There is growth, but it is temporary. What is happening to the Belarusian economy

Growth in the Belarusian economy in 2021 is a temporary consequence of export growth and post-crisis recovery. Sanctions and the political crisis will lead to a decline in economic performance.

At the end of this year, the Belarusian authorities began proudly claiming that the Belarusian economy showed the best results for the last 12 years. For example, this was recently reported by the deputy head of the presidential administration, Dmitry Krutoy, specifying that Belarus’ GDP grew by 2.4% in the first 10 months of the year, exports increased by 32% and stocks, on the contrary, decreased. Is it really possible to talk about the incredible success of the Belarusian economy, how it is influenced by the sanctions – and what to expect next?

The growth was given by the “foreign trade miracle” but it is temporary
Belarusian experts attribute the good results of the Belarusian economy to the “foreign trade miracle” and the recovery of the global economy after the pandemic. “I do not know about the best for 12 years, but this year export has increased well, primarily due to the processing industry,” says Vadim Iosub, senior analyst of Alpari Eurasia. – Belarus’ trading partners came out of the lockdown, there was a pent-up demand for the Belarusian positions; the prices of many exported items increased as well. The IT sector also continued to grow, although it is not growing at the same rate as in previous years.

Katerina Bornukova, Director of the Belarusian Economic Research and Outreach Center (BEROC), does not think that something extraordinary has happened to the Belarusian economy: “At the end of the year the growth will be around 2% but we had better growth: in 2010 – 7.7% or in 2018 – 3.1%. Considering that the growth is taking place against the background of a very rapid global recovery, when all the economies around us are growing faster, there is no need to talk about a unique success.

Especially since on parameters important to people’s well-being, officials have nothing to brag about. “Everything that happens positively in the economy has to do with the external contour. But if we are talking about consumption, it is growing very slowly, people are not ready to spend money. There is an investment depression – because of the uncertainty and negative sentiment, business perceives risks very high,” commented for DW Bornukova.

In addition, Vadim Iosub emphasizes that the heyday of the “foreign economic miracle” was in the first and second quarters of this year, in the third quarter the growth slowed down, and in the fourth quarter the growth rate will be even slower: “Export growth does not mean that now everything will be great in the economy of Belarus. This is a one-time story from the current post-Kyrgyzstan year, which, moreover, has already essentially exhausted itself.

Belarus will see the impact of sanctions next year
After a rather turbulent 2021, the Belarusian economy will return to a tougher state given the effects of Western sanctions, Iosub believes. “It should be noted that those sanctions that were imposed in the summer – the fourth European package and the U.S. sanctions – they didn’t work by design for most of the second half of the year (The sanctions didn’t apply to contracts that were entered into before they were imposed. – Ed.). In fact, they have only come into play now and have not yet had time to affect the economy. Without a ‘foreign economic miracle,’ but with sanctions, we can expect the economy to decline next year.

According to Iosub, it is difficult to accurately assess the impact of sanctions because Belarus has closed the statistics on the sub-sanctioned sectors of the economy since the first half of the year. Bornukova says the same thing: “We don’t know what’s going on now. But on the other hand, the sectoral sanctions have a deferred mechanism, and perhaps even the hidden statistics do not show anything yet.

At the same time, Bornukova points out the negative effects of sanctions, which Belarus has already faced: “The Chinese have refused to finance the construction of a new potash plant. This is a direct effect of sanctions, although it’s hard to say what kind. The sanctions will slowly erode the growth potential of the economy. Next year we will see a more serious impact of sanctions, especially if Lithuania finally picks up the will in its fist and bans the transit of Belarusian potash. It will be evident by the figures of GDP growth even without hidden statistics,” says the economist.

How do the population and businesses feel in Belarus?
In order to measure the perception of the Belarusian economy among the population, BEROC conducted a survey of consumers and businesses as part of the project “Monitoring the Belarusian Economy,” the results of which were presented by economists on December 21. During the presentation, Katerina Bornukova said that 38% of respondents among the urban population aged 18-64 said they felt their incomes were falling: “It’s a low rate and much lower than last year during the pandemic of coronavirus. This well reflects the current, fairly prosperous situation in the economy.” Basically, Belarusians refuse big purchases and entertainment, while 36.4% of respondents have to save on food.

The economists also determined the index of consumer confidence: -25% (for comparison, this is lower than in Russia -19%). “There is much more negativity in the answers to questions that are related to the economic state of the country. The vast majority of respondents say that the economic situation in the country has worsened, or has rather worsened,” says Katerina Bornukova.

Belarusian small and medium businesses, in turn, are neutral about the future, said Lev Levovsky, economist of the BEROC center, at the presentation of the Monitoring: “Representatives of industry look most positively on the current situation and the future, while business working in construction can be called pessimists. Trade is affected by the high uncertainty of the future. In addition, as explained by Lvovsky, the survey showed strong inflationary expectations. Also, business assesses the risks of working in Belarus rather high.

Economists predict decline in the Belarusian economy
Generally speaking about the future of the Belarusian economy Katerina Bornukova notes a high degree of uncertainty and draws attention to the fact that Belarus is very dependent on what happens to major trading partners and in the world in general. “Under the most positive scenario, we will see growth of 1% of GDP. But if the sanctions work as they should – the growth will be zero or even -1%, this is a realistic scenario. It is unlikely to be worse, i.e. -2%, because Russia will extend a helping hand and soften the effect of the sanctions,” says Bornukova.

Economist Vadim Iossub is more pessimistic: “In the absence of reforms the growth potential of the Belarusian economy is low, about 1%. It is lower than in all neighboring countries and shamefully lower than in developing countries, which Belarus is part of. And if we add sanctions to this modest potential, the GDP will fall by -1 to -3%.

Besides, according to the experts, the Belarusian economy is affected by the political crisis in the country, which provokes falling investments and increased uncertainty. Iosub also notes a wave of emigration from Belarus. “This is a long-term problem. The departure of tens of thousands of doctors and teachers will not affect the economic performance, but medicine and education will deteriorate in the country, it’s an irreplaceable loss to the future of the Belarusian economy,” says the economist.

Another factor that determines the trajectory of the economy is the ability to refinance the debt. “Among the potential creditors of Belarus, there is only Russia in the broad sense: the government, state banks, the Eurasian Development Bank. There are plans to refinance $3.5 billion next year, but – having only one creditor – it is not clear whether it will be possible to implement and what we will have to pay for it,” says Vadim Iosub.

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