The European Bank for Reconstruction and Development (EBRD) has adopted a new strategy for Belarus committing it to deepening its involvement with the private sector over the next two years, particularly in the area of microfinance and small business lending.

However, it reiterates serious concerns over political developments, saying there had been significant backtracking in some aspects of democratic governance.

On the economic front, the EBRD says that although macroeconomic management has improved, there has been very little progress in structural and institutional reform, a goal essential to achieving sustainable long-term growth.

The bank says the law on ‘golden shares’ giving the government the right to take control of private enterprises remains a serious concern, but welcomes the exclusion of the banking sector from the law’s sphere of application.

As part of the bank’s efforts to maximise its impact on private sector growth, the EBRD is actively working on a proposal to create a microfinance institution in Belarus and will also consider increasing its provision of credit lines to privately-owned banks to support micro, small and medium-sized enterprises. The EBRD is already the key player in this sector.

Under current conditions, the EBRD sees providing enhanced support for private sector development as the most appropriate way for the bank to maintain and grow its engagement in Belarus. As under the previous strategy, all EBRD operations must demonstrate that proposed investments are not effectively controlled by the state or state entities.

The bank will continue to remain engaged in Belarus, despite the persistent lack of progress in government policies favouring democracy and market formation, so long as it can contribute to the development of a dynamic private sector and an entrepreneurial class. It will continue to engage actively in policy dialogue with the authorities over a range of issues related to the political situation, economic reforms and improvement in the business environment.

The new strategy document speaks of inconsistencies in Belarus’s commitment to, and application of, the principles of multi-party democracy, pluralism and market economics outlined in Article 1 of the agreement establishing the EBRD.

However, should substantial progress be achieved in democratic reforms and should the Belarus authorities embark on a consistent programme of economic liberalisation and reform, the EBRD, as in previous strategy periods, says it stands ready to expand its operations beyond the private sector in order to support that process.