The Multilateral Investment Guarantee Agency (Miga) has issued guarantees to Citi and Commerzbank for loans that they are providing to a state-owned Paraguayan bank in a bid to inject US dollar liquidity into Paraguay’s export sector and help the country’s economy bounce back from the Covid-19 pandemic.

As part of its Covid-19 response programme, Miga has agreed to back loans worth up to US$101mn from the two banks to Banco Nacional de Fomento (BNF), enabling the local bank to provide between five and seven-year loans to export-orientated Paraguayan corporates.

Proceeds from the loans will go towards agricultural, services, commercial and industrial activity nationwide, and will boost support for exporters by targeting productive investments, including the purchase of equipment and raw materials, as well as the expansion of infrastructure and other capital expenditure investments.

By supporting these sectors, the deal will bolster BNF’s part in the wider US$2.5bn economic recovery plan announced by the Paraguayan government in mid-2020, as the country looks to bounce back from the damaging impact of domestic Covid-19 containment restrictions.

“As of September 2020, total exports had contracted by 12.6% as compared to the year before, and with a relatively small, bank-oriented, undiversified financial market, exporters are particularly vulnerable to liquidity constraints and high interest rates,” Miga says.

The agreement – which saw Citi act as the sole mandated lead arranger – marks the first time BNF has secured US dollar funding from the international markets, with the involvement of the development finance institution ensuring it was able to obtain greenback funding at a lower cost than typical market rates.

Commerzbank and Citi were both involved in a similar Miga-backed deal in the final months of 2020, which saw a syndicate of international banks provide US$600mn to Bancomext, a state-owned bank and export credit agency in Mexico.

That credit facility aimed to strengthen the Mexican bank’s funding strategy amid a sharp contraction in export revenues, and provide working capital to companies in sectors seen as key to Mexico’s economy, including agriculture, automotive, construction, manufacturing and tourism.

With its latest agreement backing Paraguayan exporters, Miga says it has sent a “strong signal” to the other financiers BNF is seeking assistance from, including Plata Basin Financial Development Fund and the Development Bank of Latin America (CAF).