The European Bank for Reconstruction and Development (EBRD) and Multilateral Investment Guarantee Agency (MIGA) signed the first co-financing agreement in their history, under which MIGA provides guarantees for up to $200 million of trade finance risks to EBRD under its Trade Facilitation Program (TFP).
“The first country to benefit from this agreement will be Ukraine…The guarantee will cover EBRD trade finance in selected state banks, primarily in Ukraine,” the bank said in a press release Tuesday.
According to it, the MIGA guarantee was signed by the agency’s executive vice president, Hiroshi Matano, during a visit to EBRD President Odile Reno-Basso.
The EBRD recalled that it had sent EUR1.7 billion to Ukraine in 2022 and promised to increase this amount to at least EUR3 billion by the end of 2023, and had established an international partnership to help Ukraine and its financing with shareholders and donors.
“The MIGA and EBRD partnership will facilitate needed trade finance in Ukraine and other countries supported by MIGA and EBRD at a time of growing economic pressures and heightened geopolitical risks affecting trade, supply chains and critical imports,” Matano said in the release.
“This guarantee will be important in helping us expand our trade finance business in Ukraine, which is one of our strategic priorities in working in the country,” Reno-Basso said in turn.
The EBRD pointed out that since the outbreak of the war in Ukraine in February 2022, trade flows and supply chains in Ukraine have been seriously disrupted. In particular, the agricultural sector, which accounts for 11 percent of the country’s GDP, nearly 20 percent of the labor force, and nearly 40 percent of all exports, has been affected.
In addition to the physical disruption of transportation routes, financial intermediation has been a significant problem, as foreign commercial banks have stopped taking any direct risk on trade finance transactions in Ukraine. To address this problem, the EBRD’s TFP Program significantly increased the provision for Ukrainian banks to cover some of the increased demand.
Since February 2022, TFP has supported more than EUR400 million in trade transactions involving critical commodities for the Ukrainian economy. TFP also supports the entire supply chain to address food security issues: facilitating imports of seeds, fertilizers, fuel, tractors and combines into Ukraine, as well as exports of grain, oilseeds and vegetable oils to other EBRD countries of operations, including Egypt, Morocco, Turkey and Tunisia.
The EBRD has developed its Trade Facilitation Program to promote and facilitate international trade with and within Central and Eastern Europe, the CIS and Southern and Eastern Mediterranean countries (SEMED). TFP provides guarantees to international commercial banks to cover political and commercial payment risk on transactions made by issuing banks in the EBRD’s countries of operations.
More than 100 issuing banks in 26 countries participate in the program, working with more than 800 confirming banks and their subsidiaries worldwide.
Since the program’s launch in 1999, TFP has supported over 30,000 trade finance transactions totaling over EUR30 billion, including 3,000 foreign trade transactions of Ukraine totaling over EUR4 billion.
