Market development leadership meeting market realities

Evaluation of EBRD’s local currency operations (2016-23)

Background

This evaluation assessed EBRD's three-pillar approach to local currency operations over the period 2016–2023, covering 19 countries that participated in or were eligible for the SME Local Currency Programme. The evaluation examined whether the intended synergies between policy dialogue, funding operations and lending activities have materialised to deliver transition outcomes. Using a theory-based mixed-methods approach with three in-depth case studies and sixteen country reviews, the evaluation tested whether policy results enabled onshore funding and liquidity management at lower costs to enable more flexible EBRD lending offer in local currencies.

Main Findings

The EBRD has established itself as a leader in local currency operations through its distinctive Treasury-led market-building approach that integrates policy dialogue with active market participation. The three pillars have reinforced each other effectively, delivering concrete results including new risk-free overnight reference rates, regulatory frameworks enabling IFI local currency bond issuances in several markets and expanded funding capabilities that allow EBRD to offer clients more flexible loan structures. Treasury's dual role as market participant and policy advisor proved particularly valuable, with direct market experience providing credibility in policy discussions while policy achievements enable more cost-effective funding.

However, success remains highly dependent on country-specific factors beyond the Bank's control, with results varying significantly based on macroeconomic stability, institutional capacity and sustained political commitment. Geographic and sectoral delivery is highly uneven, with Kazakhstan alone accounting for nearly half of all local currency volume over the evaluation period. The concessional SME Local Currency Programme remains essential for Early Transition Countries, and Infrastructure lending in local currency shows declining trend. EBRD faces inherent structural disadvantages compared to domestic banks with natural funding advantages, requiring differentiation through longer tenors, technical support and concessional mechanisms.

Local currency operations demonstrate strong alignment with resilience objectives through focus on SMEs and Early Transition Countries, yet comprehensive frameworks for assessing transition impact contributions are lacking. Currency-specific resilience benefits rarely appear in transition rationale or monitoring of lending operations, while Treasury's market-building activities remain entirely outside formal transition assessment despite generating demonstrable benefits to financial market resilience. The strategic repositioning of local currency operations toward enabling private sector mobilisation creates additional measurement challenges.