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Proposal for UK aid money to be used to promote western exports

The UK’s Department for International Development is considering using aid money to subsidise lower interest rates for export credits for some low income countries.

Export credits are government backed loans to foreign governments and private companies to buy exports from the lending country. Under OECD rules, Western government export credit agencies, such as UK Export Finance, are only supposed to lend to some low income country governments at lower interest rates. But UK Export Finance does not have such a ‘concessional lending’ arm so the UK government claims it is currently blocked from supporting exports to some low income countries.

The response to this ‘problem’ is to propose to use UK aid money to subsidise lower interest rates. However, it is debatable whether it would be illegal under UK law to subsidise loans tied to British exports, so the proposal is for these subsidies to be available to any export credit agency – what the UK government is terming ‘untied export credits’.

But the UK government do expect that UK exporters would benefit from this use of aid money. Documents proposing the scheme hope that 50% of contracts would be won by UK exporters. Reading between the lines, it appears that the proposal is a way to try to use UK aid money to benefit British companies.

In 1994 the World Development Movement won a court case against the UK government over £234 million of aid money being spent on an expensive dam in Malaysia in return for an arms deal. The case led to the UK government formally saying aid should not be tied to UK business contracts (Flickr / Global Justice Now)

In 1994 the World Development Movement won a court case against the UK government over £234 million of aid money being spent on an expensive dam in Malaysia in return for an arms deal. The case led to the UK government formally saying aid should not be tied to UK business contracts (Flickr / Global Justice Now)

Furthermore, even a properly ‘untied’ export credit facility would not be truly untied. Buyers would only be able to borrow through it if buying goods or services from a country with an export credit agency, primarily Western countries and a few middle income countries such as China. However, it remains to be seen which countries export credit agencies would actually be allowed to use it.

A government announcement of whether or not to go ahead with the scheme is expected within 6 months.


Countries

United Kingdom
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