The European Bank for Reconstruction and Development (EBRD) celebrated its 25th birthday at its annual meeting in London on May 11-12. While recognising its achievements over the past quarter of a century, the bank’s leaders stressed the ever-increasing pace of change in its 36 member countries, pointing to what was deemed a moderate and patchy recovery amid significant political and economic turmoil affecting its regions of operations across North Africa, eastern Europe, the Middle East and Central Asia.

The EBRD was established to help central and eastern European countries transition to market economies following the end of the Cold War. Since then it has invested more than $120bn in more than 4,500 projects and provided technical, financial and structural support to enhance the private sector and encourage economic reform in its member countries. More than 80% of the bank’s lending focuses on the private sector.

According to the EBRD’s latest Regional Economic Prospects report, “Average growth across the bank’s 36 countries of operations is expected at 1.4% in 2016, a shade less than the 1.6% seen [in the previous report] last November but above the 0.5% result for 2015.” The report predicts an increase to 2.5% in 2017.

The slightly lower growth expectations reflect falling oil prices, increased financial markets volatility, a slowdown in capital flows to emerging markets and deepening geopolitical tensions across several countries. Capital to emerging markets is expected to stay lower than in previous years as a result of tightening monetary policy in the US. The rise in terrorist attacks has also led to a darker forecast for southern and eastern Mediterranean economies, “where growth is now seen slowing to 2.9% in 2016, a full 1.2 percentage points down from November. A recovery to around 4% is seen for 2017,” the report noted. 

Reducing dependency

This year also sees the Caucuses and Central Asian (CCA) countries celebrate 25 years of independence following the fall of the Soviet Union, but uncertainty is looming as the highly commodities-dependent countries suffer from slowed growth and a drop in trade and cross-border remittances from Russia. According to the EBRD, growth is projected to hit a two-decade low in 2016, which has led to cuts in public investment and decreased private demand.

In response, the EBRD has stressed the need for structural reforms including economic diversification away from commodities, fostering a competitive business environment, modernising exchange rate frameworks, and increased transparency and independence for central banks.    

“The bank is now responding to more varied challenges, and faster, than at any time in its history,” EBRD president Sir Suma Chakrabarti told the meeting. He also announced the bank’s first Strategy Implementation Plan, a framework designed to increase impact through investments and policy delivery as well as through higher capital utilisation. Projects in the bank’s pipeline include those focused on water efficiency, urban sustainability and infrastructure development.

The bank’s established Strategic Capital Framework will now aim to put 40% of its total investment towards the green economy by 2020. The president highlighted the groundswell of reform underway in many member countries, a welcome development in a time of economic troubles. “Several countries have taken important steps towards reforming the power and energy and infrastructure sectors and towards strengthening frameworks for markets,” he said.   

“The bank will continue operation in a difficult context,” Mr Chakrabarti continued. With the bank’s Strategy Implementation Plan and Strategic Capital Framework underway, he emphasised, “I believe the EBRD has the tools, the skills and the expertise to rise to the challenges confronting us.”