Russia been transformed into a war economy, but it is still run on market lines. Belarus is going in the opposite direction, one that is increasingly mirrors Soviet-style economic management.

What had once been a “socially oriented” market system is reverting to a rigid, centrally managed model. This shift, analysts warn, could deepen the country’s economic vulnerabilities and complicate its alignment with Russia.

“Russia retains all the basic market mechanisms despite restructuring for war,” said Olga Loiko, a political analyst with the Carnegie Endowment for International Peace, in a recent note. “In contrast, Belarus is gradually returning to the administrative-command system.”

Belarus’s banking sector, once cautiously reformed under National Bank Chair Pavel Kallaur in the late 2010s, is now being brought firmly back under state control. Following the appointment of former Prime Minister Roman Golovchenko as central bank chief in March 2025, President Alexander Lukashenko has ordered tighter supervision of banks and curtailed the institution’s independence.

“Golovchenko understood the rules of the game,” Loiko said. “He immediately began saying that banks’ activities should be aimed first and foremost at serving the interests of the national economy.”

The policy reversal extends far beyond banking. Facing down Western sanctions imposed after the 2020 crackdown on mass protests that swept the country, the embattled Lukashenko has responded by tightening his grip on power across the board. Minsk’s support for Russia’s 2022 invasion of Ukraine only made things worse, but has also left the Belarusian strongman entirely dependent on Russian President Vladimir Putin. 

Lukashenko’s already illiberal regime has become overtly repressive. The same heavy handed controls are now being applied to the economy. Price controls have been reintroduced on staple goods and a sweeping price regulation policy, introduced in October 2022, has inevitably triggered shortages and inflation.

“Just one year after the introduction of restrictions, trade profitability in the retail sector fell to 1%,” Loiko said. “Several large chains went bankrupt. That didn’t stop the movement toward administrative-command methods – in fact, it accelerated it.”

The consequences of these measures have become increasingly visible. In spring 2025, potatoes, a staple food item, vanished from Belarusian shelves due to government-imposed price caps. Producers instead exported their crops to Russia, where they could fetch higher, market-driven prices. In March, Lukashenko assembled his top managers and roasted them in public over soaring price of potatoes.

“The deficit of potatoes on the domestic market was in sharp contrast with the export dynamics,” said Loiko. “The state price cap made domestic sales unprofitable.”

Despite the increasingly obvious distortions, the government has doubled down on centralised control. Commercial banks have been ordered to expand investment lending by 16% in 2025, while consumer credit is restricted to domestic goods. A new system will assess each bank’s “contribution” to socioeconomic development.

At the same time, nearly one-third of banking assets are held by Russian institutions such as Sberbank, VTB and Gazprombank. These banks now face the same lending targets and interest rate caps as their Belarusian counterparts.

“Russian businesses clearly did not acquire Belarusian assets in order to lose money,” Loiko said. “But it is becoming increasingly difficult to make money in Belarus.”

The average interest rate spread dropped to just 1.1 percentage points in the first quarter of 2025, compared to an average of 3.5 points over the previous five years. The narrowing spread and the growing requirement to issue non-performing directed loans has started to raise embarrassing questions from Belarus’ biggest foreign partners as the health of the economy starts to visibly decay.

“There is a real risk of socialist practices spreading to new areas,” Loiko warned. “It is one thing to buy cheap potatoes, and quite another to invest in an economy where foreign investors can be dictated to over what to produce and at what price.”

The longstanding friendship between Minsk and Moscow is beginning to fray under the weight of diverging monetary strategies and overt interference in Russia’s businesses in Belarus.

“At the macro level, Moscow and Minsk may not have reached the stage of planning a single monetary policy,” Loiko said, “but previously the regulators were at least still on the same page. Now they are on different chapters altogether.”