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Sustainable lending

Sustainable lending

Sustainable Lending is one of the good governance disciplines that are, since the late 1990’s, managed by the Members of the OECD Working Party on Export Credits and Credit Guarantees (ECG).

Lower income countries have often struggled with large external debts that can overwhelm their ability to reduce poverty or provide essential government functions. Although many of these countries are not traditionally important markets for official export credits, ECG members nonetheless recognise that the provision of export credits to the public sector could play a role in the run-up of unsustainable external debt levels by these countries, and that due consideration of this risk should be taken before providing such support.

As a result, since 2008, ECG Members have adhered to a set of Principles and Guidelines to promote sustainable lending practices in the provision of official export credits to lower income countries. These Principles and Guidelines also support the Joint World Bank-IMF Debt Sustainability Framework for Low Income Countries which seeks to mobilise the financing of development needs of lower income countries while at the same time ensuring that that these countries do not build-up excessive debt in the future. In view of the importance that Members attach to sustainable lending, the Principles and Guidelines, which were updated in 2016, have now been transformed into an OECD Recommendation. While an OECD Recommendation is not legally binding, it expresses the common position or will of the whole OECD memberships and therefore may entail important political commitment for Member governments.

The Recommendation on Sustainable Lending Practices and Officially Supported Exports Credits (OECD/LEGAL/0442) was adopted by the Council meeting at Ministerial level on 30 May 2018. It is based upon the ECG’s Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Lower Income Countries [November 2016 Revision] which were adopted in the context of the comprehensive revision by the IMF and World Bank of their policies on debt limits conditionality for non-concessional borrowing.

Sustainable Lending Recommendation Disciplines

The obligations contained in the Recommendation mirror those of the 2016 agreement and thus reinforce the policies and practices adopted by ECG Members in 2016.

The term “lower income countries” refers to countries that are eligible for financing through the International Monetary Fund (IMF) Poverty Reduction and Growth Trust (PRGT) or that only have access to interest-free credit or grants from the International Development Association (IDA) of the World Bank (i.e. “IDA-Only” countries).

According to the Recommendation, whenever an adherent  is considering whether or not to provide support for a transaction involving a public sector buyer (or guarantor) in a lower income country, it will:

  • take into account the results of the most recent IMF/World Bank country specific debt sustainability analysis (DSA) conducted within the joint Debt Sustainability Framework,
  • respect the prevailing limits on public sector non-concessional borrowing for countries that are subject to the IMF’s Debt Limits Policy (DLP) or the World Bank’s Non-Concessional Borrowing Policy (NCBP),
  • for countries with a “non-zero” limit on non-concessional borrowing, seek assurances from appropriate government authorities in the debtor country that the transaction is in accordance with the DLP or the NCBP for that country, and
  • refrain from providing official export credit support for public sector transactions in countries for which a “zero” limit on non-concessional borrowing under the IMF’s DLP or the World Bank’s NCBP has been established.

Under the Recommendation, adherents have also agreed to important transparency measures. In the first instance, this means informing the IMF and World Bank about the intention to provide support for any official export credit transaction with a credit value in excess of SDR 5 million involving a public buyer or guarantor in a lower income country that is subject to the IMF’s DLP or the World Bank’s NCBP. This is meant to ensure that the IMF and World Bank are aware of all potential public external debt obligations related to projects in lower income countries to be supported by official export credits before they are contracted.

Adherents have also agreed to continue the ECG’s practice of providing detailed information about all official export credits provided to lower income countries on an annual basis.

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