The High Council of Economic Coordination approved a proposal Sunday to increase capital of the Export Guarantee Fund of Iran, the main export credit agency.
The council, which is an ad-hoc body comprising heads of three branches of power to fast-track macroeconomic decisions, agreed to increase EGFI capital threefold by adding $200 million, according to its managing director Afrouz Bahrami.
Despite the need to boost non-oil exports, the agency’s capital was until recently $100 million, hardly accounting for 2% of the total non-oil export.
“The total capital of the EGFI will now reach $300 million,” Bahrami was quoted as saying by IRNA.
He added that the capital boost will substantially increase the EGFI’s risk cover, which is considered a “big step in supporting production”.
The figure is higher than the amount approved by lawmakers during annual budget (fiscal 2020-21) debates in February.
EGFI was due to increase its capital by €100 million ($109 million) as envisioned in this year’s budget.
Despite the need to boost non-oil exports, the agency’s capital was until recently $100 million, hardly accounting for 2% of the total non-oil export
Reports had said the agency should procure funding from the National Development Fund of Iran, the sovereign wealth fund.
However, Bahrami said the credit agency will procure part of the funds approved by the top economic council from EGFI’s own resources.
He stressed that a $100-million increase would not suffice, arguing that the EGFI covers approximately $3 billion in export risks, which is far above its current capital. “This means the risks we take are 30 times over and above our capital”.
As per global norms, export credit agencies should cover risks ten times their capital.
Even if the EGFI adds the agreed $200 million to its capital, the figure would still be low compared to the capital of similar agencies in neighboring countries. A peer fund in Saudi Arabia has a capital of $4 billion and capital of the Export Credit Bank of Turkey (Eximbank) is $2 billion.
Plan of Action
With a mandate to help promote non-oil exports by providing local companies export guarantees and insurance, the state-owned credit agency has announced a plan to safeguard exports during the current fiscal year.
It says it wants to expand insurance cover capacity for exporters from the previous $2 billion to $2.3 in the current calendar year.
It also has plans to issue export credit guarantees worth $700 million with priority to Eurasia.
Among other things, the fund has a mandate to facilitate 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 with added banking challenges due to the tough US penalties.
