The Belarusian government will draft the state budget for 2017 under a scenario whereby the oil price would be at an average $35 per barrel through the year, Prime Minister Andrei Kobyakov said durring a cabinet meeting on August 2.

According to Kobyakov, this approach is "conservative". The budget has been also calculated under a forecast that the economy of Russia, the country's key market and trading partner, will shrink by 1% y/y in 2016, and the US dollar will cost RUB75.

The Belarusian authorities previously forecasted 0.3% GDP growth for 2016 under a scenario whereby the oil price would remain at $50 per barrel and the Russian ruble’s average rate would be RUB63 per dollar. However, with the oil price declining to around $30 per barrel, and the Russian ruble remains near RUB80 per dollar, which created the gap of 14% of the expenditure of the state consolidated budget.

The GDP of Belarus was down 2.5% y/y in the first half of the year after a 3.6% y/y decline in the first quarter. The country's real GDP is expected to fall by 3% in 2016, and more moderately (0.5%) in 2017, the IMF estimates.

In March, the country secured a $2bn stand-by loan with the Russia-led Eurasian Fund for Stabilisation and Development (EFSD). In late July, the lender transferred the second tranche of $300mn from the loan. Belarus also intends to resume talks with the International Monetary Fund (IMF) over a new $3bn support package.

Kobyakov has urged the government to optimise budget spending. "We cannot overspend. We cannot increase the state debt," the state-controlled BelTA news agency quoted the prime minister as saying. "Non-priority spending in the public sector - capital investments, construction, retooling, capital repairs, territory beautification - will have to be limited as much as possible and even ruled out at times."

The external government debt of Belarus increased by $637.1mn, or 5.1% in January-June (without the second tranche of the EFSD's loan), reaching $13.1bn, the Finance Ministry in Minsk said in a statement on July 29.