The European Bank for Reconstruction and Development (EBRD) has arranged financing for several programmes in Belarus, a country often dubbed “Europe’s last dictatorship”, highly dependent on trade with Russia.

Most recently, the bank has extended a €10mn loan to PP Polesie, a producer and exporter of children’s plastic toys in the country. Its biggest export market is Russia, but the company is working towards expanding in EU member-states such as Germany, Italy and Spain.

“Strengthening local companies and supporting their efforts to become competitive on regional and international markets is part of the EBRD’s current strategic priorities,” the EBRD says in a statement, further explaining that the loan will be used to strengthen PP Polesie’s balance sheet and introduce energy-efficient technologies.

The toy manufacturer becomes the first Belarusian business to join the EBRD’s Finance and Technology Transfer Centre for Climate Change (FINTECC) programme, as the grant will help PP Polesie install and operate a trigeneration plant, which will allow the company to achieve energy savings.

As yet, the EBRD has invested almost €1.8bn in some 70 projects in various sectors of the Belarusian economy. In the past two months, the bank has signed two loans to Belarusky Narodny Bank (BNB).

Earlier in August, BNB was awarded a US$20mn syndicated loan to support small and medium enterprises (SMEs). The loan consists of an A loan and B loan worth US$5mn and US$15mn respectively. The EBRD provides the first tranche, while the B loan involves a syndication comprising Bank im Bistum Essen (BIB), the European Fund for Southeast Europe (EFSE), the Dutch development bank FMO, and Triodos Investment Management.

With a maturity of up to four years, quite long for Belarus, the EBRD hopes the loan will help to attract further inflow of international funds to the Belarusian economy. “The syndicated loan for BNB is an important achievement for the banking sector in Belarus, not only on the basis of the long maturity of four years but also in terms of the success in attracting four international co-lenders to the transaction,” says Lorenz Jorgensen, EBRD director for loan syndications. BNB will use it to provide local SMEs with long-term funds, which are of critical importance for the expansion of their activities.

The bank has also become the first financial institution in Belarus to join the EBRD’s Women in Business programme, which aims to improve access to finance and mentorship for women-run SMEs, providing credit lines, risk mitigation and technical assistance to partner financial institutions to improve the supply of financing. As part of the programme, BNB received US$3mn.

IHS Markit senior economist for Russia and the CIS region Lilit Gevorgyan tells GTR that the EBRD support in bringing liquidity to Belarus is positive, but it will have a limited impact on the country’s economy, which is marred by macroeconomic imbalances, flawed economic policies and political risk. “The development banks could play an important role in the economy, however their success is likely to be undermined by an overall lack of political will to see through a transition to market economy,” she says.

Belarus’ economy is very exposed to the issues affecting Eastern Europe. The fall in commodity prices and the tensions between Russia and Ukraine caused a sharp drop in the country’s exports, whose currency dropped against the US dollar, negatively affecting the banking sector and the nonperforming loans ratio, 50% of which are in hard currency.

While the weaker currency may help in making the country’s exports more competitive, Belarusian firms still face several challenges in branching out to new markets. “Modernisation, improved capacity utilisation and good management are all prerequisites to beat the tough competition,” says Gevorgyan. The biggest obstacle to economic development, however, has to do with the autocratic government, which President Alexander Lukashenko has run for nearly two decades. “This system remains inadequate in meeting the country’s economic challenges, and continues to undermine the country’s great potential,” she says.