“Resilient”: the EBRD’s new Transition concept

By Mattia Romani


“A resilient market economy supports growth while avoiding excessive volatility and lasting economic reversals,” says the EBRD’s Transition Concept Review – and what we are measuring here is the ability of markets and market-supporting institutions to resist shocks.

Because a well-functioning financial system is central to a sustainable market economy, financial stability is the most important element, complemented by macroeconomic stability. We also look at economic diversification, food security and energy security resilience.

Financial stability

Financial stability refers, at a minimum, to a financial system’s ability to withstand shocks without major disruption in financial intermediation and in the supply of financial services. At best, it also suggests the absence of excess volatility, stress or crises.

Since the financial system in most EBRD countries centres on banks, the EBRD’s focus, likewise, is primarily on the health and stability of banking systems.

A good starting point is for a banking sector to be well capitalised, majority private-owned, profitable, liquid and not exposed to significant maturity, with adequate governance structures, risk management practices and an effective supervisory regulatory framework.

Things look better still if the level of non-performing loans is sustainable; if there is no over-concentration on individual sectors or borrowers; if there are what are known as macroprudential frameworks, providing regulation evaluating a given financial system’s underlying health, soundness and vulnerabilities; and if end-user borrowers are not exposed to risk from foreign currency fluctuation.

Macroeconomic stability indicates the ability of a country to keep its domestic and external positions in order. In times of crisis an economy should both have reserves available for partial release to ease stresses and fiscal flexibility - stimulus packages and support for financial institutions facing difficulties. A balanced external position, likewise, reduces dependence on volatile capital flows and over-reliance on export markets.

The EBRD and FAO have teamed up to help food producers in Serbia achieve Geographical Indication status, starting with sour cherries.

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Other elements

Economic diversification - not “keeping all one’s eggs in one basket” – also helps make for a resilient economy. What we look for is avoiding concentration on a single sector (say, natural resources), decreasing import- and export-dependency, and increasing the number of trading partners.

Resilience in food security is improved by making agriculture more productive and more resilient to external shocks including climate change. Making value chains more efficient, reducing losses and improving trade both increase food availability and reduce price volatility. Resilience is also strengthened through improving access to finance and private sector investment.

Energy sector resilience is fostered, long-term, by encouraging investments through the development of appropriate energy market and regulatory structures and emphasising diversity in supply or export options. Short-term, it is about responding flexibly to sudden changes in the balance of supply and demand.

Export and import infrastructure (pipelines or LNG facilities) are crucial. So are third-party access regimes, regional initiatives and platforms facilitating energy trading, such as the Coordinated Auction Office for energy trading in south-eastern Europe. National resilience is advanced by open markets, energy efficiency and demand-side management.