The Belarusian government has dramatically revised downward its forecast for the country’s GDP growth in 2019 (from 4.5% year-on-year to 2.1% y/y), according to the nation's new Economy Minister Dmitry Krutoy.

According to Belarusian officials, the new forecast take into account recent changes in the external economic environment, including changes in oil prices and the economic situations of the country's major trading partners, specifically, in Russia, and the values of their currencies.

According to Krutoy, the target scenario was initially based on an oil price assumption of $70 per barrel, but the assumption was eventually reduced to $65 per barrel, BelaPAN news agency reported on August 29.

He added that the forecast estimates "fully take into account" the negative consequences of Russia’s so-called tax manoeuvre for Belarus, even though it has been agreed with Russian authorities that mechanisms of compensating Belarus for its losses from the tax manoeuvre will be negotiated before the end of this year.

The tax manoeuvre shifts the tax burden from export duty on oil and petroleum products to mineral extraction tax (MET) on oil production. It envisages a gradual reduction in the rate of export duty on oil and petroleum products from 30 % to zero in the period from 2019 to 2024 and a proportionate increase in MET.

According to the Belarusian authorities, Belarus’ budget revenue losses from the tax manoeuvre in 2019 alone are estimated at BYN600mn ($300mn).

Belarus' GDP grew by 4.4% year-on-year in January-July, following a 4.5% y/y growth in the first half of the year, and a 4.7% y/y growth in January-May, according to the national statistics agency Belstat.

The Belarusian economy is recovering well on the back of the ongoing recovery in neighbouring Russia, which saw 1.8% growth in the second quarter, the country's main trade partner. Belarus' GDP grew by 2.4% y/y in 2017 after two years of recession. It contracted 3.9% y/y in 2015 following 1.6% y/y growth in 2014.

In April, the International Monetary Fund (IMF) revised upwards its GDP growth forecast for Belarus from 0.7% (October's forecast) y/y to 2.8% y/y.

Meanwhile, Fitch believes that could accelerate further to 3.5% y/y in 2018 supported by reduced external financing constraints, growth in Russia and other trading partners and strong domestic consumption and investment performance.

Fitch expects growth to moderate to 2.5% y/y and 2% y/y in 2019 and 2020. However, the nation's large public sector (estimated at 47% of GDP in 2017) with high leverage and productivity challenges weighs on medium-term growth prospects, which is a rating weakness.