The issuance of letters of credit (L/Cs) and other trade finance instruments is becoming more difficult as a result of the coronavirus pandemic according to the World Economic Forum (WEF).

It says that least developed countries (LDCs) in particular have been hard hit economically, as borders are closed to trade and tourism.

Hardest hit

The already fragile economies of the hardest hit LDCs are facing further challenges, as the value of their exports plummet and their borders are closed to trade and tourism according to the WEF.

It says local and foreign investments are drying up while small business revenues and orders have been reduced drastically.

L/Cs becoming difficult

"The issuance of L/Cs and other trade finance instruments is becoming difficult, if available at all, and the appetite of correspondent banking is decreasing each day as the crisis unfolds," WEF analysis has shown.

It also shows that the cost of financial transactions is increasing, as working with financial institutions in LDCs is perceived to be riskier than before.

Deteriorating conditions

Because of this, LDCs are seeing their foreign reserves rapidly deplete and their financial institutions are facing a shortage of liquidity.

If this situation continues it could lead these countries to drift further away from global value chains and to be left out of the international trade system, the WEF concludes.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.