§ Mr. David EvansTo ask the Secretary of State for Trade and Industry if he will make a statement about the Export Credits Guarantee Department's portfolio management system.
§ Mr. LilleyIn his answer of 18 December 1989 to a question from my hon. Friend the Member for Eastwood (Mr. Stewart), my predecessor announced that the Government had decided that ECGD should continue to provide export credit and financing support for United Kingdom project exports, but that, in order to reduce the costs of such support, radical new methods for the management of ECGD's political risk portfolio would be introduced.
The Government continue to attach great importance to United Kingdom project and capital goods exports and to maintaining a viable and stable framework of ECGD support. However, the international debt crisis, and more recently the events in the Gulf, have shown the risks which are assumed by ECGD to be potentially very significant. Since the onset of the debt crisis ECGD has accumulated a deficit with the Exchequer of over £2.5 billion as a result of claims paid under its guarantees. This deficit has had to be financed by the taxpayer, and further substantial claims payments estimated at around £2.5 billion are expected over the next few years. It is important that future risks are underwritten on a prudent basis.
Against this background, the ECGD has now introduced a portfolio management system—PMS—for its underwriting of project and capital goods exports. The purpose of PMS is to provide a more disciplined and prudent framework for taking decisions about ECGD support for such exports. PMS will allow Ministers better to weigh the national interest reasons for giving such support against the risks to the ECGD and the taxpayer that premium income will not be able to cover underwriting losses.
With regard to PMS, the Government have now taken decisions on the availability of ECGD cover for a number of important overseas markets. It is not the ECGD's policy to disclose details of the amount of cover available for individual markets; exporters should contact the ECGD to ascertain the cover position in respect of contracts they are currently processing.
Under PMS, the ECGD will also be introducing a new premium rating system for its guarantees in respect of project exports. The Government intend to press in international fora for other export credit agencies to charge more economic premium rates for export credit support, but, in the meantime, ECGD will be adopting new premium rates which will be matched more closely to risk. This will mean that rates for higher risk markets will rise, but there will be some reductions in the better risk markets. The new premium system will be introduced in 1991–92. Export contracts which are concluded in 1990–91 will attract premium rates under the current system. The ECGD will announce details of the new system in due course.