trade policy brief
OECD export credits and sustainable lending
March 2019
he Recommendation of the Council on Sustainable Lending Practices and Officially Supported T Export Credits is based on a long line of export credit agreements on the topic. I t is designed to ensure that export credits do not contribute to the run-up of unsustainable external debt by lower income countries. lthough the scope of the Sustainable Lending Recommendation is currently limited to export A credits, its operational nature provides a blueprint that could be applied to all types of official financing.
What’s the issue?
What the OECD can do to help
The need to dramatically scale up sources of financing has been identified as one of the most critical factors in meeting the objectives of the 2030 Agenda for Sustainable Development. However, increasing the flow of capital to finance development in low-income countries can also contribute to the unsustainable accumulation of debt; thereby damaging development prospects as countries are forced to divert important resources to servicing debt.
At the OECD, the 2018 Recommendation on Sustainable Lending Practices and Officially Supported Exports Credits (Sustainable Lending Recommendation) is the latest in a long line of export credit standards on sustainable lending practices that were designed to ensure that the export credits provided by Adherents do not contribute to the run-up of unsustainable external debt levels by lower income countries.
In the context of the tremendous growth in lending to low-income countries (especially from non-traditional lenders) and worrying signs of debt distress in many of these countries, initiatives to strengthen the international financial architecture in relation to debt transparency and sustainability are now at the forefront of discussions taking place in multiple forums, including the G20, UNCTAD, the Paris Club, the International Institute of Finance (IIF), and of course the OECD.
Consistent with the key objectives of the above-listed initiatives, the Sustainable Lending Recommendation is built upon two basic pillars; respecting the debt limits for low-income countries set by the IMF and the World Bank and promoting transparency with regard to the export credit loans and guarantees provided by Adherents to the public sector in these countries. The Sustainable Lending Recommendation stands apart, however, due to the fact that it comprises concrete measures to be applied on a loan-by-loan basis:
Although each initiative has its own specific focus, the common thread amongst them is the need to increase transparency about the debt that is being accumulated by low-income countries in order to enable creditors and debtors to strike the right balance between providing necessary financial resources and maintaining debt sustainability. All of these initiatives also highlight the importance of cooperation amongst borrowers, lenders and international financial institutions.
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1.
Adherents have agreed to respect all prevailing IMF and World Bank limits on public sector borrowing; this means that non-concessional export credit loans and guarantees cannot be provided to the public sector in any country with a “zero” limit on non-concessional borrowing.
2.
For countries with a “non zero” limit on nonconcessional borrowing, before providing an export credit loan or guarantee to the public sector, Members committ to:
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OECD export credits and sustainable lending •
seek assurances from appropriate government authorities in the debtor country that the transaction is in accordance with the limits set by the IMF and World Bank, and
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inform the IMF and World Bank about their intention to provide an export credit; this is meant to ensure that the IMF and World Bank are aware of all potential public external debt obligations related to export credit-supported projects in lower income countries before they are contracted.
Adherents also agreed to provide detailed information about all official export credit loans and guarantees provided to lower income countries (private and public sector) to the IMF and World Bank on an annual basis. Although the scope of the Sustainable Lending Recommendation is limited to export credits, its operational focus could also make it relevant to other types of financing. Indeed, the Development Assistance Committee (DAC) have undertaken the process of adapting and integrating it into its rules for the reporting of Official Development Assistance (ODA).
Further reading • OECD. “Recommendation of the Council on Sustainable Lending Practices and Officially Supported Export Credits.” OECD Legal Instruments, http://legalinstruments.oecd.org/ en/instruments/OECD-LEGAL-0442. • International Monetary Fund. “Factsheet - The Joint World Bank-IMF Debt Sustainability Framework for Low-Income Countries.” IMF, www.imf.org/en/About/Factsheets/ Sheets/2016/08/01/16/39/Debt-SustainabilityFramework-for-Low-Income-Countries.
www.oecd.org/trade
tad.contact@oecd.org
@OECDtrade