Belarus Country Report Feb19 - February, 2019

February 8, 2019

Belarus had a good year in 2018 and the economy grew by 3% year-on-year, according to the national statistics agency Belstat.

The Belarusian economy has been recovering well on the back of the ongoing recovery in neighbouring Russia, the post-Soviet 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 November, the International Monetary Fund (IMF) said that the lender forecasts a 3.5%-3.7% y/y growth in 2018. "Such an outlook is based on a number of factors: oil prices are higher than expected, prices for a number of export commodities are higher, external demand was pretty good, [the] average salary grew at a fast pace," head of the IMF mission to Belarus Jacques Miniane said.

The government has also shown unusual prudence by paying down external debt as fast as it can. As of 1 December 2018, Belarus' external debt totalled $16.8bn, up slightly by $70.3mn or 0.4% from the beginning of the year. In January-November 2018, external state borrowings totalled $2,112.4mn, including $797.5mn borrowed from the Russian government and banks. In 2019 the state will continue to use foreign exchange earnings to continue to pay off debt, but expects to refinance 75% of its external debt and is still reliant on Russian credits to get through the year.

The foreign exchange reserves of Belarus increased by $3326mn, or 4.7% month-on-month, to $7.440bn in November following a 2.6% m/m increase in October, the National Bank of Belarus (NBB) said in a statement on December 7, which has shored up the currency, which has been prone to devaluations in recent years.

Recently, the Belarusian government was forced to revise downward its forecast for the country’s GDP growth in 2019 (from 4.5% y/y to 2.1% y/y). According to Belarusian officials, the new forecast takes 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 Russia, and the values of their currencies. 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.

But Minsk's main headache at the moment is a Russian proposal to change the way it calculates tax on oil. The bottom line is the so called tax manoeuvre will cost Belarus billions of dollars in lost revenues.

The negotations are tense and Belarus president Alexander Lukashenko has been flirting with the west – US diplomats have been allowed to return to Minsk and visa restrictions have been dropped – but so far the Kremlin seems determined to end Belarus’ energy subsidies. This will be a serious blow to the economy and the IMF warned Minsk last year to get a “Plan B” ready in case Russia doesn't back down.

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.


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