The Export Guarantee Fund of Iran, the main export credit agency, said it covered export risks worth $2.6 billion during the last fiscal year that ended on March 19.
This was a 20% growth compared with a year earlier, according to a report on the fund’s yearly performance, published on its website.
Short term insurance cover amounted to $1.2 billion, representing 46% of the total cover provided to non-oil exporters last year – up 42% annually.
Likewise, the short-term and mid-term covers reached $834 million to post a 16% rise on year-on-year basis.
The state-owned agency, affiliated to the Ministry of Industries, Mining and Trade, is in charge of supporting domestic non-oil exporters by providing export guarantees and insurance to cover risks.
EGFI issued export credit guarantees both in rials and foreign exchange. Accordingly, the value of credit guarantees in foreign currency amounted to $537 million and rial-based credit guarantees were worth 8.12 trillion rials, respectively, indicating 2% and 10% hike annually.
The report did not reflect on the amount of payouts by the EGFI. However, the fund said payouts declined 63% compared to a year before, ascribing it to the “EGFI’s more accurate assessment and management of credit risk.”
In tandem with declared policies to expand export to neighboring countries, the fund said it increased credit services to exporters trading with neighbors by 66% last year.
Businesses and the relevant authorities in Iran strive to build trade with neighbors as an effective approach to mitigate losses inflicted by the hostile US economic sanctions.
Future Plans
To cope with the harmful effects of US restrictions on Iran’s foreign trade, the EGFI has outlined a plan of action
It says it wants to expand insurance cover capacity for exporters from the previous $2 billion to $2.3 in the current calendar fiscal year.
It also plans to issue export credit guarantees worth $700 million with priority to Eurasia countries.
Among other things, the fund has a mandate to cover risks pertaining to export of technical and engineering services, facilitating conditions for trading goods and commodities at the Iran Energy Exchange and Iran Mercantile Exchange and cooperating with peer funds to design credit instruments that can replace banking guarantees due to the US sanctions on the banking industry .
EGFI says its export insurance cover provides the best substitute for letters of credit issued by banks at a time when the economy is burdened by banking restrictions imposed by the United States.
Credit Crunch
To improve its ability to cover export risks, the EGFI says it has plans to boost its capital. Despite the dire need to increase non-oil exports, the agency currently has capital worth $100 million, which hardly accounts for 2% of Iran’s total non-oil export.
As per global norms, export credit agencies should cover risks ten times their capital.
Afrouz Bahrami, the EGFI bos, earlier said that export risks covered by the fund are far above its capital and goes as high as 30 times its current capital.
The figure is pretty low compared to the capital of export credit agencies in neighboring countries. A peer guarantee fund in Saudi Arabia has a capital of $4 billion and capital of the Export Credit Bank of Turkey (Eximbank) is $2 billion.
The Iranian credit agency is set to increase its capital by €100 million ($109 million) as envisioned in the March 2020-21 budget and is struggling to increase the amount to enhance performance.
It has been reported that the agency wants to procure funding from the National Development Fund of Iran, the sovereign wealth fund.
