Valuation and efficient allocation of GSM export credit guarantees

Estimates of country-level loan default distributions are developed and used in a loan guarantee model to value the contingent liability of USDA's General Sales Manager (GSM) export credit guarantee portfolio. The results quantify the relationship between increasing guarantee coverage and the resulting actuarial liability to the government. Optimal coverage levels and optimal country-level allocations are determined for given policy objectives and coverage totals. Findings reveal that the government's allocation of country guarantees is risk-inefficient; and guidance is provided for making risk-efficient allocations for any program size.