While COVID-19 has been the major topic in all international debates for the past two years, today we are gradually starting to assess our activities in anticipation of a recovery phase.
The time is therefore ripe for drawing some preliminary conclusions about the critical support provided to the trade finance industry by SACE – and by export credit agencies in general – during the crisis, and for considering the role ECAs will continue to play in the transition to a more sustainable and resilient global economy.
Differently from the global financial crisis of 2007-08, the COVID-19 crisis was rooted in the real economy and caused a drop in global trade, with an increase in corporate insolvencies and bankruptcies worldwide.
Within their scope of supporting exports, ECAs reacted fast by introducing measures aimed at providing liquidity support and avoiding potential defaults of private and public debtors, in close coordination with banks and other market players.
In addition, as governments set up emergency relief programmes to support their economies, several ECAs saw their mandate further expanded, well beyond their traditional focus on export and internationalisation.
SACE support for Italian SMEs during COVID-19
Globally, SACE is probably one of the best examples of how some ECAs were able to significantly raise their profile in the course of the crisis.
The Italian government assigned SACE a pivotal role in facing the emergency, introducing new tools directly managed by the ECA such as “Garanzia Italia”, a temporary state guarantee scheme to support Italian companies affected by the pandemic.
The results that have been achieved so far under this programme speak for themselves.
In 20 months, SACE has guaranteed almost 4,400 bank loans extended at preferential terms for investments and working capital needs, for an overall amount of €32 billion.
Moreover, 99% of these guarantees were processed through a simplified digital procedure, with approval provided within three days from the time of the bank’s application.
SACE also remained very much focused on the traditional export credit activities, playing a key stabilising role.
The approval of payment deferrals and debt holidays on outstanding transactions considerably limited the impact of the pandemic on the level of claims, especially in hard-hit sectors such as cruise shipping and aircraft, where debt restructuring was crucial to give big international buyers the ability to continue their activities.
Alongside that, SACE put in place a reinsurance mechanism aimed at supporting the various providers of short-term credit insurance operating in Italy.
All major private insurance companies active in the sector benefitted from the initiative, covering almost the entire Italian market.
Looking at sovereign counterparties, SACE – similarly to other ECAs – participated in the coordinated Debt Service Suspension Initiative (DSSI) launched by the G20 and implemented by the Paris Club1 to defer restructured debt payment for eligible low-income countries.
The suspension was further enhanced with the establishment of a Common Framework aimed at providing a more structural debt treatment for eligible countries, involving both public and private creditors.
Clearly, only time will tell whether these actions have been sufficient or whether we will experience a delayed surge in claims in 2022 or later.
The phasing out of government support measures will need to be managed carefully in order to avoid disruption and insolvencies.
Likewise, countries that have accumulated unsustainable debt during the pandemic will still deserve special attention.
Meanwhile, many green shoots are seen in Italy and abroad which will likely have a positive impact on exports this year.
SACE on green finance and climate change
As we hopefully transition away from the pandemic, the other major issue to tackle for the global economy and the export finance community remains climate change.
Spurred on by the many visible effects of climate deterioration in our daily lives, the collective focus of governments, business, and media has shifted profoundly to recognise the urgency of this challenge.
The coming years will be critical for reaching emissions reduction targets, and ECA support will also play an important role in this process, both in emerging economies and in many developed countries.
COP26 has seen governments undertaking ambitious commitments, including ending public support for cross-border fossil fuel energy projects by the end of 2022.
The impact on ECAs’ activity will be significant, although its extent might depend on each government’s interpretation and implementation of such commitments.
For the time being, ECA strategies on climate finance still vary considerably, as not every country has the same starting point and path to decarbonisation, or can count on a national industrial base already active in green sectors.
Coordination will be required – within international fora such as the OECD and the G20, and initiatives like Export Finance for Future (E3F) – to ensure that all countries are aligned on the scope of application and timing of the phasing out of support.
We must also take into consideration the peculiarities of each industrial system, so as to preserve a level playing field between exporters.
At SACE, bans on coal and other carbon-intensive technologies have already been introduced through an internal Climate Policy, and we are gradually developing new instruments to increase our contribution to climate goals.
Back in 2020, the Italian government authorised SACE to issue Green Guarantees to support climate-friendly projects and investments in Italy, within the framework of the new EU Green Deal.
Over €4 billion of new transactions have already been supported – and more will follow in the coming months, also thanks to cooperation schemes with banks.
SACE also adheres to the Poseidon Principles, a global framework for sustainable ship finance, and other initiatives will be implemented in the near future.
Looking ahead
In conclusion, today a large-scale and coordinated response is needed to promptly address the many challenges we face in the current business environment, and to ensure solidarity with the most vulnerable countries.
As business facilitators, our responsibility is to keep supporting global trade and further increase the resources available where they are needed the most.
ECAs can play a major role in building more sustainable and resilient economies, always keeping in mind the delicate balance between our main goal – export support – and the social and environmental imperatives that we all acknowledge.
1 The Paris Club is an informal group of official creditors whose role is to find coordinated and sustainable solutions to the payment difficulties experienced by debtor countries. Since its establishment in 1956, the debt treated in the framework of Paris Club agreements amounts to $612 billion.
Read our latest issue of Trade Finance Talks, Spring 2022
