Economic think tank urges policy makers to further explore export finance solutions

As Sri Lanka’s exports continue to slow down, Colombo-based economic think-tank Verité Research has urged policy makers to look towards further exploring export finance, an enabling policy that could potentially mitigate challenges faced by the nation’s struggling export sector. While export finance could provide exporters and financial institutions the means to manage risks of international trade, it would essentially allow the export environment to expand and diversify into newer markets, products and players.

“It (export finance) remains a highly relevant, yet a severely underutilized set of tools, to revitalize Sri Lanka’s sluggish export sector,” emphasized Verité Research. While the government in its 2016 budget endorsed the setting up of an Exim Bank, Verite stressed measures should also be taken in three key areas i.e. introducing new and innovative export finance s o lu tions, improving access to reliable and updated information, and improving professional capacity and credibility of the institutions.

The key weaknesses in facilitating export finance and promoting exports include the limitations in resources and expertise on the subject. This, Verité said is in addition to the low level of policy focus, government support and initiative to facilitate the same. “I t is essential for the government to take a proactive role in helping build capacity and encouraging institutions in-turn to play a proactive role in facilitating this endeavour,”

stressed Verité Research. To introduce new solutions, Verité stated due emphasis must be given to this area so that alongside the increasing of capacity and competitiveness of exports, steps could be taken to improve cash-flow liquidity of exporters, incentivise access to new markets, and develop innovative and tailor-made financing facilities to increase participation of SMEs and domestic market oriented companies in exports

Sri Lanka’s SME sector is adversely affected by the lack of access to finance at a reasonable price, and to overcome this, it has been recommended to extend support by providing credit, risk mitigation instruments, and information.

Sri Lanka is yet to support the small scale sector with such systems, though several other countries have already set examples to follow. On increasing access to ‘reliable’ information, it has been pointed out that institutions such as the Sri Lanka Export Credit Insurance Corporation (SLECIC) and the Export Development Board (EDB) could play significant roles in improving availability of information to exporters and financial institutes to better assess and mitigate risks.

“Sector specific institutes that have specialized knowledge in their respective sectors can help design special export finance packages tailor made to meet the needs of specific sectors.” Verité noted. It has been suggested that organizations such as the Credit Information Bureau (CRIB) of Sri Lanka could link up with credit information providers in other countries to provide information on foreign buyers.

“Government-backed organizations like EDB as well as sector specific EPAs can play an active role in creating awareness amongst the SME sector on export finance, and even facilitate training to enhance the financial and technical competence of SMEs,” Verité said. Though export finance could play an important role in addressing some of the key challenges faced by the local export sector, critical supply and demand side constraints prevent it from playing a more proactive role in facilitating and promoting exports.

“The sector (export finance) suffers from two types of information asymmetries. The first is lack of foreign buyers and market information, and the second is lack of awareness among exporters about export finance instruments and its benefits,” Verité noted. Export Finance instruments in Sri Lanka are underdeveloped and the availability as well as its utilization remains low. According to Verité, the percentage of export transactions covered by export credit guarantees and insurance in Sri Lanka is around 2-4 percent, whereas the international average is of 10-12 percent.