BACKGROUND

Over the years, governments across the globe have increasingly used loan guarantees, Public-Private Partnerships (PPPs), guarantees extended to small and medium-sized enterprises (SMEs) to help the public and private sector institutions meet their financing requirements. Loan guarantees have been utilised by governments with different motives such as lowering the borrowing costs of the borrower institutions, keeping recipient firms alive and preventing increases in unemployment, while export credit guarantees are aimed at supporting exporters to increase their international competitiveness. In addition to loan guarantees, there has been increased use of on-lending facilities.

Increased use of the above facilities in advancing policy objectives often exposes governments to fiscal risks. According to an IMF study, the global average fiscal cost of realised contingent liabilities was about 6% of GDP between 1990 and 2014, (IMF, 2017). Given that most governments have limited fiscal space, the materialisation of contingent liabilities often leads to a reallocation of resources from capital projects towards debt service. In addition, contingent liabilities could also crowd out social expenditures such as spending towards health and education hence affecting the government’s inclusion programs. Thus, comprehensive frameworks for the management of guarantees are critical in mitigating the fiscal risks emanating from contingent liabilities.

However, most governments in the MEFMI region do not have the requisite knowledge and skills to design appropriate frameworks to assess and manage the risks arising from loan guarantees. To address this capacity gap, MEFMI plans to conduct virtual training on Credit Risk Assessment Frameworks for Guarantees.

OBJECTIVES

i. To raise awareness of the officials on the available tools and frameworks for assessing credit risks arising from loan guarantees.

ii. To capacitate officials with knowledge on the requisites for developing guidelines for managing guarantees.