Myanmar’s leaders will come under the spotlight this week with the EU expected to remove all but military-related sanctions, citing the “remarkable process of reform” – even as a leading human rights group accuses the government of “crimes against humanity”.

Adding to increasingly mixed views of Myanmar’s progress, John Kerry, US secretary of state, described the country as a “bright spot” in the state department’s annual human rights report, issued on Friday. The report praised the government’s democratisation efforts while urging more action on corruption and political prisoners.

EU foreign ministers are expected to agree on Monday to remove sanctions against Myanmar, unless any member state objects. The sanctions, which will lapse on April 30 and affected more than 500 individuals and nearly 1,000 companies as well as aid flows, were suspended a year ago.

The EU meeting comes as US-based Human Rights Watch prepares to issue a report accusing the government of complicity in a campaign of ethnic cleansing against Rohingya Muslims in western Rakhine state.

The report, based on interviews and satellite data, is understood to charge that the government, security forces and local authorities were actively involved in the forcible displacement of more than 125,000 people, mainly Rohingya Muslims, and warns of an escalating humanitarian crisis in Rakhine.

In efforts to address the Rohingya crisis, a government-appointed commission into the Rakhine violence is expected to issue its report on Wednesday.

The report’s recommendations, based on a six-month investigation, are understood to include extending citizenship rights to Rohingya who meet criteria under a 1982 citizenship law, which originally excluded Rohingya. As many as 70-80 per cent of Myanmar’s estimated 800,000 Rohingya population could be eligible under a looser interpretation of the law, said several experts.

But relatively few possess the necessary documentation, and the government’s greatest challenge could be determining eligibility through interviews and other methods, they added.

Of the 125,000 displaced in Rakhine, mainly stateless Rohingya, most remain in overcrowded camps, although many thousands have fled in boats – often being attacked by pirates or repelled by authorities in neighbouring countries.

UN agencies recently warned of a fresh Rohingya refugee crisis, driven partly by human traffickers preying on desperate people and exploiting government inaction.

The Human Rights Watch report will be issued a day before International Crisis Group, the conflict analysis organisation, holds an annual awards ceremony in New York to present its 2013 “pursuit of peace” prize, the recipients of which are Myanmar’s president Thein Sein and Luiz Inácio Lula da Silva, Brazil’s former president. U Aung Min, Myanmar’s senior peace negotiator, will accept the prize on the president’s behalf.

The contrasting assessments of Myanmar’s progress are summed up in the US state department report, which commends Myanmar for continuing its “historic transition toward democracy” in 2012, with political prisoner releases, easing of press censorship and enabling of trade unions, as well as conduct of by-elections that swept Nobel laureate Aung San Suu Kyi into parliament.

But the report also warns of growing racial and religious violence, saying the government must work urgently to overcome deep divisions that fanned the sectarian violence in Rakhine state last June and October.

More recently, religious and racial violence broke out in the central Myanmar town of Meiktila. In March at least 50 mainly Muslim people were killed, 12,000 displaced and parts of the town razed. Since then, local reports have suggested that extremist Buddhist groups are behind further attacks or intimidation of Muslims in areas including Yangon.

Citing the spread of such violence and unresolved conflicts in some ethnic areas, critics say moves to reward Myanmar with the removal of sanctions, peace prizes or even official praise are premature, warning that the loss of international leverage could lead to government backsliding.

“It is disgraceful that ICG calls for an investigation into war crimes in Sri Lanka and not Burma,” said Bertil Lintner, a Myanmar expert and author, using the old name for the country.

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