Free flow of trade crucial for post-Covid economic recovery, experts say

Policymakers should facilitate trade, support transport logistics and expand trade finance, experts tell World Bank conference

Shipping containers are stacked on a dock at the Port of Oakland , California.  Disruptions to the global supply chain are continuing with extreme port congestion, lack of truck drivers and microchip shortage. AFP
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Trade has played a key role in the global economic recovery from the Covid-19 pandemic, but the rebound is "uneven" as richer countries that are better integrated with global markets and supply chains recover quicker than developing and undeveloped states, industry experts said on Friday.

During the pandemic, firms outside the global value chain suffered more from the cancellation of contracts, the World Bank’s Managing Director for Development Policy and Partnerships Mari Pangestu said in an online panel.

It comes as little surprise that poorer countries hit hard by the pandemic are the ones struggling to get back on their feet. Those with little-to-no resources have little to trade and no money to buy goods and services.

“Global economic integration matters … policymakers should ensure that their markets are integrated with the global chains,” Ms Pangestu said.

“This is also about domestic reforms … keeping openness in place on the trade and investment side and entering into deeper and more ambitious trade agreements."

World Trade Organisation's director general Ngozi Okonjo-Iweala said an inequitable access to Covid vaccines is exacerbating economic divergence across regions. AFP

Countries that were able to offer strong stimulus packages, implement robust monetary policies and ensure a steady supply of Covid-19 vaccines rebounded faster, while those without easy access to the vaccine and less fiscal support suffered, the World Trade Organisation’s Director General Ngozi Okonjo-Iweala said.

She said policymakers should take actions to facilitate trade, support transport logistics and help expand trade finance.

“Asian Development Bank has estimated a $1.7tn trade finance gap … this critical issue is not talked about as much as we would like because this is a problem of the developing countries and not of the rich nations,” said Ms Okonjo-Iweala.

“Trade has been a critical tool in combatting the pandemic … but inequitable access to vaccines is exacerbating economic divergence across regions. The longer vaccine inequity is allowed to persist, the greater the chance that even more dangerous variants of Covid-19 will emerge."

The debt burden of the world’s low-income countries rose 12 per cent to a record $860 billion last year as the pandemic exacerbated financial strains, according to the World Bank.

The lender said external debt stocks of low and middle-income countries combined rose 5.3 per cent in 2020 to $8.7 trillion. The rise in external debt outpaced the countries’ gross national income and export growth.

The rise in external debt outpaced gross national income (Gni) and export growth, with the external debt-to-Gni ratio, excluding China, rising five percentage points to 42 per cent in 2020, while their debt-to-export ratio surged to 154 per cent in 2020 from 126 per cent in 2019.

Trade can be a “powerful catalyst” to boost economic growth and poverty reduction particularly “if we implement right policies while keeping [the] poor in mind” said Betty Maina, Kenya’s minister of industrialisation, trade and enterprise development.

“Free flow of trade is important to attract new investments in [poor] countries to create jobs as well as to reduce the prices of goods for consumers.”

Earlier this month, the WTO predicted a global merchandise trade volume growth of 10.8 per cent this year - up from 8 per cent forecasted in March - followed by a 4.7 per cent rise next year.

The annual growth rate for merchandise trade volume in 2021 is mostly a reflection of the previous year's slump, which bottomed out in the second quarter of 2020.

Trade volume growth is set to be accompanied by the global gross domestic product growth of 5.3 per cent this year – up from 5.1 per cent projected in March.

Trade services are likely to lag behind goods traded, particularly in sectors related to travel and leisure, the WTO said.

Reuters contributed to this report

Updated: October 16, 2021, 3:11 AM