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Evaluating Public Credit Guarantees: Insights from Nigeria, Italy, and Chile

This session delves into the complexities of public credit guarantee schemes, highlighting Nigeria’s ACGF, Italy’s SGS, and Chile’s FOGADE. Issues such as high loss rates, the effectiveness of guarantees, and potential redesign are critically examined. The discussion questions whether these schemes serve political or economic purposes, and whether they effectively address financing gaps in sectors like SMEs. Key considerations include the role of risk-adjusted premiums, the influence of design on outcomes, and the real impact on economic value through employment and growth.

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Evaluating Public Credit Guarantees: Insights from Nigeria, Italy, and Chile

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  1. Credit Guarantees-Session III Alain Ize

  2. What justifies public guarantees: Stiglitz-Weiss or Arrow-Lind?

  3. Playing safe or making a difference?Which risk to target?

  4. Nigeria’s ACGF • The scheme seems to be dysfunctional: • Heavily subsidized... • The forty percent loss rate undermines discipline?... • Yet, guarantees remain unpaid? • Can it be salvaged through better design and implementation? • Or is it simply the wrong tool? (poor structural returns cannot be addressed through guarantees) • The paper needs to go back to basics: • Basic description of scheme’s design and history • Basic statistics (adjusted for inflation) • Basic cost-benefit analysis

  5. Italy’s SGS • Does the scheme make more political than economic sense? • Subsidy-light scheme (non actuarially adjusted premia) • But is there too much risk hedging? • Is the Italian SME sector large because it is well financed?... • Increasing orientation towards MGIs seems to make sense • Well designed analysis but: • Is the control group really comparable? (profits) • Have the beneficiaries produced more economic value (employment, growth, investment, etc.)?... • …or has the increased bank debt been simply offset by a reduction in other forms of financing?

  6. Chile’s FOGADE • The scheme is clearly new wave: • Non-subsidized, risk-adjusted premia… • Auctions should further enhance efficiency • Interesting analysis but some key issues unanswered: • Guarantees clearly matter in some sectors (more guarantees induce more loans)… • …but how much, we do not really know... • The paper makes interesting points about the lack of correlation between ex-post risk and guarantees… • …but there are other (perhaps more plausible) explanations: • Unexpected risk does not show up (yet?...) in the data • Banks are unwilling to stick the expected risk to FOGADE (risk adjusted premia + big brother superintendent watching) • Benefits of guarantees is regulatory and independent of risk (at least in the non insurance intensive sectors)

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