Export credits

Sustainable Lending and Export Credits

 

Lower income countries have often struggled with large external debts that can overwhelm their ability to reduce poverty or provide essential government functions. Although many of these countries are not traditionally important markets for official export credits, members of the Working Party on Export Credits and Credit Guarantees (ECG) nonetheless recognise that the provision of export credits to the public sector could play a role in the run-up of unsustainable external debt levels by these countries, and that due consideration of this risk should be taken before providing such support.

Thus, in order to support the Joint World Bank-IMF Debt Sustainability Framework for Low Income Countries which seeks to mobilise the financing of development needs of lower income countries while at the same time ensuring that that these countries do not build-up excessive debt in the future, ECG Members adhere to a set of Principles and Guidelines to promote sustainable lending practices in the provision of official export credits to lower income countries.

For the purposes of the ECG’s agreement, the term “lower income countries” refers to countries that are eligible for financing through the International Monetary Fund (IMF) Poverty Reduction and Growth Trust (PRGT) or that only have access to interest-free credit or grants from the International Development Association (IDA) of the World Bank (i.e. “IDA-Only” countries).

With the IMF and World Bank having revised their respective policies related to the taking-on of external public debt by countries that are subject to an IMF-supported programme (Policy on Public Debt Limits in Fund-Supported Programs) or countries that are either eligible for IDA grants or that are IDA-only recipients of assistance under the Multilateral Debt Relief Initiative (Non-Concessional Borrowing Policy) in 2014 and 2015, the ECG decided that it was necessary to update the 2008 Agreement on Sustainable Lending Principles and Guidelines.

This is because their application was dependent upon the country-specific Debt Limits Policy (DLP) of the IMF and the Non-Concessional Borrowing Policy (NCBP) of the World Bank that, in the past, had been applied on a transaction-by-transaction basis.

Accordingly, in November 2016, ECG Members agreed to a revised set of principles and guidelines (Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Lower Income Countries [November 2016 Revision]) that will now be applied by ECG Members.

According to the new agreement, whenever an ECG Member is considering whether or not to provide support for a transaction involving a public sector buyer (or guarantor) in a lower income country, the member will:

  • take into account the results of the most recent IMF/World Bank country specific debt sustainability analysis (DSA) conducted within the joint Debt Sustainability Framework,

  • respect the prevailing limits on public sector non-concessional borrowing for a specific country,

  • (for countries with a “non-zero” limit on non-concessional borrowing) seek assurances from appropriate government authorities in the debtor country that the transaction is in accordance with the DLP or the NCBP for that country, and

  • refrain from providing official export credit support for public sector transactions in countries for which a “zero” limit on non-concessional borrowing under the IMF’s DLP or the World Bank’s NCBP has been established.

Under the new agreement, ECG Members have also agreed to important transparency measures. In the first instance, ECG Members will inform the IMF and World Bank about their intention to provide support for any official export credit transaction with a credit value in excess of SDR 5 million involving a public buyer or guarantor in a lower income country that is subject to the IMF’s DLP or the World Bank’s NCBP.

This is meant to ensure that the IMF and World Bank are aware of all potential public external debt obligations related to projects in lower income countries to be supported by official export credits before they are contracted.

ECG Members have also agreed to continue their practice of providing detailed information about all official export credits provided to lower income countries on an annual basis

The November 2016 agreement builds upon a long history of previous ECG agreements on unproductive expenditure (the 2001 Statement of Principles and the revised 2007 Statement of Principles) and sustainable lending (the 2008 Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Low Income Countries).

 

Web links

 

Document links

  • 2016 Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Lower Income Countries [November 2016 Revision] – TAD/ECG(2016)14.

  • 2008 Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Low Income Countries – TAD/ECG(2008)1.

  • 2008 Agreement on Sustainable Lending Principles and Guidelines – TAD/ECG(2008)15.

  • 2007 Statement of Principles – TAD/ECG(2007)10/FINAL.

  • 2001 Statement of Principles – TD/ECG(2001)9.

 

Table of countries

  •  List of lower income countries – not yet available

 

updated: 24 November 2016 (EG)

 

Related Documents