Sri Lanka in ‘restricted’ coverage category: ECGC to watch
After Russia, the public sector ECGC Ltd, which provides credit risk insurance and related services for exports, has placed Sri Lanka, which is going through its financial crisis, in Restricted Coverage Category – I (RCC- I).
Although Sri Lanka’s current rating remains unchanged as C1 (moderately high risk), its coverage category has been changed from Open coverage to Restricted coverage Category – I (RCC-I). For RCC-1 countries, revolving limits are approved specifically on a case-by-case basis, normally valid for one year. However, premium rates for shipments insured under the insurance coverages will remain unchanged. “This review has been conducted to assess and monitor the risks covered by ECGC’s export credit insurance policies, which will enable it to put in place appropriate risk mitigation measures and assist its customers to improve the payment realization prospects of buyers in Sri Lanka,” the ECGC said. .
India had a trade surplus of around $3.8 billion with Sri Lanka in 2021. While India’s exports were $4.8 billion, imports stood at $979 million . EXIM Bank of India recently signed a $500 million line of credit agreement with Sri Lanka to alleviate the fuel shortage in the country. The ECGC will continue to monitor developments in Sri Lanka and revise coverage as necessary, he said. The ECGC had recently placed Russia in the restricted coverage category of the previous “Open Coverage” category after the start of its invasion of Ukraine and the sanctions imposed by the United States and the EU.
For a large majority of countries, the ECGC has set no limits to cover political risks. These countries are called “open coverage” countries. However, in the case of certain countries where the political risks are very high, cover is granted on a restricted basis and renewable limits normally valid for one year are issued instead of credit limits. A revolving credit limit caps the maximum amount an exporter can borrow from the line of credit.
The procedure for sanctioning revolving limits is the same as for credit limits. For the few countries remaining under restricted coverage, which are considered high-risk countries, specific approvals are given on a case-by-case basis. Normally, the period of validity of the specific approval is six months.
The ECGC offers a range of credit risk insurance coverage to exporters against export losses of goods and services. The commercial risks of bankruptcy or loss of ability to pay by a foreign buyer are aggravated by political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of payment risks, both political and commercial, and to allow them to expand their business overseas without fear of losing money. Since economic difficulties or balance of payments problems may cause a country to impose restrictions on the importation of certain goods or the transfer of payments for imported goods, insurance coverage helps exporters recover ‘money.