Due to COVID-19 pandemic, the European Commission (EC) has temporarily expanded the definition of high-risk export markets to include the member states of the European Union (EU) and other countries previously considered to be low-risk. This decision allows the Lithuanian national promotional institution Investicijų ir Verslo Garantijos (hereinafter “INVEGA”) to offer export credit guarantees to the companies that export Lithuanian goods to Europe.
INVEGA`s export credit guarantee means that the state and the exporter share the risk in cases when the buyer based in a non-marketable (high risk) country fails to pay on time or goes bankrupt. Until now, all EU member states, except for Greece, as well as Norway, Switzerland, Iceland, the USA, Canada, Australia, New Zealand and Japan were considered as marketable (low risk) countries and no guarantees were available when exporting to them. Based on this new decision, the EC considers all marketable (low risk) countries as temporarily non-marketable (high risk) countries.
“This is really great news for Lithuanian exporters because normal business practices are significantly disturbed by COVID-19 pandemic”, says Kęstutis Motiejūnas, the head of INVEGA. “Incidents that used to occur only when exporting to Russia, Belarus or Central Asia are now completely possible in the European market, too. Therefore, we are glad we can offer the exporting businesses to solve these issues together because our guarantees help to reduce the risks significantly.”
According to Motiejūnas, INVEGA`s export guarantee is a monetary obligation to cover up to 90% of losses suffered if the buyer fails to pay within the contractual term or goes bankrupt. This guarantee allows the exporter to reduce risks when selling goods or services with deferred payment terms. It ensures protection against the insolvency of foreign buyers that can be caused by political or commercial factors.
All companies that operate for more than one year and have the annual revenue exceeding 100,000 Euro can apply for export credit guarantees. The goods sold or services provided must be of Lithuanian origin to qualify for the guarantee. The Lithuanian origin of goods must be confirmed with the certificate of origin issued by the Lithuanian Chamber of Commerce, Industry and Crafts.
The maximum guarantee sum applicable to any one exporter cannot exceed 2 million Euro. The same upper limit applies to the guarantee sum applicable to any one buyer for all its exporters. The maximum guarantee sum applicable to one buyer selected by an exporter cannot exceed 750,000 Euro. The guarantees will not be available when exporting to high-risk countries that are considered by the European Commission to have money laundering or terrorism funding issues as well as to the target territories (tax havens).
Even though normal business risks are guaranteed, the reliability of the buyer is also an important criterion used in the assessment of applications. The buyer must be in operation for more than two years since its registration and cannot have any debts to the exporter.
As a response to difficulties suffered by businesses due to COVID-19 pandemic, the amount allocated for INVEGA`s export guarantees has been significantly increased. The current total sum of potential export credit guarantees amounts to 32 million Euro.