Mobilizing Transformational Finance Investing IFIs, MDGs and the Post-2015 Development Agenda

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1 Mobilizing Transformational Finance Investing IFIs, MDGs and the Post-2015 Development Agenda Erik Berglöf Chief Economist European Bank for Reconstruction and Development (EBRD) General Assembly Sixth High-Level Dialogue on Financing for Development New York, October 7-8, European Bank for Reconstruction and Development

2 Outline October 2013 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 2 European Bank for Reconstruction and Development

3 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

4 EBRD does transformational finance Who we are International financial institution founded in 1991 with 64 government and supranational shareholders Our mission To promote transition to open, market-based economies in 34 countries from central Europe to central Asia and the Southern Eastern Mediterranean What we do Provide transformational long-term debt and equity finance, mostly to private sector; 1/3 to climate change mitigation

5 The Post-2015 Agenda and EBRD 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 European Bank for Reconstruction and Development

6 Europe transition countries catching up

7 Similar trajectories for groups of countries

8 Productivity growth linked to reform

9 In Central and Eastern Europe: private capital fuelled growth Central and Eastern Europe Other Emerging Markets Source: WEO database April

10 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...

11 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

12 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

13 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