Cross-Regional: Maintenance and development of pricing and forecasting models framework

Overview
Project Summary Document

TCRS 2036

Status Approved

Location

Regional

Business Sector

Capital and financial markets development

Notice Type

Public

PSD Disclosed

21 Dec 2023

Project Description

Rationale

The Local Currency (LCY) and Capital Markets Development Initiative (the Initiative) aims to promote the use of local currencies and develop local capital markets in the EBRD region. High levels of foreign currency use, especially foreign currency lending to unhedged borrowers without adequate financial buffers, in most countries of the EBRD region creates significant macro prudential risks contributing to excessive economic cyclicality, disproportionately affecting the poor.

The EBRD is committed to address these issues by providing local currency loans where possible. This has been challenging in emerging countries where LCY funding markets are underdeveloped and other (off-shore) sources of funding are scarce or unavailable. Lack of developed LCY markets and benchmark interest rates make it necessary to base such fixed LCY interest rate pricing on projection of country-level macroeconomic variables and investors` risk preferences. More specifically, pricing LCY rates at different tenors whilst running interest rate risk necessitates the use of an interest rate swap (IRS) pricing model based on projections of country-level macroeconomic variables and risk preference modelling for different tenors.

In early transition countries - Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Mongolia, Tajikistan, Ukraine and Uzbekistan - where LCY markets are underdeveloped, market based curves (for various products, e.g. IRS and XCCY swaps) are either non-existent or do not provide good price discovery. As a result, this impedes LCY usage and impairs market development. The projection of such country-level macroeconomic variables can be made possible by the help of Forecasting and Policy Analysis System (FPAS) models, as well as employing risk compensating yield curves models, which are based on the macroeconomic projections derived from the (semi theoretical, semi-market based) FPAS models.

These curves serve as a target policy dialogue to help further market development and are essential for i) providing local banks with a tool to price and value LCY denominated financial instruments, and ii) enabling local borrowers to get competitive loan rates. More accurate pricing and valuation of LCY products via these curves in turn improve the LCY market activity and pave the way for more developed financial markets. This is particularly important for countries where the Bank’s all-in LCY pricing (cost of funds derived from available pricing sources plus credit margin) has been deemed relatively high and volatile in times of stress compared to domestic lending rates, which can be a barrier to the uptake of local currency loans issued by EBRD. The ultimate goal is to be able to publish risk compensating overnight index swap (OIS) and XCCY swap mid-curves on a dedicated EBRD page on Bloomberg, which is pivotal for market development.

TC Services

The Consultant will carry out the following two main tasks: (1) support with maintenance of the FPAS models for Armenia, Mongolia, Kazakhstan, Uzbekistan and Ukraine; (2) maintain and improve the IRS pricing model to incorporate local market data for the markets under consideration, and deliver the risk compensating yield curves for Georgia, Armenia, Azerbaijan, Kazakhstan, Ukraine, Uzbekistan and Mongolia.

Understanding Transition

Further information regarding the EBRD’s approach to measuring transition impact is available here.

Business opportunities

For business opportunities or procurement, contact the client company.

For business opportunities with EBRD (not related to procurement) contact:

Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

For state-sector projects, visit EBRD Procurement:

Tel: +44 20 7338 6794
Email: procurement@ebrd.com

Enquiries

Business opportunities

For business opportunities or procurement, contact the client company.

For business opportunities with EBRD (not related to procurement) contact:

Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

For state-sector projects, visit EBRD Procurement:

Tel: +44 20 7338 6794
Email: procurement@ebrd.com

General enquiries

Specific enquiries can be made using the EBRD Enquiries form.

TCRS 2036

Status Approved

Location

Regional

Business Sector

Capital and financial markets development

Notice Type

Public

PSD Disclosed

21 Dec 2023

Project Description

Rationale

TC Services

Understanding Transition

Further information regarding the EBRD’s approach to measuring transition impact is available here.

Business opportunities

For business opportunities or procurement, contact the client company.

For business opportunities with EBRD (not related to procurement) contact:

Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

For state-sector projects, visit EBRD Procurement:

Tel: +44 20 7338 6794
Email: procurement@ebrd.com

Any competitive selections for business opportunities relating to this project will be published on the EBRD's website: Consultancy Procurement Opportunities.

General enquiries

EBRD project enquiries not related to procurement:
Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

Access to Information Policy (AIP)

The AIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations following its entry into force on 1 January 2020. Please visit the Access to Information Policy page to find out what information is available from the EBRD website.

Specific requests for information can be made using the EBRD Enquiries form

Independent Project Accountability Mechanism (IPAM)

If efforts to address environmental, social or public disclosure concerns with the Client or the Bank are unsuccessful (e.g. through the Client’s Project-level grievance mechanism or through direct engagement with Bank management), individuals and organisations may seek to address their concerns through the EBRD’s Independent Project Accountability Mechanism (IPAM).

IPAM independently reviews Project issues that are believed to have caused (or to be likely to cause) harm. The purpose of the Mechanism is: to support dialogue between Project stakeholders to resolve environmental, social and public disclosure issues; to determine whether the Bank has complied with its Environmental and Social Policy or Project-specific provisions of its Access to Information Policy; and where applicable, to address any existing non-compliance with these policies, while preventing future non-compliance by the Bank.

Please visit the Independent Project Accountability Mechanism webpage to find out more about IPAM and its mandate; how to submit a Request for review; or contact IPAM via email ipam@ebrd.com to get guidance and more information on IPAM and how to submit a request.

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Cross-Regional: Maintenance and development of pricing and forecasting models framework

Project Description

Understanding Transition

Business opportunities

Enquiries

Business opportunities

General enquiries

Project Description

Understanding Transition

Business opportunities

General enquiries

Access to Information Policy (AIP)

Independent Project Accountability Mechanism (IPAM)