The European Bank of Reconstruction and Development (EBRD) has warned that governance has weakened in many of the countries in which it invests, with Lebanon and Palestine (referred to in the report as the West Bank and Gaza) experiencing the sharpest decline.

Almost two-thirds of the 36 economies where the EBRD operates have seen their scores for governance decline between 2021 and 2022, in many cases reversing some of the progress made in recent years.

“Governance scores have deteriorated in many economies in the EBRD regions, driven mainly by the perceived worsening of corruption and a reduction in the freedom of the press,” wrote the EBRD in its Transition Report 2022/23, the latest edition of the annual report which was published on November 22.

While countries with the low initial governance scores experienced the sharpest decline between 2021 and 2022, other countries with higher initial scores have also seen governance deteriorate. For instance, the EBRD said that governance scores fell in Albania due to slow progress of judicial reforms, which are a key condition for the country acceding to the EU. Several other economies have also witnessed a weakening of judicial independence, budgetary transparency and the enforcement of contracts.

Every year, the EBRD assesses reforms in six key areas needed for sustainable market economies — namely whether countries are competitive, well-governed, green, inclusive, resilient and integrated. 

“Improvements have been seen mainly in the areas of competitiveness, the green economy and inclusion, while declines have tended to be concentrated in scores for governance,” the report noted.

The EBRD has come under fire in recent years from civil society organisations for investing more heavily in countries that are experiencing rising authoritarianism.

“The bank is investing more in countries where there is a backtracking on democracy,” Fidanka Bacheva-McGrath at CEE Bankwatch, a campaign group which monitors public finance institutions across the CEE region, previously told fDi. 

Many academics have argued that civil society can contribute to good governance and be an important vehicle for the formation of entrepreneurial ecosystems and inclusive economic development. 

The EBRD noted that governance scores have significantly worsened in several countries due to a rise in perceived informality and corruption (such as in Albania and Bosnia and Herzegovina). In Poland, governance scores fell due to the perceived effectiveness of courts, according to the EBRD.  

It is not all doom and gloom in terms of governance. The EBRD stated that “notable improvements in governance scores have been observed in countries such as Armenia, Azerbaijan, Egypt, Latvia and Lithuania.” The report about structural reforms in its countries of operations concluded that there has been “convergence in most areas” across EBRD economies since 2016, notably in competitiveness, resilience and economic integration.