The European Union's move on February 16 to lift most of its sanctions against the Belarusian authorities could be a springboard to elusive foreign credits for the cash-strapped country as it looks for favourable terms from international lenders. However, Western private business is unlikely to be ready to bring significant investment to projects in Belarus.

"The abolition of the sanctions paves the way for [Belarusian president] Alexander Lukashenko to obtain Western loans," Nikolai Statkevich, former presidential candidate during the disputed 2010 election and until recently a political prisoner, told the Minsk-based BelaPAN news agency. "He is finally able to play a game he has long wanted to play - getting money from both the West and the East without changing anything in the country."

Statkevich has been at the forefront of the dispute between the EU and the Belarusian authorities. The politician was accused by the Belarusian authorities of plotting to riot on election night in 2010 as Lukashenko swept into office for five more years, and was quickly found guilty by a local court in what the West condemned as outright political repression.

In August 2015, Lukashenko pardoned six jailed opposition activists, including Statkevich, who had been sentenced to six years' imprisonment. "The release of all the remaining political prisoners was a long sought step that the EU had consistently called for," the EU Council said in a statement about the lifting of sanctions against Minsk.

Meanwhile, in a speech delivered during a government meeting the day after the EU announced its decision, the president confirmed Statkevich's forecast concerning the authorities’ intentions. "Lukashenko instructed the government to step up work with various EU banking organizations and potential investors," his media office said on February 16.

Reasons (not) to be optimistic

Private bondholders reacted positively to the news from Brussels. The yield of the country's US dollar-denominated Eurobond maturing in 2018 stood at 6.67% on February 17, having been 6.83% on February 1, falling as perceived risk to bondholders diminishes.

Since Belarus started to play a crucial role in the peace negotiations over the Ukraine crisis, and on the back of positive Western assessments of Lukashenko's re-election for a fifth term in October 2015, the country's bonds have surged from a yield of 16.475% as of February 2015.

"Investors assess the level of risk as being much lower than a year ago [...] This makes new borrowing much easier for the country," Alexander Mukha, a Minsk-based financial analyst, tells bne IntelliNews, noting that previously the Belarusian government repeatedly voiced its intention to raise up to $1bn through a new issue of bonds.

However, the expert believes that Minsk will postpone any new placement until it is able to secure either a new $3.5bn loan from the International Monetary Fund (IMF) or a new $2bn aid package with the Russia-led Eurasian Fund for Stabilisation and Development (EFSD). "A new support programme will be an additional positive signal for potential investors," Mukha says.

Meanwhile, Oleg Andreyev, a Minsk-based investment expert and former chief M&A specialist at Alfa Bank in Belarus, believes that the lifting of the sanctions will not necessarily provide grounds for an increase in Western investments in Belarusian projects.

"The main problem is the real state of the Belarusian economy: the domestic currency’s constant sharp loss of value, [a high level of] inflation, capital control, unclear privatisation rules, the general instability of legislation," Andreyev tells bne IntelliNews. "Another problem is the state's approach of the institution of property - we have already seen a number of precedents concerning nationalisation."

Green light for the EIB?

At the same time, the expert believes that some international financial institutions could "rethink their stance" towards the funding of projects involving state-owned enterprises, in particular, the European Bank for Reconstruction and Development (EBRD). "However, an obvious sticking point will remain - the [poor] financial state of these enterprises," Andreyev adds.

In May 2015, the EBRD and the Belarusian government agreed to work together on the privatisation of state-owned Belinvestbank. This move comes after four years of reluctance on the part of the EBRD to cooperate with the administration of President Alexander Lukashenko because of civil rights issues in the country.

There is no doubt that the authorities now intend to start cooperating with the European Investment Bank (EIB), which is currently not operating in Belarus due to disputes over its civil rights record. According to the lender, its potential activity in the country is dependent on a decision being passed by the EU Council and the European Parliament. A framework agreement between Belarus and the EIB would also need to be signed.

Minsk has already said that an EU delegation, including the EIB's vice president Laszlo Baranyay, will visit Belarus on February 24 "to review the status and prospects of economic and financial cooperation" with the EU, according to a spokesman for the Belarusian Foreign Ministry, Dmitry Mironchik.

Also in May 2015, Minister of Economy Vladimir Zinovsky said in an interview with bne IntelliNews that the Belarusian authorities were negotiating with the EU a possible extension of the EIB's mandate in Belarus with the aim of securing "cooperation in the form of exchanges of experience, financial assistance and the implementation of specific projects in the country".