Last year, financial trends were very favourable for EKN. Indemnifications were at historically low levels and recoveries were very high.

This is essentially the result of the positive trends in the world economy. The international finance markets are currently enjoying very high liquidity and very few suspensions of payment. The latter is evident in EKN’s reduced indemnifications.

At the same time, the high liquidity has made it attractive for many debtors, particularly governments, to pre pay their debts by refinancing at lower rates on the international finance markets. The prepayments in several Paris Club agreements should be seen in this light. As a result, recoveries in future years will be significantly lower.

Lowest level ever of indemnifications

During the year, indemnifications amounted to only SEK 27 million – the lowest payments in recent decades. This is a very large reduction compared to the previous year’s payments amounting to SEK 199 million. The lower level obviously reflects the healthy economic situation, but is also the result of successful loss prevention. During the year, there were only a small number of commercial losses, and indemnifications for political events have only been paid out for one transaction, in Zimbabwe. In total, indemnifications were paid to 16 guarantee holders, of which two can be classified as small or medium sized exporting companies. The geographic spread of losses remains high, with losses in 15 countries.

Continuing high recoveries

During the year, recoveries were also at record levels, and in total SEK 1.7 billion was repaid from 30 countries under 340 guarantees. As with the previous year’s recoveries totalling SEK 3.2 billion, the major part were due to large prepayments under Paris Club agreements. Algeria, Brazil and Russia repaid their debts. At the end of the year there was also a large repayment from Angola. As previously, most countries honour their contracts and regularly make interest and amortisation payments.

Recoveries on commercial claims have mostly been done by selling claims, but also by agreeing new repayment plans with the debtors. During the year, commercial recoveries were SEK 74 million.

Compensation for debt relief

In February 2006 the Swedish government made a decision about an allocation model for the costs of bilateral debt relief granted by the Paris Club to the poorest countries.
The decision meant that EKN received SEK 266 million as compensation for granting write-offs on agreements reached since the mid-1990s. The compensation covers only a small part of these write-offs.

Repayment agreements

Only a single new multilateral Paris Club agreement has been signed during the year. The agreement was with Cameroon, and means that EKN will grant that country large-scale debt relief once the bilateral agreement comes into force.

At the start of the year, Sweden signed the bilateral agreement with Iraq. This covers claims on guarantees that EKN issued during the 1980s. When a country’s debts are settled by agreement, all accrued penalty interest is capitalised. This means that the agreed debt amounted to SEK 2.2 billion. But at the time the agreement was signed, part of the debt relief granted to Iraq came into force – in total 60 percent of the agreed amount. Debt relief is granted in stages, and another 20 percent will be written off before 2009.

A bilateral agreement has also been signed with Madagascar, granting debt relief on the entire outstanding debt.

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