Estudos Económicos
Belarus

Belarus

Population 9.5 million
GDP 8,042 US$
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Country risk assessment
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Synthesis

major macro economic indicators

  2013 2014  2015 (f) 2016 (f)
GDP growth (%) 1,0 1.6 -3.9 -2.7
Inflation (yearly average) (%) 18.3 18.1 19.0 17.0
Budget balance (% GDP) -0.9 0.4  -0.8 -1.3
Current account balance (% GDP) -10.6  -6.7  -7.0 -6.0
Public debt (% GDP) 37.6 39.8 41.3 46.4

 

(e) Estimate (f) Forecast

STRENGTHS

  • Strategic location between Russia and European Union and well developed transport system
  • Relatively well trained and skilled labour
  • Political stability

WEAKNESSES

  • High energy, economic and financial dependence on Russia.
  • Omnipresent control by State over the economy and very slow implementation of reforms
  • Danger of liquidity crisis
  • Difficult business climate (high level of corruption, legal system provides little protection)

Risk assessment

Further contraction in activity in 2016 in the wake of Russian recession, but less marked than in 2015

Activity in Belarus, extremely dependant on Russia and to a lesser extent, on Ukraine, will continue to suffer in 2016 from the economic and political situation in those countries. The fall in oil prices is also likely to restrict activity in its refining sector.

The continuing lack of investment and demand likely to remain weak in its leading export markets (Russia, Ukraine, EU), is impacting on its industrial sector (nearly a quarter of GDP), dominated by agri-food production (meat, milk), petrochemicals and machines.
Exports are unlikely to make a positive contribution to growth because of the weakness of domestic demand and the low prices of its leading export products (potash and oil). The growth of internal demand is likely to slow under the weight of reduced remittances from expatriates (mostly working in Russia), a more restrictive budgetary policy, as well as rising unemployment and higher prices.
Inflation should remain high in 2016, under the knock-on of the depreciation of the Belarus ruble. Budgetary problems could also force the government to raise the prices of certain public services.

 

Precarious financial situation associated with the twin deficits and exchange rate pressures

The budget deficit should increase slightly in 2016. State revenues, dependant on the oil and gas sector (the country does not produce oil but imports it from Russia for refining and re-exporting), are likely to continue suffering the repercussions of low oil product prices. On top of this, the economic contraction could also reduce tax revenues. The slowing in social spending and wage growth expected in 2016 is unlikely to be enough to offset the decline in revenues. Quasi-fiscal operations (State guaranteed loans estimated at over 5% of GDP) will also continue to burden the public finances.
The current account deficit could decline somewhat in 2016 as a result of weaker domestic demand which will limit imports. Export earnings are likely to remain low, thanks to the low price of potash (the country’s leading export product) and of oil, as well as the lack of vitality in Belarus’s leading markets (CIS and EU).
The current account deficit will continue to generate downwards pressure on the Belarus currency, with an exchange rate that is very closely dependent to that of the Russian ruble, itself strongly linked with the price of oil.
The country is in receipt of financial aid from the Eurasian Economic Community (EURASEC) as well as from Russia and is negotiating a new loan agreement with the IMF. Its financial situation, however, remains extremely precarious with very small currency reserves (less than one month of imports in 2015).
Without any firming up in oil prices, the pressure on the Russian and Belarus rubles is set to continue, thereby worsening Belarus’s financial imbalances. A further devaluation, following that of January 2015 (30%), cannot be excluded for 2016. It would increase the rate of the escalation of public debt, mainly (80%) denominated in foreign currencies.
The lack of transparency of the banks (mostly State owned) and the practice of directed loans makes it difficult to assess the health of the banking system. Its situation, which would seem fragile, could worsen as a result of the economic slowdown and the depreciation of the currency.

 

Sensitive political situation and poor governance

Despite his opposition to the annexation of Crimea, Belarus President A. Loukachenko, remains on good terms with Russia bearing in mind the economic, financial and strategic links (trade, oil and gas supplies, investment) between the two countries.
In terms of domestic politics, A. Loukachenko was re-elected for a fifth term in October 2015 with over 80% of the votes. Despite irregularities, the voting process was peaceful, persuading the EU to suspend for four months its sanctions imposed on a number of Belarus citizens.
Social tensions have for a number of years been assuaged by regular wage rises and other spending guaranteeing increasing purchasing power. A continuing economic crisis would endanger that policy and could result in growing social tensions.
Despite a degree of progress, Belarus retains its low ranking in the World Bank’s governance indicators, in particular in terms of voice and accountability (190th out of 215), regulatory quality (180th) and control of corruption (110th).

 

Last update: January 2016

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