High-Risk Markets Absorb a Relatively Large Share of the Eximbank’s Program Subsidy

From fiscal years 1992 to 1996, the Eximbank supported an average of  $13.3 billion in export financing commitments (loans, loan guarantees, and export credit insurance) per year at an average subsidy cost of $750 million. On the other hand, financing commitments to the NIS represented a relatively small share of overall financing commitments yet absorbed a relatively large share (23 percent) of the Eximbank’s total subsidy costs (see fig. 4). Raising Fees for Services Is a Policy Option

One option we identified for reducing subsidy costs at the Eximbank would be to increase the fees charged for the Eximbank’s financing programs while still satisfying the congressional mandate for setting program fees at levels that are fully competitive with other ECAs. Any proposed Eximbank fee increases need to be considered within the context of the ongoing OECD negotiations to reduce government export credit subsidies. In order to remain competitive, any potential Eximbank fee increase should be considered within the broader context of progress made in these international negotiations. According to an Eximbank official, it is hoped that these negotiations will eventually lead to an agreement for fee convergence that would allow for reductions in the costs of OECD members’ officially supported export financing programs. Implications of Reducing Eximbank Program Availability in High-risk Markets

This option would result in a reduction of Eximbank subsidy costs but there could be implications for trade promotion and foreign policy objectives. Various export financing techniques exist that would allow the Eximbank to reduce the risks of some of the transactions in these markets. In that year, the average budgetary cost for project finance deals was about 3 percent, whereas the average cost for all Eximbank-supported transactions was 7.5 percent. The Eximbank’s project finance program has expanded over the past few years and has accounted for an increasing proportion of Eximbank transactions. In 1993, project finance accounted for less than 1 percent of the Eximbank’s total financing commitments. Scope and Methodology

To develop information on how the Eximbank spends its program funds, we reviewed budget data provided to us by the Eximbank and reviewed various Eximbank reports, including annual reports, budget reports from the Office of the Chief Financial Officer, and the Eximbank’s 1992-96 Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States. Our report focused on the Eximbank’s use of its program subsidy appropriation—the largest component of its annual appropriation. GAO’s Comments

1. 2. The report noted that it is difficult to estimate the full impact of fee changes on exporter behavior and states that U.S. exporters’ sensitivity to a fee increase would depend on several factors, including the size of the fee increase, the volume of U.S. exports to a particular market, and the credit risk of the importing market. 3. 4. 5. 6.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed: (1) how the Export-Import Bank of the United States (Eximbank) spends its program appropriation; (2) program options that the Eximbank may want to consider to reduce the cost of its export financing programs; (3) potential implications of these options; and (4) the nature and extent of Eximbank's involvement in a type of financing known as project financing.

What GAO Found

GAO found that: (1) in each of the last 5 fiscal years (FY) 1992 through 1996, the Eximbank has used an average of $750 million of its credit subsidy appropriation to support an average of $13.3 billion in export financing commitments; (2) these appropriations have facilitated exports to areas with important U.S. commercial and strategic interests; (3) high risk markets constituted a relatively small share of the Eximbank's total financing commitments yet absorbed a relatively large share of its subsidy costs in FY 1995; (4) GAO identified two broad options that would allow the Eximbank to reduce subsidies while remaining competitive with foreign export credit agencies (ECA): (a) raising fees for services; and (b) reducing the risks of its programs; (5) both of these options could result in significant reductions in subsidy costs and would allow the Eximbank to continue to operate with reduced federal funding; (6) the specific level of subsidy savings resulting from these program options would be dependent on several factors, including the willingness of exporters and participating banks to absorb increased costs and risks and the reaction of competitor ECAs; (7) the options GAO identified have several trade and foreign policy implications that decisionmakers would need to address before making any changes in the Eximbank's programs; (8) Eximbank officials noted that: (a) any proposed fee increases need to be considered within the broader context of current international efforts to gradually reduce government export finance subsidies; (b) these options could make Eximbank programs less competitive relative to other ECAs; and (c) these options would undermine U.S. government efforts to provide support in some higher-risk markets; (9) the project finance program was created to help U.S. exporters and project lenders compete for contracts for large capital projects in various developing countries; (10) the program has expanded over the past few years and has accounted for an increasing proportion of Eximbank transactions; (11) for FY 1996, project finance deals constituted about 3 percent of the Eximbank's total subsidy costs; (12) although project financing techniques appear to highly leverage available Eximbank resources, Eximbank officials said that this technique is suited only to long-term capital projects that the Eximbank expects to be self-sustaining; and (13) the Eximbank aims to structure its project finance program so as to limit its risks and minimize its budgetary costs.