Belarus Country Report Jan17 - January, 2017

February 7, 2017

Belarus is the only country in the CIS that is still in recession. Both Russia and Ukraine are either already growing or about to grow, but Belarus has not yet shaken off its economic slow down. Having said that the situation is stabilizing and the country can look forward to the start of a recovery in 2017.

This will be an interesting year as at home the government launched the first round of deep public spending reforms that is design to cut costs and introduce some accountability. In effect it has ended directly funding state owned corporations from the budget and is attempting to make these companies to bid for public funds on a commercial basis; companies need to prove the investment of funds are profitable.

Internationally too Belarus is attempting to open up to the west. President Alexander Lukashenko offered an olive branch in 2016 by allowing a token opposition presence to enter parliament in elections. His next move was to unilaterally remove visa requirements for 80 countries -- a move that irked Russia that has an open border with Belarus.

Still, progress is mixed. While Belarus soared 13 places in the last World Bank “Doing Business” report to an impressive 37th place, the IMF is still criticising Minsk for failing to make desperately needed deep structural reforms.

The lack of reforms is preventing a faster recovery. The GDP of Belarus was down 2.6% year-on-year in January-December 2016 following a 2.7% y/y decline in January-November, the Belstat state statistics committee in Minsk reported on January 18.

Belarus is the only country of the Commonwealth of Independent States (CIS) that is expected to see economic contraction in 2017, Moody's Investors Service said in a report published on January 11.

Lukashenko’s demand to increase wages in February is more old school economics that will not help; it will drive up inflation and artificial wage hikes has already sparked one financial crisis.

Still, an upswing in neighbours Russia and Ukraine and perhaps better trade relations with EU should bolster the economy this year.

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