The EFSD launches a series of working papers on regional and country-specific economic trends

23 October 2019

Over the decade after the 2008-2009 crisis, the Global Financial Safety Net (GFSN) and in particular its regional components have acquired increasing importance. The Eurasian Fund for Stabilization and Development (EFSD) is a key element of the GFSN in the region, accounting for approximately 20% of net financing provided to Armenia, Belarus, the Kyrgyz Republic, and Tajikistan by all international financial institutions.

Moscow, 23 October 2019. The Eurasian Fund for Stabilization and Development (EFSD, Fund) managed by the Eurasian Development Bank (EDB) launches its Working Paper Series with the publication titled «The Eurasian Fund for Stabilization and Development: A Regional Financing Arrangement and Its Place in the Global Financial Safety Net». The EFSD Working Paper Series will become its key form of research publications. The focus will be on pertinent issues relating to global, regional, and country-specific economic trends, economic modelling, macroeconomic research, infrastructure analysis, and global financial architecture.

The objective of the first working paper is to bridge the gap in understanding the dynamics of EFSD development and its place in the Global Financial Safety Net (GFSN) and the region’s financial architecture. The GFSN is the set of financial resources and institutional arrangements that provide a backstop during a financial or economic crisis. It comprises international reserves, central bank bilateral swap arrangements, regional financing arrangements (RFAs), and the IMF.

Increased interconnections among countries have led to an accelerated spread of systemic risks and reduced the effectiveness of countries’ internal protective mechanisms. “The Global Financial Safety Net has grown very substantially over the decade since the global financial crisis,” Evgeny Vinokurov, EFSD Chief Economist, comments. “The role of RFAs has increased significantly due to their responsiveness, flexibility, and in-depth understanding of the regional context”. To avoid regional instability, two RFAs have been used most extensively since 2009 – the European Stability Mechanism during the sovereign debt crisis in the Eurozone, and the EFSD in Eurasia. In 2010–2018, the EFSD disbursed about 20% of the total funding received from all international financial institutions by Armenia, Belarus, the Kyrgyz Republic, and Tajikistan.

Since late 2018, global economic growth rates have been slowing down while volatility in the world’s financial markets grew, increasing macroeconomic destabilisation risks at the global and country levels. The financial resources of the EFSD recipient countries at the first two layers of the GFSN (reserves and bilateral swap arrangements) may occur to be insufficient to effectively withstand severe shocks. The international reserves of the Fund’s four recipient countries in 2010-2018 averaged 2.4 months of imports of goods and services. If necessary, the Fund’s resources, corresponding to an additional 1.1 months of imports, can boost the reserve positions of these countries. We may assume that in the event of a relatively mild regional shock, the EFSD can be effective on its own. In the case of global shocks, similar in strength and coverage to the 2008 crisis, the Fund’s support can become part of an effective response to crisis events for its borrowing countries, in cooperation with the IMF and other elements of the GFSN.

The EFSD is unique among all other RFAs in its integrated approach, which involves macrostabilization and financing development. As of mid-2019, 90% of the Fund’s portfolio were loans extended as part of budget and balance of payments support. The remaining 10% were investment loans for infrastructure upgrade in line with the long-term development objectives of the recipient countries given the significant deterioration of the production base, along with the continuing deterioration in the quality of infrastructure.

The Fund attaches great importance to maintaining close relationships within the GFSN and with international financial institutions. As a fully-fledged member of the GFSN, the EFSD promotes the network of partnerships at the global (IMF, World Bank), regional (RFAs), and country (donor clubs) levels. In the context of budget support loans, the EFSD focuses on cooperation with the IMF as its programmes and criteria resonate to a significant extent with the Fund’s principles and priorities. In addition, the EFSD cooperates with the World Bank, the Asian Development Bank, and the Asian Infrastructure Investment Bank in implementing joint infrastructure projects.

The full text of the working paper is available online.

To access the Fund’s publications, please use this link.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

The Eurasian Fund for Stabilization and Development (EFSD) amounting to US$8.513 billion was established on June 9th, 2009 by the governments of the same six countries. The EFSD assists its member states in overcoming the consequences of the global financial crisis, ensuring their economic and financial stability, and fostering integration in the region. The EFSD member countries signed the Fund Management Agreement with Eurasian Development Bank giving it the role of the EFSD Resources Manager.

The EDB Media Centre:

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