January 30, 2020
European Bank for Reconstruction and Development (EBRD)
The European Bank for Reconstruction and Development
leveraged, allowing them to lend more than the amount of
(EBRD), the first international financial institution of post-
their capital. Shareholder capital contributions generally come
Cold War Europe, was founded in 1991 to ease the path of
in two forms: “paid-in capital,” which generally requires cash
the former communist countries of Central and Eastern
payment to the MDB; and “callable capital,” meaning funds
Europe (CEE) and the former Soviet Union from planned to
that shareholders agree to provide, but only when necessary
free-market economies. Its geographic area has expanded
to avoid a default on a borrowing or payment under a
over time and, today, the EBRD finances projects in 37
guarantee. Two key factors distinguish MDBs from private
countries throughout Europe, the Middle East, and Central
sector banks: (1) the MDBs’ multilateral shareholding
Asia. In total, the EBRD has 69 member countries. The
structure and preferred creditor status; and (2) capitalization,
United States is a founding member of the EBRD and is the
including callable capital that is generally much higher than that
single largest shareholder with a 10% share of the Bank’s
of commercial lenders. This strong capital position facilitates
capital. U.S. membership in the EBRD is authorized by P.L.
the AAA rating of these institutions. Thus, MDBs can offer
101-513, the European Bank for Reconstruction and
loans to developing countries at rates lower than many
Development Act (22 U.S.C. §290l et seq.). On. November
private banks.
19, 2019, President Trump nominated J. Steven Dowd to be
the U.S. Executive Director at the EBRD pending Senate
confirmation. His nomination followed the resignation of
Political Mandate
Judy Shelton, who has been nominated to the Federal
Unlike the other MDBs (or the International Monetary
Reserve Board.
Fund, IMF), the EBRD has an explicit political mandate to
foster democracies and free-market economies. Article 1 of
The EBRD is headquartered in London, England. The Bank
the EBRD’s Articles of Agreements states:
was originally designed to function differently than other
multilateral development banks (MDBs, see text box) in
In contributing to economic progress and
two key ways: first, it was given a political mandate to
reconstruction, the purpose of the Bank shall be to
support democracy; and second, it was designed to support
the development of the private sector in the former
foster the transition towards open market-oriented
communist countries. Changes in Europe over the past two
economies
and
to
promote
private
and
decades have softened both mandates.
entrepreneurial initiative in the Central and Eastern
European countries committed to and applying the
The EBRD President is currently Sir Suma Chakrabarti, of
principles of multiparty democracy, pluralism and
the United Kingdom, first elected in 2012. EBRD member
market economics.
countries re-elected Chakrabarti for a second four-year term
In contrast, all of the other major MDBs have Articles
in 2016. Since its founding in 1991, the EBRD has been
asserting their political independence, stating that the MDB
headed by nationals of Germany, France, and the United
shall not interfere in the political affairs of any member; nor
Kingdom. The EBRD’s Board of Governors are to elect a
shall they be influenced in their decisions by the political
new President to succeed Sir Chakrabarti during the
EBRD’s 29th
character of the member or members concerned.
annual meeting in London in May 2020.
Membership
What is a Multilateral Development Bank?
The EBRD’s Articles of Agreement limit membership to
The United States is a member of five major MDBs: the
European countries, non-European countries that are
World Bank, African Development Bank (AfDB), Asian
members of the IMF, the European Community (EC) (now
Development Bank (AsDB), Inter-American Development
the European Union (EU)), and the European Investment
Bank (IADB), and EBRD. MDBs are multilateral development
Bank (EIB). The Articles also require that EC members
plus the EC and the EIB hold a majority of the institution’s
institutions that provide financing for projects and policy
reform in low-income and developing countries. MDBs
capital stock and a majority of the vote. Currently, EU
borrow in world capital markets at market rates, but the low
member states, the EU, and the EIB have a combined
rates they pay reflect their high credit-worthiness. Because
control of over 63% of the institution’s voting power.
these rates are typically lower than those paid by private
borrowers, the banks are, in turn, able to relend this money
EBRD membership has grown in recent years as the Bank
to their borrowers at lower interest rates. The MDBs’ main
has expanded its geographic range. Libya became the
EBRD’s
lending windows are self-financing, generate net income for
most recent member in July 2019, marking an
the institutions, and subsidize MDB concessional lending to
expansion of the Bank’s presence in the Mediterranean
the poorest countries. Because the MDBs borrow to finance
region. Other new members include Egypt, Jordan,
their lending, their capital (and hence, increases in capital) is
Lebanon, Morocco, and Turkey. At the beginning of 2016,
China became a member of the EBRD, but has a nominal
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European Bank for Reconstruction and Development (EBRD)
share (0.096%) of the Bank’s capital. In recent years,
expanded geographic focus also raises questions about its
EBRD management has expressed interest in expanding
relevance given the existence of other MDB such as the
into sub-Saharan Africa. In May 2019, the Bank’s
Asian Development Bank and the Islamic Development
membership agreed to a resolution to begin the process by
Bank.
preparing feasibility studies to be presented at the fall 2020
EBRD annual meeting.
Figure 1. EBRD Operating Assets in Russia, € Millions
Operations and Select Policy Issues
The 2008-2009 global financial crisis spurred a sharp
increase in EBRD lending and eventual capital increase, an
effect also reflected at the World Bank and other MDBs
(see text box). In May 2010, the Board of Governors
approved a request from the EBRD’s president for a €10
billion ($11.05 billion) increase in authorized capital to €30
billion ($33.15 billion), a 50% rise from 2009 levels. Of the
total authorized amount, €6.2 billion ($6.85 billion) is paid-
in capital and €23.5 billion ($25.97 billion) is callable
capital.

Source: CRS, EBRD, Moody’s.
As of 2019, the EBRD has investments worth a total of €9.5
billion ($10.5 billion) in 37 countries, with 70% of its
Figure 2. EBRD Lending by Region in 2018
operations outside the EU. For much of the EBRD’s
history, Russia was the Bank’s largest borrower, but its
share has declined after the G-7 countries decided to oppose
EBRD projects in Russia following its annexation of
Ukraine’s Crimea region. In July 2014, the EBRD’s Board
of Directors gave guidance that new investment projects in
Russia were unlikely to be approved. Similar action was
also taken by G-7 countries at the World Bank, and
complemented broader economic and diplomatic sanctions
against Russia. Some analysts found EBRD’s involvement
in Russia controversial even before the crisis in Ukraine,
questioning whether Russia had met the democracy and
pluralism criteria for EBRD projects.
While the EBRD continues disbursements on older projects,
the EBRD’s exposure to Russia now accounts for 5.5% of
total operating assets, compared to around 26% in 2013
(Figure 1). At the same time as it reduced its Russian
exposure, the EBRD expanded its lending south into the
Balkans, the Caucasus, and the Southeastern Mediterranean

(Figure 2). In April 2008, Turkey, a founding shareholder
Source: EBRD 2018 Annual Review.
of the EBRD, applied to become a recipient country and
now accounts for 20% of EBRD operations, despite its
Looking Ahead
status as an upper-middle income country. Moving forward,
Over the past 30 years, the EBRD has been an important
the EBRD will likely need to develop a more robust
component of U.S. foreign and economic policy in Eastern
strategy to “graduate” high-income member countries. To
Europe and Central Asia. Going forward, the EBRD will
date, the Czech Republic is the only country that has
likely continue to be an important part of the toolkit for
graduated from EBRD borrowing. As the institution moves
Members of Congress as they consider how to respond to
beyond its original clientele of the more advanced, early
increased Chinese engagement in Central and Southeast
transition economies in Eastern Europe, to countries in
Europe as well as democratic back-sliding in Europe. At the
North Africa and the Caucasus, it will be a challenge for the
same time, Members may also consider if the EBRD’s
EBRD to successfully engage in substantially less
outreach into the constitutional monarchies of North Africa
democratic countries (such as Egypt) that may be more
and the Middle East is consistent with its original mandate
reluctant to introduce pro-democracy reforms than were the
to facilitate the democratization of Eastern Europe.
first wave of post-Communist EBRD borrowers.
Martin A. Weiss, Specialist in International Trade and
Other relatively new borrowers include Jordan (2013),
Morocco (2013), Tunisia (2013), and Lebanon (2017). In
Finance
May 2017, the EBRD’s shareholders also approved
IF11419
engagement in the West Bank and Gaza through an EBRD
trust fund for an initial 5-year period. The EBRD’s


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European Bank for Reconstruction and Development (EBRD)


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