The European Bank for Reconstruction and Development (EBRD) stands out among its peers. As one of the youngest multilateral development banks, it was founded in 1991 to promote private sector development and the transition in post-Communist central and eastern Europe (CEE). 

The EBRD has a commitment “to foster the transition towards open market-oriented economies” and to invest in countries “applying the principles of multi-party democracy [and] pluralism”, as enshrined in Article 1 of its founding agreement. This makes it unique compared with multilateral development bank counterparts such as the World Bank.


In the four decades since its formation, the EBRD has expanded its operations well beyond the CEE region to almost 40 countries stretching from central Europe to central Asia and the southern and eastern Mediterranean. It is now considering further expansion into sub-Saharan Africa and Iraq. 

Nonetheless, the erosion of liberal values and institutions across its regions of operation has made it increasingly challenging for the bank to pursue its political mandate. 

Conor Savoy, a senior fellow at the Center for Strategic and International Studies, a Washington DC-based think tank, says there has “always been a willingness on the part of the EBRD” to implement its political mandate.

“But the reality on the ground is that in the regions where it operates, there are a lot of grey areas,” he says, noting the wide spectrum of governance systems in its diverse countries of operations.

Grey areas

The EBRD was formed on the premise that private investment and market-oriented reforms promote the development of liberal democracy institutions.  


That hopeful perspective, which was typical of the years that followed the collapse of the Soviet Union and provided a strong case for cross-border trade and investment, has taken a hit in recent years. In fact, growing levels of trade and investment ended up strengthening autocracies or so-called illiberal democracies across the bank’s regions of operation. 

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

In 2021, the EBRD’s total new investment reached €10.4bn across 36 economies, but many of its largest recipient countries have experienced rising authoritarianism. 

These include Turkey, which received the largest sum (€2bn) of EBRD funding in 2021, Egypt and Kazakhstan, where there were violent crackdowns on protests over rising energy prices in January 2022.  

While Turkey has active opposition political parties, president Recep Tayyip Erdoğan has concentrated his power since a failed coup in 2016 and pursued “wide-ranging crackdown on critics and opponents”, according to a 2022 report by US non-profit Freedom House.

Even with backtracking of democracy in some of its countries of operations, experts say the EBRD’s primary focus has always been on market building and finding bankable private sector projects.

“The EBRD has always interpreted its mandate as to be primarily about private sector building and presumed that democratic practice would follow,” says Dóra Piroska, an assistant professor at the Central European University that has researched the EBRD’s activities.

Monitoring closely

The EBRD — which is owned by 71 member countries, including the US, China, Japan, Germany, France and Russia, as well as the EU and the European Investment Bank — has long played a fundamental role in facilitating foreign direct investment across its regions of operation.

Odile Renaud-Basso, the president of the EBRD, insists the bank’s political mandate has not changed. The issue is taken “very seriously”, she says, as illustrated by the EBRD’s active consultation with civil society organisations about its global operations.

“Well functioning, multi-party democracy is an issue that we are monitoring closely,” she told fDi at a press conference held during the EBRD’s 2022 annual meeting in Marrakesh, Morocco, from 10–12 May.

Ms Bacheva-McGrath is not so sure. The war in Ukraine, which is another major EBRD recipient country, should be a “wake-up call” for the EBRD that focusing entirely on economic reforms, and putting democracy on the backburner, is “extremely risky”, she argues.

Russia lessons

Russia was the EBRD’s largest country of operations for more than two decades (1992-2013), despite international concerns about the trajectory of liberal reforms implemented by Vladimir Putin’s since the early years of his presidency. By 2013, the bank had invested over €23bn into more than 700 projects across the country.

Since the 2014 annexation of Crimea, the EBRD has not invested in any new projects in Russia. The same can be said for Belarus after its 2020 disputed election.

“The EBRD is more vital now than ever,” says Mr Savoy, noting the huge undertaking of rebuilding Ukraine once the war is over. He adds that the current moment is also an opportunity for the EBRD to “double down on countries like Moldova, Ukraine, the Balkans and others in the former Soviet space”, where there is a commitment to political reform.

In March, the bank unveiled a €2bn resilience package to help citizens, companies and countries affected by the war in Ukraine. It also provided a €50m financing package to Moldova’s largest bank, Maib, in May, “to reinforce its funding base in the challenging economic environment caused by the war in Ukraine”, the EBRD said in a statement. 

More for more, less for less

“[Democracy] is an issue we raise in all the discussions we have with the authorities when it is warranted,” said Ms Renaud-Basso, highlighting the EBRD’s strategy to adjust its intervention in public sector projects in line with Article 1.

This forms the bank’s so-called ‘more for more, less for less’ approach, which purports that the EBRD steps up investment in countries that are making progress in democratic and economic reforms, and withdraws from those where there is backtracking.

However, the EBRD’s increased activity in Egypt tells a different story. Freedom House says president Abdel Fattah al-Sisi’s government has “governed Egypt in an increasingly authoritarian manner” and “tightly restricted” civil liberties since a coup in 2013. 

Despite this, the EBRD’s portfolio of approved investments in Egypt grew from 20 projects in December 2014 to more than 100 active projects six years later, with investment topping €7.4bn.

“The EBRD in Egypt, as elsewhere, is not genuinely interested in strengthening institutions that can perform democratic oversight” of policies related to areas such as the media, civil society or education, says Ms Piroska.

Instead, she says the EBRD has “increasingly redefined its identity” as a bank focused on other issues such as climate change, mitigating migration risks and countering the EU’s geoeconomic rivals, such as Russia and China. 

“Viewed from this new identity, democracy promotion is a lesser problem for the EBRD,” says Ms Piroska.

This article first appeared in the June/July 2022 edition of fDi Intelligence. Read the online edition of the magazine here.