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1© European Bank for Reconstruction and Development 2013 | www.ebrd.com
General AssemblySixth High-Level Dialogue on Financing for Development
New York, October 7-8, 2013
Mobilizing Transformational Finance – Investing IFIs, MDGs and the Post-2015
Development Agenda
Erik Berglöf Chief Economist
European Bank for Reconstruction and Development (EBRD)
• What is transformational finance?
• The case of Central and Eastern Europe
• Implications for the post-2015 objectives
• MDBs and transformational finance:• Use existing financial institutions
• Develop local financial systems
• Mobilise institutional capital
• Conclusions
October 2013
© European Bank for Reconstruction and Development 2010 | www.ebrd.com
2
Outline
What is transformational finance?
• Finance transforms economies and lives of people• Access to (most) finance => sustainable and inclusive growth
• Use financial institutions to achieve development objectives
• Both equity and debt finance important• Equity more transformative (FDI/private equity funds/EM corporates)
• Broad range of debt needed (trade finance to long-term finance)
• Concessional finance can be transformative• Public finance ”crowd in” - not ”crowd out” private finance
• MDB Principles and DFI Guidelines on Concessional Finance
• Who we areInternational financial institution founded in 1991 with 64 government and supranational shareholders
• Our missionTo promote transition to open, market-based economies in 34 countries from central Europe to central Asia and the Southern Eastern Mediterranean
• What we doProvide transformational long-term debt and equity finance, mostly to private sector; 1/3 to climate change mitigation
EBRD does transformational finance
The Post-2015 Agenda and EBRD
© European Bank for Reconstruction and Development 2013 | www.ebrd.com
The Post-2015 Development Agenda• Extend the MDGs to neglected areas (e.g., governance) and
operational aspects of broader themes (e.g., climate change)
• Critical role of private sector recognised
• A broader role for MDBs
EBRD brings particular experience and skill• Governance and institutional change – measure impact
• Climate change mitigation - one third of what we do
• Private sector critical for inclusion and job creation
Europe transition countries catching up
Similar trajectories for groups of countries
Productivity growth linked to reform…
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Central and Eastern Europe Other Emerging Markets
Source: WEO database April 2013
In Central and Eastern Europe: private capital fuelled growth
MDBs use banks to deliver MDG-type goals:Energy efficiency credit lines
• Provide credit lines to banks to finance energy efficiency
• Build banks’ capacity to assess investment
• Provide incentives to entrepreneurs to invest
• Smart subsidies - maximize impact
• Target CO2 savings (not credit volume or just energy)
• Phase out subsidy element over time
• Subsidy to banks and entrepreneurs only for initial credit lines
• Also promote, for example, water and material efficiency, women entrepreneurs, food security, SME capacity...
MDBs catalyze local financial development:Local Currency and Capital Market Initiative
• Coordinated approach needed; MDBs cannot do it all
• Strengthen banking systems
• Promote non-bank forms of finance
• Reduce risk and dependence on foreign currency funding
• Improve macro and institutional context
• Joint analysis other institutions (IMF, World Bank and AMF)
• Technical assistance + catalytic coordination
• Use EBRD funding activity to help kick-start local markets
• Encourage local currency lending in projects
MDBs mobilize institutional capital: Institutional Investor Partnership
• Key strategic objectives for EBRD
• Mobilise long-term investment into region
• Provide capital for additional equity and debt investments
• Improve EBRD’s investment model and processes
• Objectives for institutional investors
• Diversified portfolio across region, sectors, asset classes
• Origination capabilities - largest foreign equity investor
• Attractive experience (>20 yrs) and risk return profile
• Comply with UN Principles for Responsible Investment
Conclusions
• Finance can transform economies and lives
• MDBs can facilitate transformational finance
• MDBs can measure institutional transformation
• MDBs can provide credit lines to promote MDGs
• MDBs can help build local financial system
• MDBs can mobilize institutional investors