more favor towards local enterprises in intra-regional trade than large multinational corporations engaged in global trade.

Factors Impacting Access to Trade Finance:
Importers and exporters face challenges such as high collateral requirements and lengthy application procedures when seeking support from local banks. Vietnamese banks reject an average of 12% of trade finance requests, particularly from small and medium enterprises, constituting significant unmet demand.

Recommendations for Improvement:

The report suggests developing instruments like supply chain finance and digital solutions to enhance access to trade finance and decrease costs. Strengthening regulatory frameworks is also advised to address collateral requirements, digital transactions, central bank conditions, and accountability frameworks. Additionally, there is a call to increase awareness among smaller firms and local suppliers on accessing trade financing. This report highlights the current trade finance landscape in Viet Nam, outlining challenges and providing recommendations for fostering a more supportive environment that can stimulate increased international trade activities and facilitate economic growth.

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