Will Belarusian Economy Get Cold Shower After ‘Elections’?

Experts do not rule out a recession.

The authorities intend to significantly raise the salaries of state employees during the pre-election period, and the electorate may have the impression that this generosity is a consequence of a favorable state of affairs in the economy. In reality, the economy is full of problems, and they can surface after the “election,” writes naviny.by.

Belarusian future - stagnation or recession?

The official forecast for this year provides for the economic growth of 4%. In January-July, the economy grew by 1.3%, and the authorities are gradually starting to diplomatically make it clear that the 2019 macroeconomic targets will not be reached.

In particular, the Research Economic Institute of the Ministry of Economy expects that the industrial production growth rate will be twice lower than predicted.

“According to estimates, in 2019 the rate of industrial production will be 102%, which will not allow reaching the projected annual target of 104.3% for 2019,” says the latest issue of the Economic Bulletin, published by the Institute of the Ministry of Economy.

According to experts of the Institute of the Ministry of Economy, several factors continue to have a negative impact on the development of industry - increased competition in the traditional (Russian) sales market; the difficult financial situation at a number of industrial enterprises; difficult economic conditions in oil refining due to the tax maneuver in Russia.

The authorities represented by the government and the National Bank, taking into account the impact on the economy of a number of negative factors, no longer expect the planned economic growth this year.

According to BelaPAN, in July the Ministry of Economy submitted an assessment to the government, according to which, given the results of the year, the economy will grow not by the planned 4%, but only by 2.9%. By the way, the same assessment of the authorities was published recently in the FDI Magazine (owned by the Financial Times) - it was voiced by Chairman of the National Bank Pavel Kallaur in an interview with the British edition.

However, independent analysts assess the prospects of the Belarusian economy this year even more modestly.

The authors of the macroeconomic forecast presented by the IPM Research Center expect that the economy will grow by only 0.9% by the end of the year, that is, they actually predict stagnation.

According to the basic scenario of the IPM Research Center, extremely low rates of economic growth will continue in Belarus in 2020-2021. But this is not the worst that could be.

The authors of the forecast note that against the backdrop of trade wars, the world economy may be in recession, and then an economic recession is likely to occur in Belarus. In the event of a negative scenario, Belarus’s GDP growth in 2020 may reach 0.7%, and in 2021 the country may enter a recession.

Money rain went in vain

The National Bank believes that realization of the risks in question is quite possible, therefore, the regulator is now trying to accumulate foreign exchange reserves. On August 1, reserves exceeded $ 8.6 billion and reached a historic peak.

“Reserving is a good practice. At some point, if, God forbid, a crisis scenario like in 2009 is realized, we can mitigate the negative consequences of serious problems in the global economy for a certain period of time,” said Mikhail Dzemidzenka, Deputy Head of the National Bank’s Research Department, during a recent meeting with reporters.

But even if the world economy does not enter into a recession, the Belarusian economy may have problems for another reason - in connection with the implementation by Russia of a tax maneuver that is fraught with loss of oil revenues for Belarus.

“The tax maneuver, if we do not receive compensation from Russia, will reduce the potential economic growth rates of Belarus by 0.3 percentage points annually over the next few years,” Dzemidzenka said, answering BelaPAN questions.

In general, independent experts do not see a bright future for the Belarusian economy if everything in it remains as it is.

“Belarus’s oil revenues continue to decline, in Russia, which is our main trading partner, low growth rates are maintained - within 2%. And we will probably have even lower ones, because unlike Russia, Belarus does not have the ability to make large-scale investments,” said Aliaksandr Chubryk, director of the IPM Research Center, in an interview with a BelaPAN correspondent.

To accelerate and ensure sustainable economic growth, Prime Minister of Belarus Siarhei Rumas at the beginning of the year signed a decree on the creation of a working group with the World Bank, which should prepare a roadmap for structural reforms.

True, the document has not yet been adopted, although the working group has met more than once. Responding to questions from BelaPAN, Head of the World Bank’s representative office Alex Kremer said that it is still unknown when the document will be approved.

-I don’t know when the discussion of the draft roadmap with the authorities will end. At the same time, I can say that now we are discussing with the Belarusian authorities a number of topics that were taboo or which in general they didn’t rise two years ago,” Kremer said.

At the same time, the Head of the World Bank representative office is convinced that without a whole series of structural reforms in the public sector (diagnostics of state-owned enterprises and a package of measures to increase their efficiency), it will be impossible to ensure high and sustainable rates of economic growth in Belarus.

After all, the state no longer has the opportunity to make large-scale investments, and the low level of efficiency of the unreformed Belarusian economy does not allow it to show impressive results, the World Bank believes.

“In 2003-2013, there was really a money rain in Belarus, but the country did not use it to carry out reforms. That is why the country found itself in the current difficult situation,” Alex Kremer emphasized.