Reforms to the global financial system are essential to reduce vulnerability, improve predictability and better align trade, finance and development, a new UN Trade and Development (UNCTAD) report has said.
Reforms to the global financial system are essential to cut vulnerability, boost predictability and better align trade, finance and development, UNCTAD has said.
With 90 per cent of trade dependent on finance, developing nations face high borrowing costs and limited market access.
UNCTAD urges reforms to trade rules and monetary systems, plus stronger transparency and trade finance for small firms.
Global growth will slow to 2.6 per cent in 2025, down from 2.9 per cent in 2024, as financial volatility and geopolitical tensions exert mounting pressure on trade and investment flows, according to the ‘Trade and Development Report 2025: On the Brink – Trade, finance and the reshaping of the global economy’.
UNCTAD highlights that financial market movements now influence global trade almost as strongly as shifts in real economic activity, reshaping development prospects worldwide.
“Trade is not just a chain of suppliers. It is also a chain of credit lines, payment systems, currency markets and capital flows,” says UN Trade and Development (UNCTAD) secretary-general Rebeca Grynspan.
Global trade grew roughly 4 per cent early in 2025, helped by firms front-loading imports ahead of tariff changes and by faster-expanding services supported by digitalisation and artificial intelligence. South–South trade is also outperforming global averages. But underlying trade growth, estimated at 2.5–3 per cent, is expected to soften as tighter financial conditions weigh on production and investment.
UNCTAD stresses that nearly 90 per cent of global trade relies on trade finance, making liquidity, payment systems and interest rate movements deeply influential. A shift in investor sentiment in a major financial hub can quickly reverberate across global trade volumes. For developing economies, where access to affordable credit is constrained, these pressures can derail otherwise viable transactions.
Developing economies are projected to grow 4.3 per cent, faster than advanced economies, yet they face higher borrowing costs, abrupt capital-flow shifts and rising climate-related financial risks. Excluding China, developing countries account for just 12 per cent of global equity market value and 6 per cent of global bond issuance, despite their expanding role in global output and trade. Borrowing costs of 7–11 per cent are common, compared with 1–4 per cent in advanced economies, limiting long-term investment capacity.
Climate-vulnerable nations are disproportionately affected. Repeated exposure to extreme weather raises perceived risk, costing them an additional $20 billion annually in interest payments, amounting to $212 billion since 2006, funds that could have supported climate adaptation or social development.
The report adds that dollar dominance remains entrenched: its share of international payments via SWIFT has climbed from 39 per cent to nearly 50 per cent over five years.
UNCTAD proposes a series of targeted reforms to restore stability and support sustainable development by reducing financial vulnerabilities and improving global policy coordination. These measures include fixing the multilateral trade dispute system to restore predictability and updating trade rules to reflect the growing importance of services, digital trade, climate goals and new industrial strategies.
The organisation also calls for closing data gaps in trade and investment to strengthen policymaking, while reforming the international monetary system to limit destabilising swings in currencies and capital flows. Strengthening regional and domestic capital markets is seen as crucial for enabling developing economies to access affordable long-term finance.
UNCTAD further recommends deploying macroprudential tools to mitigate harmful financial spillovers and enhancing transparency in commodity trading, alongside expanding access to affordable trade finance, particularly for small businesses that face the greatest barriers.
“What does genuine resilience require? Integrated policy frameworks that recognise links between trade, finance and sustainability. Fundamentally, we cannot understand trade isolated from finance,” Grynspan adds.
Fibre2Fashion News Desk (HU)
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