Thrice-proposed EXIM Bank plan on the back-burner
Sri Lanka has put the proposal made to establish an EXIM Bank on the back burner despite a pressing need of export finance for the acceleration of the country’s exports, a study conducted by an independent think tank revealed.
The government has repeated this 2016 budget proposal in 2017 and 2018 budgets respectively carrying forward the financial allocations made for this purpose.
The Treasury appears reluctant to implement the thrice- made budget proposal as it demands massive capital requirement, a senior Finance Ministry official who wished to remain anonymous told the Business Times.
A sustained export development will not be possible till the establishment of a specialised financial institute such as an EXIM Bank, he said, adding however that the country cannot also afford to rush in to setting up this institution although it has allocated Rs.10 billion for the proposed bank in 2018 budget.
Sri Lanka’s budget for 2018 has announced plans to build a bank for start-ups and small and medium enterprises with a tax payer funding of a massive Rs.10 billion.
Finance Minister Mangala Samaraweera said start-ups and SME lacked capital when they did not have collateral.
“The government’s objective is to ensure that no entrepreneur is ever denied credit due to the lack of collateral, but is able to access financing given the viability of the project proposal,” he has said.
“Towards this end, the Treasury will facilitate the establishment of a Development Bank with an EXIM window, to enable the much needed long term financing for private sector ventures,” he disclosed.
“Until the bank is established, the government will continue with the targeted, existing and the proposed loan schemes,” he revealed.
The proposal to set up the EXIM Bank, with an initial capital of Rs. 25 billion, subscribed jointly by the government and the industry was made in the 2016 budget.
It had also been proposed to allocate Rs. 50 million as seed capital being the contribution of the Government to the EXIM bank that was supposed to operational from April, 2016.
According to the budget proposal, it was also envisaged to list this company in the CSE.
However the very same proposal was included in the 2017 budget without mentioning that this same proposal was passed in parliament in 2016.
Finance Minister Ravi Karunanayake told parliament during his 2017 budget speech in end 2016 that a sum of Rs.10 billion would be allocated as initial contribution for the establishment of the EXIM Bank.
This bank is a government or semi-government agency which commonly provides insurance cover to exporters against losses from non-payment by the importers, as a means to promote the country’s foreign trade.
Other services offered by EXIM Bank may include marine insurance, post-shipment discounting of invoices, pre-shipment advances against confirmed orders, and help in finding new markets, the Finance Minister revealed in parliament last year.
Making the matter more controversial, the government has presented a supplementary estimate in parliament in 2018 allocating Rs.10 billion to set up the bank.
A supplementary estimate should be presented in parliament to provide funds to the Government to meet new or increased costs.
But it is unclear as to why the government has presented a supplementary estimate with a view of allocating a sum of Rs. 10 billion for the setting up of EXIM Bank when the money has been allocated for it from two previous budgets and passed in parliament, an economic analyst said.
The government should find out other solutions to tackle the export finance issue if the establishment of the EXIM Bank proposed in three consecutive budgets is further delayed, Research Director of Verite Reseach, Subhashini Abeysinghe pointed out.
She noted that the money allocated to set up this bank could be utilised for alternate financial instruments that could help mitigate risks borne by exporters.
This function is becoming more important in the international market, where buyers with higher bargaining power set the payment terms, she added.
Infusing capital needed to set up an EXIM Bank has become a difficult task although a sum has been set aside for this purpose; a the senior Finance Ministry official said pointing out that the government’s revenue is not sufficient to meet day-to-day expenses and repay the massive debt.
The Commonwealth Secretariat will help formulate the proposed Exim Bank of Sri Lanka, he said disclosing that the Commonwealth Office in London gave the first Exim Bank concept paper to the Government of Sri Lanka after it was proposed in the budget.
Export finance is a policy tool available to the government to assist in overcoming these challenges and reviving the export sector. However this is one of the most underutilised policy instruments in Sri Lanka, he said.