Sri Lanka’s low credit rating in the world market is restricting the credit exposure of global sourcing suppliers, industry sources say. The main reason for this is the high-risk profile of the country and the inability to service or come up with export insurance premiums that protect an exporter of products and services against the [...]

Business Times

SL elevated risk profile deters suppliers

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Sri Lanka’s low credit rating in the world market is restricting the credit exposure of global sourcing suppliers, industry sources say.

The main reason for this is the high-risk profile of the country and the inability to service or come up with export insurance premiums that protect an exporter of products and services against the risk of non-payment by a foreign buyer. Popularly known as export credit insurance (ECI), it generally covers commercial risks (such as insolvency of the buyer, bankruptcy, or protracted defaults/slow payment) and certain political risks (such as war, terrorism, riots, and revolution) that could result in non-payment.

ECI also covers currency inconvertibility, expropriation, and changes in import or export regulations. ECI is offered either on a single-buyer basis or on a portfolio multi-buyer basis for short-term (up to one year) and medium-term (one to five years) repayment periods.

“Simply put, exporters can protect their foreign receivables against a variety of risks that could result in non-payment with the ECI,” an industry source in the trade financing business told the Business Times. The fact that Sri Lanka can barely manage this, is why the suppliers are reducing their exposure to
Sri Lanka, he added.

“This situation is attributable to several clusters including energy, apparel, print, publishing and packaging resources, food and beverages, agri products and value-added consumer goods,” another industry source explained. He said that due to non-settlement and delays to international creditors, intermediary goods which are essential for value addition and exports are in danger.

A third industry source noted that global energy companies are also refusing to supply on credit lines and are demanding cash. “It is a responsibility of the government to discuss with global energy entities by seeking their cooperation for credit line extensions.” The country’s oil bill has jumped 41.5 percent to US$ 2 billion – in the first seven months of this year, as against last year. This issue of suppliers backing out has come on the back of some overseas corresponding banks refusing to accept letters of credit from local banks.

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