June 12, 2020

Ex-Im Favors High-Income Nations When Choosing What Exports to Support

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The Export-Import (Ex-Im) Bank of the United States was created with the purpose of helping exporters “when private sector lenders are unable or unwilling to provide financing.” It is also charged with minimizing risks of nonpayment. These two goals are often at odds with each other, as loans with high chances of repayment are precisely those loans for which private lenders are available. The Ex-Im Bank’s dual mandate, therefore, creates incentives that are in tension. Situations where lenders will not step in tend to occur in lower-income nations, while safe loans with high chances of repayment tend to occur in higher-income nations. Prioritizing safe investments over supporting exports where there is lack of credit leads to the oft-observed circumstance that the Ex-Im Bank supports exports to high-income nations far more than to lower-income ones.

Given that private financing is far more readily available in high-income nations, if the Ex-Im Bank were to prioritize the loans that the private sector is actually unwilling to provide, one would expect that the Ex-Im Bank’s focus would be on exports to lower-income countries. However, the bank’s record shows otherwise. Historically, the Ex-Im Bank has favored the goal of providing safe investments over the goal of not crowding out the private sector. Using the World Bank’s classifications of high, upper-middle, lower-middle, and low-income nations, one sees that the Ex-Im Bank’s financial benefits are directed to high-income nations far more than to any other national income category. In fact, aid to exports to high-income nations exceed the other three groups combined.

Ex-Im Insurance, Loans, Loan Guarantees, and Working Capital by Destination of Export, FY 2007–2018Aid to higher-income nations (high-income and upper-middle-income nations) dwarfs aid to lower-income nations (lower-middle-income and low-income nations). While 64 percent, or $136 billion, of the Ex-Im Bank’s aid was directed to exports to higher-income nations, only 13 percent, or $26 billion, was directed to exports to lower income nations. Aid to lower-income nations was lower than aid to the vague category “Multiple Countries,” at 23 percent of all Ex-Im Bank export support, or $49 billion.

Total Ex-Im Bank Aid to Higher-Income Nations and Lower-Income Nations, FY 2007–2018This pattern is not just true in the aggregate, but holds in each year as well, often to a staggering degree. In 2012, the Ex-Im Bank directed $86 billion in aid to exports to higher income nations, while exports to lower income nations received only $2 billion.

Ex-Im Bank Aid for Exports to Higher-Income Nations and LowerIncome NationsMore high-income nations receive exports backed by the Ex-Im Bank than upper-middle-income nations, and this pattern continues down the income ladder: even fewer lower-middle-income nations receive aid backed by the Ex-Im Bank, and still fewer low-income nations receive such exports.

Number of Nations That Received Exports Supported by the Ex-Im Bank, FY 2007–2018Even taking the disproportionate number of high-income nations into account, the same picture as above emerges when considering the average aid the Ex-Im Bank provides to exports to nations of various income categories. The average amount of Ex-Im Bank aid provided to exports to high-income nations is nearly $121 million, whereas the average amount of aid provided to exports to upper-middle-income nations stands at $105 million. Lower-middle-income and low-income nations both fall far short, with the average Ex-Im Bank aid provided to exports to each standing at $68 million and $13 million, respectively. While this is slightly less skewed to the top-income countries than the aggregate data, it is still skewed heavily toward countries with more developed financial markets. This means that it is not just that exports to a larger number of high-income nations are receiving aid, exports to those nations also receive more aid.

Average Export Aid per Nation Receiving Exports by Income Group, FY 2007–2018Looking within income groups reveals that the Ex-Im Bank’s aid is even more highly focused in a few nations than it first seems. Within the high-income group “exports” to the United States were the largest component, at 29 percent of all aid provided to exports to high-income nations. This was followed by the United Arab Emirates, at 10 percent. In the upper-middle-income group, exports to Mexico topped the list, receiving 35 percent of all Ex-Im Bank support for exports to nations in that income category. This was followed by China, at 15 percent. Aid to exports to lower-middle-income nations follows the same trend, with 41 percent of all aid going to exports to India. This was followed by Papua New Guinea, at 12 percent. Lastly, of all aid for exports to low-income nations, 95 percent was directed to exports to just one nation, Ethiopia. The next-largest portion (3 percent) of Ex-Im Bank aid for the low-income nations went to exports to Tajikistan.

Top Destinations for Exports Supported by the Ex-Im Bank by National Income Category, in Dollars, FY 2007–2018The lower the income of the group of nations, the higher the concentration of Ex-Im Bank aid to exports to a single nation within that group. Further, for all national income groups, the share of Ex-Im Bank aid to exports to the top recipient nation is more than double what it is for the next nation.

Top Destinations for Exports Supported by the Ex-Im Bank by National Income Category, Percent of Income Group's Aid, FY 2007–2019The drastic differences in the total dollar values of aid for exports to nations in different income categories makes it clear that exports to lower-income nations receive little Ex-Im Bank aid, while exports to higher-income nations receive the vast majority.

Given the Bank’s conflicting goals, it has clearly chosen to prioritize the security of its own investments at the expense of private financial markets. Why is the Ex-Im Bank supporting exports to nations where financial markets are most developed (i.e., where financing for US exports is already most abundant) instead of to lower-income nations, where the Ex-Im Bank would not be crowding out private lenders?