Iran's ECA Covers $1b Exports in 5 Months

EghtesadOnline: The Export Guarantee Fund of Iran covered non-oil exports worth $1 billion in the first five months of the current fiscal year (started in mid-March), head of EGFI said.

News ID: ۷۸۴۸۳۷

02 September 2019

The figure shows 60% growth in the export credit agency insurance cover compared to the similar period last year, according to EGFI website.

EGFI expects to increase coverage to $2.5 billion by the end of this fiscal year [March 2020), Afrouz Bahrami told a seminar on promoting exports during sanctions.

According to media reports, EGFI is able to cover export risk to the tune of $2.3 billion or 5% of the Iran’s $40 billion non-oil export market, Financial Tribune reported.

She ascribed the significant growth in the performance of EGFI to increase in the number of applications for covering risk emanated from US sanctions, diversification of guarantee services, customizing services to make them compatible with expert requirements and rising promotional activity of the fund.

Bahrami reiterated that the increase in number of requests for risk coverage was due mainly to exporters’ fears of the adverse side-effects of US sanctions re-imposed by Donald Trump last November.

She pointed to the commercial and political risks as the main concern for exporters, recalling that “these risks may render repatriating export earnings difficult”.

EGFI has managed to diversify its customer base. Previously its cover largely included petrochemical companies, but now mineral firms are also on board.

Capital Inadequacy

While Iran is grappling with tough economic sanctions on its oil exports and despite the dire need to increase non-oil exports, its export credit agency has a capital worth $100 million, hardly accounting for 2% of the total value of the total non-oil export.

The figure is pretty low compared to the capital of peer export credit agencies in neighboring countries.

A peer guarantee fund in Saudi Arabia has a capital of $4 billion and the capital of Export Credit Bank of Turkey (Eximbank) is worth $2 billion.

“The capital of some peer funds in neighboring countries is 40 times above Iran’s fund,” Bahrami said.

Recalling the need to enhance non-oil exports and the importance of the EGFI role in covering export risk during sanctions, Bahrami referred to a letter to President Hassan Rouhani asking permission to boost the fund’s capital.

The EGFI chief underscored capital inadequacy as a main challenge and spoke of government and parliament pledges to help raise EGFI capital up to $200 million by next year.

“As per international standards, capital inadequacy is an impediment to the expansion of risk coverage capacity of the fund.”

Bahrami recalled changes in EGFI functions since its inception in 1973, saying that the fund’s mandate has gone through changes over time subject to political and economic developments.

In the past EGFI issued guarantees merely to cover commercial and political risk, but lately it has extended services to grant low-interest credit to export companies.

Last month she announced to a decision approved by the Money and Credit Council -- the a top monetary decision-making body affiliated with the Central Bank of Iran -- based on which export companies can receive low-interest credit from the fund.

The fund offers loans in foreign currency at 2% and loans in rials at 1%.

EGFI was established in 1973 as the first export credit agency in the Middle East and North Africa.