EU states to push EIB, EBRD for more bang for buck on development finance

Provide more impact without “additional costs”: That’s the message European Union member states are planning to send to the continent’s leading multilateral development banks, according to a draft policy document seen by Devex. A three-year reflection on how to improve the European financial architecture for development will culminate with EU countries’ joint conclusions next month. Diplomats are set to discuss the draft this week, ahead of a meeting of EU development ministers Thursday. The draft underlines the need for a more “efficient, coherent and visible” EU development system with “increased political guidance” by member states in the Council of the EU. The banks are told to “reinforce their comparative advantages in development finance, avoid fragmentation and achieve an increased development impact.” However, the conclusions state, “such improvements should not generate additional costs for [the banks’] shareholders.” The most controversial sections of the document are likely to be those on the European Investment Bank and European Bank for Reconstruction and Development, both of which were considered at one stage for the role of the bloc’s development bank. That ambition has since been curtailed, and the draft conclusions reiterate EU states’ current focus on “enhancing and improving the current institutional set-up.” The draft “INVITES the EIB to further improve the development impact of its operations in partner countries by, inter alia, ensuring a dedicated and inclusive governance together with relevant EU development policy makers, enhancing the Bank´s local presence on the ground within EU delegations and deepening partnerships to strengthen the collective capacity of EDFIs [European development finance institutions] under a Team Europe approach.” “These improvements should be presented to the EIB governing bodies throughout 2021 with a view to adoption and implementation as soon as possible,” it continues. As EBRD also has non-European shareholders, EU states instead “encourage” rather than “invite” the bank “to optimise its business model to further leverage private investments especially in view of extending its operations in Least Developed Countries and in fragile and conflict-affected countries and to pursue cooperation activities with European DFIs under a Team Europe approach.” What that means in practice will be determined by both banks’ shareholders. In 2020, EBRD governors approved a five-year strategy affirming “continued strategic interest in a limited and incremental expansion to sub-Saharan Africa,” with further discussions foreseen around this year’s annual meeting in late June. An EBRD non-paper to EU member states, seen by Devex, outlines the bank’s vision for ways to improve the status quo in EU development finance. The first is through central governance of the EU’s 2021-2027 development budget, such as by adding all European financial institutions to the strategic board that oversees the use of guarantees. The second is more cooperation among European DFIs — for instance, by building on the EIB-EBRD working group established in November to tackle issues such as climate finance. And the third is greater local engagement in partner countries. For its part, EIB briefed its board of directors last week on its plans for a new “dedicated operational setup” for its investments outside the EU. The presentation, seen by Devex, states that the changes will be guided by “cost neutrality,” though EIB President Werner Hoyer did not say at a press conference Friday how the bank would improve its development impact and risk appetite while remaining cost neutral. “We personally believe that it would make sense to strengthen even more the cooperation with the European Commission on [development impact and efficiency] and also with the national development institutions around the European Union,” Hoyer said. “We will make this offer, but it is a political question.”