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March 29th, 2017

European Bank for Reconstruction and Development

The European Bank for Reconstruction and Development (EBRD) is a multilateral bank committed to the development of market-oriented economies and the promotion of private and entrepreneurial initiatives in over 30 countries. The EBRD is owned by 65 countries, the European Union and the European Investment Bank. In its last reported year, 2015, it achieved a record €9.4 billion in annual investment.

The initiative

The Agreement to establish the EBRD was signed by representatives of 40 nations, the European Community , and the European Investment Bank (EIB) in May 1990, and came into effect in 1991. At the time of its inception, the EBRD was a swift response to the collapse of Eastern bloc communism. "Urgency and the ability to respond to momentous events swiftly and decisively, whether it be the end of the Soviet Union, financial crises or the ‘Arab Spring,' have been among the EBRD's hallmarks from the start."[2]

During the early 1990s the EBRD's emphasis on the private sector as the main driver for change in Central and Eastern Europe was very well received, establishing its reputation as an expert on transition to the open market. At the time, it was closely involved in areas such as "banking systems reform, the liberalisation of prices, privatisation (legalisation and policy dialogue) and the creation of proper legal frameworks for property rights, all vital ingredients for change".[3]

Over time, it has supported countries going through economic and political crises and helped countries transition to new technologies such as clean energy. From a financial and commercial perspective, there are still significant capital shortfalls that Central and Eastern European countries have experienced during their transition from totalitarianism to democracy. There is a critical need for capital to support the private sectors of these countries as they are still in a vulnerable stage in their growth. "The confidence of commercial banks in the creditworthiness of the Central and Eastern European governments and their privatising or newly-privatised enterprises is a prerequisite to purely commercial lending by purely commercial banks. Such confidence depends heavily on legal and economic reform in the countries in question. The EBRD was in part created to alleviate these problems."[4]

The main characteristics of the Bank, as agreed by its members are:

  • "Political conditionality. The EBRD is the first multilateral development institution to have as its express purpose the fostering of multiparty democracy, pluralism, market-oriented economics, rule of law and human rights;
  • "Environmental protection. The EBRD is required by its Articles of Agreement to promote and take into account environmental concerns and the concept of sustainable development in an environmental context;
  • "Emphasis on the private sector. After hard bargaining in the short period in which the EBRD's Articles of Agreement were prepared, the American view that the Bank should focus on private sector development prevailed. The EBRD is required to invest at least 60 percent of its funds in the private sector and in privatisation. The Bank combines the concept of a merchant or investment bank with that of a development bank; and
  • "European majority. Although the US is the single largest shareholder and exerted some influence in the creation of the Bank, the EBRD is essentially a European institution."[5]

The challenge

In 1989, the communist regimes in Eastern Europe began their collapse. There was a clear need for Western nations, particularly those in the EU, to support the existing or newly-created (or recreated) nations in their transition to democracy and a market economy. The Western nations needed to react quickly to these dramatic events. "In fact, a mere 18 months elapsed between the first mooting of the idea of a European bank, by President François Mitterrand of France, in October 1989, and its opening for business with headquarters in London in April 1991."[1]

The public impact

Since 1991, the Bank has invested over €100 billion in thousands of projects in broad sections of its client nations' economies. "It has helped to narrow infrastructure gaps and improve the quality of services delivered by local authorities. It has promoted the development of environmentally-friendly energy to fuel expanding economies and worked to reduce energy waste and pollution. It has played a key role in supporting the growth of small- and medium-sized firms that are so crucial to job creation and helped ensure more equality of opportunity across societies."[6]

The EBRD is currently active in more than 30 countries from Central Europe to Central Asia and the southern and eastern Mediterranean. The Czech Republic is the only member to have "graduated" and no longer receives investment from the Bank.[7]

In 2015 alone, the EBRD has invested in projects in 35 countries, with commitments to 381 different projects. During this year there was a record of €9.4 billion in annual investment; from these efforts, 35 million people are expected to benefit from investments in municipal and environmental infrastructure projects.[8]

In municipal and environmental infrastructure, specifically, projects financed in 2015 were expected to enable:

  • 1.8 million people to benefit from improved access to wastewater services
  • 1.4 million people to benefit from improved public transport
  • 6.3 million people to benefit from improved solid waste management
  • 244,000 people to benefit from improved district heating
  • over 24 million people to benefit from improved infrastructure.[9]

Stakeholder engagement

The Bank's shareholders include the states that comprise the EU, the EIB, and the US - which is the largest single shareholder in the Bank, and played an influential role in crafting key provisions of its Articles of Agreement.[10]

The EBRD develops partnerships with multiple stakeholders in local and international (business, investment and development communities) that facilitate its work:

  • "We engage with Civil Society organisations in the countries where we work
  • "Donor countries work with us to fund specific projects and initiatives
  • "We team up with financial services providers to develop the financial sector and foster entrepreneurship
  • "The EBRD partners with other international financial institutions such as the World Bank, joining forces in investments, initiatives and policy dialogue."[11]

Political commitment

The bank's political commitment is unique for a development bank, and is evidence of the promotion of the principles of its members. "The EBRD has a political mandate in that it assists only those countries ‘committed to and applying the principles of multi-party democracy [and]pluralism' (...)The EBRD serves the interests of all its shareholders - 65 countries from five continents plus the EU and the EIB - not just those countries which receive its investments (€9.4 billion in 2016). We all stand to gain from the EBRD region's closer and deeper integration into the global economy."[12]

The US and the European institutions are the main stakeholders that are politically committed to the Bank's mission. This is evidenced by their significant financial contributions. "The EU, the EIB and the EU member states combined own 62.8 per cent of the EBRD's capital. As the largest single donor to the EBRD, the EU has accounted for 36 per cent of total grants channelled through the EBRD since the Bank's inception. In 2015 the Bank received over €179 million in contributions from the EU, which represents half of the total donor funding provided to the EBRD that year."[13]

The US, in turn, has contributed €120 million to the EBRD's technical cooperation and investment programmes since inception, and is one of the main sources of foreign direct investment in the EBRD's countries of operations. The value of joint US-EBRD investment stood at €18.8 billion as of January 2016.[14]

Public confidence

There is strong donor support for the Bank's activities: in 2016, the EBRD attracted a record level of donor funds amounting to €445 million, a more than 40% increase on the previous year.[15] There is also public evidence of appreciation of the EBRD's contribution from the benefiting countries themselves:

  •  Relu Fenechiu, a Romanian politician has previously expressed (his) "gratitude to the President of the EBRD, Mr Jean Lemierre, for his activity and good management results ahead of an institution of such international importance". At the time, the EBRD was the largest investor in Romania, with commitments over €2.5 billion.[16]
  • The Republic of Croatia has expressed the view (in 2000) that it looked forward to "close, mutually beneficial cooperation, and wishes to express its gratitude to the management and the entire staff of the EBRD for their valuable assistance and unselfishly shared expertise and knowledge".[17]
  • The Cypriot Minister of Finance, Harris Georgiades has also recently referred to the EBRD's Annual Meeting for 2017 as "an opportunity for us to express our appreciation and gratitude to the EBRD for its significant contribution in the reform and recovery of our economy". The Minister also expressed his gratitude for the organisation's willingness to offer continued support in the case of future economic need.[18]

Clarity of objectives

In its core agreement, in Article 1, the contracting parties ratified their commitment to contribute to economic progress and reconstruction. “In contributing to economic progress and reconstruction, the purpose of the Bank shall be to foster the transition towards open market-oriented economies and to promote private and entrepreneurial initiative in the Central and Eastern European countries committed to and applying the principles of multiparty democracy, pluralism and market economics.”[19]

The EBRD has defined its mission as  being "to develop open and sustainable market economies in countries committed to, and applying, democratic principles"[20] as well as maintaining its core values of leadership, teamwork, diversity, integrity, innovation and professionalism. It aims to achieve its function through the following objectives:

  • "To promote, through private and other interested investors, the establishment, improvement and expansion of productive, competitive and private sector activity, in particular SMEs;
  • "To mobilise domestic and foreign capital and experienced management to promote private investment;
  • "To foster productive investment, including in the service and financial sectors, and in related infrastructure...;
  • "To provide technical assistance for the preparation, financing and implementation of relevant projects...;
  • "To stimulate and encourage the development of capital markets;
  • "To give support to sound and economically viable projects involving more than one recipient member country;
  • "To promote in the full range of its activities environmentally sound and sustainable development; and
  • "To undertake such other activities and provide such other services as may further these functions."[21]

Strength of evidence

There is no previous evidence of the EBRD's model, and it continues to be a rare example of a development organisation with a mandate based on political conditionality.

In terms of evaluation and measurement, its methodology - managed by a dedicated department - is designed around the OECD Development Assistance Committee's Criteria for Evaluating Development Assistance: relevance, effectiveness, efficiency, impact and sustainability.[21] For special studies, evaluation questions may relate to the fulfilment of objectives, sector or country strategies, additionality and transition impact.[22]


The EBRD is owned by 67 shareholders, 65 countries and two international organisations. When each becomes a shareholder, it makes a contribution to the common capital base. Similarly, "additional contributions as well as commitments - in the form of callable credit guarantees - have also been made in the period since the EBRD's founding, contributing to its very strong capital base, which in turn has led to its robust credit ratings".[23] The EBRD's authorised capital stock was originally €10.0 billion, and the Board of Governors approved a doubling to €20.0 billion in 1996; total assets stood at €4 billion at the end of 2015. Such a capital base allows the bank to raise the funds that are eventually used for investment in projects.[24]

The Articles of Agreement of the EBRD establish the guidelines by which the London-based organisation must operate in terms of functions, management obligations and legal restrictions. It suggests a two-part framework for the analysis of policies. "First, there are collateral policies that the Bank must adhere to - policies that do not relate directly to the commercial or financial aspects of a Bank project. These collateral policies are the requirement of political conditionality in Bank operations and the environmental protection mandate of the Bank. Second, there are direct policies that the Bank applies in its day-to-day financing operations - policies that relate directly to the soundness of investments and loans."[25]

In terms of lending, the bank's Articles of Agreement also establish that it may commit a maximum of 40% of its financing to the public sector of its borrowing countries. This financing is also limited exclusively to the development of infrastructure needed for market-oriented economies.[26]


The EBRD's Agreement requires it to have a board of governors, a board of directors, a president, and one or more vice‑presidents. Each of its shareholders is represented on the board of governors, which has overall authority over the Bank.  The board of governors delegates most of its powers to the board of directors. However, it remains responsible for determining membership to the Bank, changes in capital stock, appointment of directors and president of the Bank and decisions around financial statements and determining reserves and allocation of profits. The board of directors is responsible for the EBRD's strategic direction, and also guides the president in his managerial functions. The executive committee and the senior leadership group also advise the president and oversee EBRD activities.[27]

The Bank's approach to management is based on three pillars:

  • "Measurement and monitoring of the transition impact of its projects;
  • "Measurement and monitoring of the project financial results; and
  • "Establishment of operational priorities through country and sectors agreed with countries of operations and approved by the Bank's board of directors."[28]

The measurement and monitoring procedures have been in place since the bank was established, while transition results initiatives have been recently increased.

The EBRD's standards of corporate governance ensure that responsibilities and controls are defined and delineated throughout the Bank. "This structure is further supported by a system of reporting, with information appropriately tailored for and disseminated to each level of responsibility within the Bank to enable the system of checks and balances on activities to function effectively."[29] The Bank also engages in promoting better standards of corporate governance as an investor, and as a law reformer at the country level.


The EBRD has an independent Evaluation Department, which evaluates the performance of completed projects and wider programmes in terms of the Bank's established objectives. The Evaluation Department fulfils two primary functions:

  • "It provides a critical instrument of accountability through objective, evidence-based performance assessment of outputs and outcomes relative to targets; and
  • "It contributes to institutional learning for future operations by presenting operationally useful findings."[30]

An evaluation policy was established in 2013, which specifically outlines the activities and responsibilities of the Evaluation Department, management, and the board of directors and any subordinate bodies. "The policy sets out specific roles, methods, and response by management to evaluation findings, access to information, utilisation of findings, internal circulation and external disclosure." [31] Every evaluation produced by the Evaluation Department looks to identify objectives and results at three levels:

  • "Outputs - the products, capital goods and services which result from an operation
  • "Outcomes - the short- and medium-term effects directly attributable to outputs
  • "Impacts - the positive or negative long-term effects to which an operation contributes, directly or indirectly, intended or unintended."[32]


The Bank's mandate requires it to work in close cooperation with all its members and other organisations. These partners include the IMF, the International Bank for Reconstruction and Development, the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the OECD. "It also needs to cooperate with the UN and its Specialised Agencies and other related bodies, and any entity, whether public or private, concerned with the economic development of, and investment in the countries of scope in the Bank's activities."[33] It has a particularly close relationship with the EIB, and it often collaborates on the EIB on funding, as it has in one of many such projects: "teaming up to support further expansion of Grupa Azoty, Poland's leading chemical and fertiliser company".[34]

In 2013, leaders of the EBRD along with the African Development Bank, the Inter-American Development Bank, the IMF and the World Bank Group pledged close collaboration to support to support the achievement of the UN's Millennium Development Goals. They all pledged strong support for and collaboration with the UN-led process of defining the Post-2015 Development Framework, supporting the integration of concepts of economic, social and environmental sustainability. "They called for a renewed focus on financing for development - with greater leveraging of official development assistance and private sector investment, as well as better domestic resource mobilisation and management and stronger institutions. They pledged cooperation to build the statistical capacity of governments, to enable better policies, for example by deploying the latest techniques for monitoring poverty and inequality, and factoring natural wealth accounting into decision-making."[35]

The Public Impact Fundamentals - A framework for successful policy

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