The European Bank for Reconstruction and Development (EBRD) has suspended making any new private sector investments into Belarus to synchronise its actions with Europe's efforts to increase the pressure on Belarus' President Alexander Lukashenko, it was reported on November 16.

In recent years the development bank has been expanding its activities in the pariah state as relations with the rest of Europe warmed. However, it has focused exclusively on the expanding private sector and has not made any investments into any company or project controlled by the government.  

The EBRD management informed shareholders last week that it was no longer submitting private sector projects in Belarus to the board of directors, sources familiar with the discussion told devex.com, as cited by RFE/RL.  

The decision follows the bank’s decision to freeze all new investments into Russia following the annexation of the Crimea in 2014, at the order of the bank’s shareholders which include the US, the UK, all the 27 EU member states and the European Union.  

The EU and US have imposed four rounds of sanctions on Belarus since the disputed presidential elections last August 9 saw Lukashenko win the vote by a landslide, according to official results. More stringent sanctions were imposed after the regime forced a commercial Ryanair flight to land in Minsk and arrested top opposition blogger Roman Protasevich and his girlfriend on May 23. The number of political prisoners in Belarusian jails has gone from slightly more than a dozen to over 800 since the mass demonstration began last summer, according to local NGOs.  

The EBRD was prompted into action by the growing migrant crisis on the border between Belarus and Poland, where thousands of refugees are trying to cross into the EU illegally.

As the Belarusian economy continued to develop in the relative calm after a oil price and Crimea shock in 2014 the EBRD became increasingly active in Belarus, launching a four-year strategy in 2016.  

In the changing regional geopolitical environment, Belarus “has engaged in greater international openness and become more willing to discuss domestic political developments, including the human rights situation in the country”, a bank statement said announcing the plan.

The bank made its first investments into the country when it launched operations in all the countries of Former Soviet Union (FSU) in 1992 and between then and 2016 had invested into a total of almost €1.8bn in some 70 projects in various sectors of the economy.

However, the development bank up its game in 2016 in the hope of enhancing the competitiveness of the real economy. “The EBRD will seek to provide long-term debt and equity financing to local and foreign investors as well as support small and medium-sized business (SME) lending through the development of a sustainable commercially oriented banking sector ... The bank will also promote the privatisation of state-owned enterprises by strategic investors,” the bank said at the time.  

By 2018 those investments had swelled to €360mn in 21 projects in Belarus, the multilateral lender said – the most the bank has ever invested in Belarus since it launched its operations in the republic.  According to preliminary estimates, Belarus will be in the Top 10 of the most active countries out of the bank’s 38 countries of operation for 2018.

Progress continued in the last two years, despite multiple external shocks. In the bank’s economic outlook released this June this year it said: “The Belarus’ economy is predicted to expand by just 2.0% this year. GDP growth in Belarus reached 3.5% y/y in the first half of 2021, largely driven by growth of exports and revived household consumption, despite the slowing growth of industrial production since May 2021. This was due to the ending of base effects and possibly some early impact from international sanctions.”  

The development bank expected growth to decelerate in the second half of the year, to come in at just 2.0% for the full year. 

“Economic sanctions and targeting of the export-focused potash and petroleum industries as well as sanctions-related supply shortages are expected to hit the economy later in 2021 and throughout 2022,” the report said. “At the same time, a strong commodities-based recovery in Russia, its main trading partner, could have a positive impact on Belarusian exports.”

Amongst the key investments that will be now frozen was a plan to invest into Belinvest bank, the fifth-largest in the country, in preparation for the bank’s eventual privatisation. A €50mn subordinated debt facility was given to the bank in 2017 to strengthen the bank’s capital base and is part of a plan that will lead to its eventual sale, as agreed between the government of Belarus and the EBRD in May 2015. However, little progress on the deal was made and the bank remains in state hands.  

The EBRD also arranged a $130mn loan to Sodrugestvo Group, an international agro-industrial conglomerate incorporated in Luxembourg, in 2020, as well as a $4mn local currency loan to BNB-Bank the same year amongst other deals.   

All that will now stop. The European Commission has been one of the sharpest critics of further EBRD lending, one of the sources told Devex, while Russia, also an EBRD shareholder, defended the Belarusian authorities.  

The EBRD’s decision to suspend its activity in the country comes on top of a meeting of the EU foreign ministers on November 15, where the possibility of a fifth round of sanctions was discussed.