Strategy evolved to set up Export Credit Agency

The Trade Development Authority of Pakistan (TDAP) has evolved a plan to establish an exclusive Export Credit Agency (ECA) with adequate capital support from the government to augment the country's exports share by $300 million immediately in the world markets.
Sources in the TDAP told Business Recorder on Friday that the proposed ECA is part of the trade policy 2007-08 aimed at achieving a quantum leap in the country's exports. It is estimated that with the formation of ECA, the country's overall exports will grow by 30 million dollars within the first year, sources said.
There is already a company, Pakistan Export Finance Guarantee Agency Ltd, (Pefga) which is likely to be restructured and named as ECA, sources informed and adding that Pefga is having 11 local banks and Asian Development Bank on board.
The proposed agency will be an insurance company with a special status of providing financial guarantees, sources said adding that its issued guarantees will be saleable to any bank.
Sources said that the ECA, proposed to be run by a private management under the government's umbrella will also finance small and medium enterprises, as normally 99 percent of commercial banks do not provide such facilities in the country.
They elaborated that ECA is necessary in the prevailing circumstance, as the private banks normally engage in export finance are unwilling to accept country risks, like political one. Sources added that such banks do not support a transaction without risk of payment for unavailability of L/C or longer tenure risk carrying terms.
The risk assessment of non-L/C transaction and country risks are the specialised areas of ECA unlike commercial banks, sources maintained, adding that the government often offers better terms than financial institutions.
Citing the example of China, sources said that its market has attracted record buyers through such innovative products, supporting exporters financially, while Canada calls it a "hidden weapon".
According to various estimates, sources said that the country's 15 to 20 percent export transactions are made on terms of payment other than secure transaction terms. Expressing fears, they said that Pakistan is losing contracts having commercial risks or country risk as it has no appropriate tool to evaluate the risk factors in such kind of transactions.
"ECA is also one of the basic facilities through which any country could penetrate in the new export markets," Sources said adding that it will also provide financial support to exporters for establishing businesses in new markets. Sources stressed on the immediate establishment of ECA with complete financial support from the government saying that the country needs innovative approaches in the trade finance area of the banking sector.