Sri Lanka in ‘restricted’ cover category: ECGC to keep an eye

After Russia, public sector ECGC Ltd, which provides credit risk insurance and related services for exports, has put Sri Lanka, which is going through its financial crisis, in the Restricted Cover Category – I (RCC-I).

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While the present country rating of Sri Lanka remains unchanged as C1 (moderately high risk), its cover category has been changed from Open Cover to Restricted Cover Category – I (RCC-I). For countries in RCC-1, revolving limits are approved specifically on a case-to-case basis, normally valid for a year. However, the premium rates for the shipments insured under the insurance covers will remain unchanged. “This review has been carried out to assess and monitor the risks covered under ECGC’s export credit insurance policies which will enable it to place appropriate risk mitigation measures in place and assist its customers in improving payment realization prospects from buyers in Sri Lanka,” ECGC said.

India had a trade surplus of about $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 tide over the fuel shortage in the country. The ECGC will continue to monitor the developments in Sri Lanka and further review the cover, if necessary, it said. ECGC had recently put Russia in Restricted Cover Category from the earlier ‘Open Cover’ category after its invasion of Ukraine started and the US and EU slapped sanctions.

For a large majority of countries, the ECGC hasn’t placed any limit for covering political risks. Such countries are referred to as ‘open cover’ countries. However, in the case of certain countries where the political risks are very high, cover is granted on a restricted basis and revolving limits normally valid for one year are issued in place of credit limits. A revolving credit limit caps the maximum amount that an exporter can borrow from the line of credit.

The procedure for sanction of revolving limits is the same as for credit limits. In respect of the few remaining countries under restricted cover, which are considered as high-risk countries, specific approvals are given on the merits of each case. Normally the period of validity of the specific approval is six months.

The ECGC provides a range of credit risk insurance covers to exporters against loss in export of goods and services. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss of money. As economic difficulties or balance of payment problems may lead a country to impose curbs on either import of certain goods or on transfer of payments for goods imported, insurance cover helps exporters to recover money.

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