OREANDA-NEWS  On 23 September was announced, that, during fiscal year 2008, the World Bank Group (WBG) committed USD 8 billion in loans, credits, equity investments and guarantees to its members and to private business in the Europe and Central Asia (ECA) Region. The World Bank Group commitments in ECA grew in fiscal 2008 (ending June 30) by 33 percent as finance was rapidly approved to help the poor in the food price crisis and support grew for private sector development.

“In the past year, the Region as a whole grew by a robust 7.6 percent,” said World Bank Europe and Central Asia Vice President Shigeo Katsu. “However, rising food and energy prices, along with it inflation, have made people’s lives tougher and complicated the conduct of macroeconomic management, particularly in the Commonwealth of Independent States. We will continue to support ECA countries to overcome these challenges and deepen our engagement in the management of risks associated with price pressures, energy security, and global financial markets to improve the lives of people in Europe and Central Asia.”

World Bank Group Commitments in Europe and Central Asia Fiscal Years 2008 and 2007 (year ends June 30)

The World Bank Group consists of the International Bank for Reconstruction and Development (IBRD), which provides financing, risk management products, and other financial services to members; the International Development Association (IDA), which provides interest-free loans and grants to the poorest countries; the International Finance Corporation (IFC), which makes equity investments, and provides loans, guarantees and advisory services to private-sector business in developing countries; and the Bank Group’s political risk insurance agency, the Multilateral Investment Guarantee Investment Agency (MIGA).

The IBRD/IDA recipients are using these funds for 47 projects designed to overcome poverty and enhance growth – for example, by improving education and health services, building infrastructure, and strengthening governance and institutions. IDA commitments in ECA were USD 457 million, and IBRD commitments totaled USD 3.71 billion in fiscal 2008. IDA/IBRD lending increased in response to the food price crisis, and four ECA projects were approved in record time for the Global Food Crisis Response Program – two in the Kyrgyz Republic and two in Tajikistan. The Bank also completed 80 economic and sector studies and delivered 90 technical assistance activities focusing on building country capacity in Europe and Central Asia. Lending was provided across all sectors, including governance, infrastructure, roads and highways, trade, and railways. The top borrowers in FY08 by volume were Azerbaijan (USD 1,267 million); Turkey (USD 1,203 million); and Ukraine (USD 690 million).

In a rapidly changing economic landscape, the Region responded to strong demand for economic support across IDA countries, where the Bank continues to be a vital development partner. The Bank has supported poor countries and fragile states in a number of ways, including by decentralizing more staff to locations where capacity constraints are severe and by helping with donor coordination, harmonization, and alignment. Examples of IDA assistance in FY08 include credits for Uzbekistan (USD 68 million); Georgia (USD 58 million); Kyrgyz Republic (USD 31 million); and Moldova (USD 30 million).

In middle-income countries, given their diversity in ECA, the Bank continued to provide integrated product lines based on client demand. The Bank extended several loans for infrastructure in the Region’s middle-income states. Among these were USD 200 million to improve housing in the Russian Federation, and USD 200 million to improve power transmission and USD 140 million to improve urban infrastructure in Ukraine. The Bank also continued strengthening the institutional framework and social services in ECA: A USD 400 million Public Sector Development Policy Loan to Turkey has supported a sustained medium-term process of legal, institutional, and structural development; and the Health Sector Technology Transfer and Institutional Reform Project to Kazakhstan has helped introduce international standards in health sector. In EU-candidate countries, the Bank has supported the EU accession agenda; in new EU member states, the Bank has assisted countries in their aim to achieve convergence with EU averages.

The Bank’s analytical work in ECA continued to increase knowledge and spark debate in FY08 on high-priority development topics through in-depth studies and advisory activities. Flagship reports published in FY08 include Unleashing Prosperity: Productivity Growth in Eastern Europe and the Former Soviet Union, which emphasizes micro level reforms to accelerate growth; and Innovation, Inclusion, and Integration: From Transition to Convergence in Eastern Europe and the Former Soviet Union , which shows that key elements of the business environment for firms in the transition countries are converging towards those in the developed market economies of Western Europe. The new member states of the European Union are leading the way, with the Commonwealth of Independent States countries following, but at some distance behind.

Fiscal year 2008 saw strong growth in IFC's new investment commitments with corresponding expansion in advisory work. IFC committed USD 2.68 billion for its own account (a 50 percent increase over FY07) and mobilized an additional USD 1.09 billion in financing for its clients. IFC supported 86 projects of which 42 percent are in IDA countries and in frontier regions of middle-income countries. IFC also increased advisory operations by 34 percent to USD 30 million in expenditures and launched 40 new projects. As of June 2008, IFC’s portfolio in the region’s financial institutions was USD 3.5 billion, of which USD 2.2 billion is in 86 institutions focusing in micro, small, and medium enterprises (MSMEs). This represented 37 percent of IFC’s total global investments in the sector.

“We are doing more in IDA and post conflict-affected countries, where the number of investments has risen 81 percent compared to last year and where we have provided 85 percent of our advisory services. Our new financing represents more business with new clients and local companies. Compared to fiscal 2005, investment in Central Asia and the Caucasus increased by ten fold while investments in infrastructure grew by 80 percent,” said Jyrki Koskelo, IFC’s Vice President for Europe and Central Asia. “Also, since early 2000s, IFC advisory services helped remove red tape, saving USD 301 million in potential cost for businesses; released USD 72 million through successful mediation; enabled more than USD 3 billion in investment by local and foreign companies; and assisted governments to adopt 170 laws that improved the business environment."

IFC’s priorities in the region include more investment in infrastructure and agribusiness, increase access to finance for MSMEs, efforts to mitigate climate change, promote sustainable development and encourage intraregional investments.

During the fiscal year 2008, ending June 30, MIGA supported nine projects with USD 1.2 billion in political risk insurance or guarantee coverage in the region. Among them was the agency’s support for a bank in Kazakhstan that is expected to help strengthen the leasing sector and facilitate medium- and longer-term financing in the country.

“MIGA’s support for the project in Kazakhstan will allow the project sponsor to fund its subsidiary at a critical time when financial institutions are facing difficulties in raising external capital due to the global credit crisis,” said MIGA’s Acting Executive Vice President, James Bond. “This project is very much in line with the trend in MIGA’s support for the region, where we have worked with banks and financial institutions in many countries, including those emerging from conflict, to develop the local financial sector and help create innovative ways to finance projects.”

The agency’s support for these projects is critical not just for encouraging the growth of financial markets, but also for building market confidence in these emerging economies.

For more information about the World Bank Group; please visit www.worldbank.org.