The head of UK Export Finance, the government body tasked with helping British businesses trade across the globe, has demanded a ministerial direction to go ahead with a plan to double its exposure in Iraq to £2bn.
Louis Taylor asked international trade secretary Liam Fox to approve the additional £1bn, which will be used to support exports to the country, after warning that it would “fall outside of UKEF’s established risk framework, which includes limits on the amount of capacity which can be deployed in individual markets based on its risk rating and the size of its economy”.
He added: “For this reason, it would be outside my authority as accounting officer to approve such an increase. While I am satisfied that the increased market capacity, once fully deployed, would not in itself cause UKEF to breach its financial objectives across the portfolio, it would have the potential to disproportionality consume our reserves and available risk appetite if we were to incorporate this support within those financial objectives.
"This could have the effect of crowding out support for exports to other markets that UKEF may otherwise wish to support.”
Although Taylor acknowledged that UKEF’s existing £1bn support facility for exports to Iraq is “now effectively fully deployed”, he said he needed to ask for the direction to meet the tests of value for money, and for regularity and property, in the Treasury’s Managing Public Money guidance.
“The key tests in this case are regularity in operating within UKEF’s established risk framework, and value for money in terms of the highlighted potential portfolio impact in the event that the Iraqi government were to suffer debt distress,” he said,
“However, I recognise that you may wish to take a wider view of the benefits which UKEF’s ability to support additional priority projects in this market may achieve, and which projects would promote UK national interests.”
In his response, Fox said that having received legally-required consent from Treasury ministers, he was formally directing the finance chief to proceed with increasing UKEF’s available market risk appetite for Iraq by £1bn, to enable it to support further priority projects in the market.
"I also confirm that you should continue to apply UKEF’s established risk standards when considering the acceptability of individual transactions in this market,” he said.
He noted the concerns around the risk of the increased exposure, but said the move was “in the national interest in order to support Iraq’s economic development, promote nation-building and to support additional UK exports to Iraq”.
Taylor’s letter was sent to Fox on 5 April, with the secretary of state responding on 12 April. Four days later on a visit to Iraq, Fox announced the additional capacity, stating it would be used to help UK companies selling to Iraq or invest in the country, or help the government of Iraq access finance for projects that source goods and services from the UK.
“The British government, working closely with the UK private sector and our Iraqi partners, have a key role to play in the country’s long-term prosperity. The £1bn we have announced today will significantly strengthen our ability to do just that,” he said.
This is the first ministerial direction to be issued in 2019. Seven were issued in 2018, the most since 2009.
Four of these sought approval for Brexit-related spending before legislation had been passed, while three others related to policy matters – the decision not to recover overpayments made to local authorities as a result of calculation errors; the feasibility of implementing T Level qualification before 2020, and support for export of Typhoon aircraft to Qatar, also sought by Taylor.