ANALYSIS: Political crisis aggravating risks for Belarus’ economy

Monthly overview of Belarus’ real economy sector, Jan-Apr 2021 MINSK, May 28 – PrimePress. Belarus’ economy remains under pressure from the risks associated with the domestic political crisis. The Ryanair incident brought the political crisis to an international level and threatens the Belarusian economy with very unfavourable consequences. Despite better-than-forecasted growth in gross indicators, the financial performance of enterprises remains fragile. Credit debt overburden in the corporate sector remains high, with many companies experiencing working capital problems. The inflation rate remains significantly higher than forecasted. Negative expectations among economic agents are growing. Table 1. Key indicators of Belarus’ macroeconomic performance: <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> Indicator </td> <td> Real figures, Jan-Apr 2021, billion Belarusian rubles </td> <td> Jan-Apr 2021 on Jan-Apr 2020, % </td> <td> Official forecast for 2021, % </td> </tr> <tr> <td> GDP </td> <td> 50.584 </td> <td> +2.5% </td> <td> +1.8% (+0.5% in H1) </td> </tr> <tr> <td> Industrial output </td> <td> 46.275 </td> <td> +11% </td> <td> no forecast </td> </tr> <tr> <td> Fixed capital investments </td> <td> 7.888 (15.6% of GDP) </td> <td> minus 11.2% </td> <td> 21.3-21.7% of GDP </td> </tr> <tr> <td> Inflation growth since early 2021, % </td> <td> 4.6* </td> <td> 8.6 (Apr 2021 on Apr 2020) </td> <td> 5% at most </td> </tr> <tr> <td> Foreign trade balance (goods and services), USD million </td> <td> +828.0** </td> <td> +357.4** </td> <td> no forecast </td> </tr> <tr> <td> Real disposable household incomes, year on year, % </td> <td> +2.0** </td> <td> +7.1*** </td> <td> +1.6% (+2.0% in Q1) </td> </tr> </tbody> </table> * year to date ** Jan-Mar 2021 *** Jan-Mar 2020 Low comparative base continues to ensure economic growth Last year’s low comparative benchmarks continue to have a positive effect on the dynamics of gross indicators of the Belarusian economy in 2021. April last year was, in fact, the first month when the pandemic and the global economic crisis began to affect the statistical data. The deterioration of the situation was observed even despite the unwillingness of the Belarusian authorities to admit the presence of the pandemic and take active measures to minimize the consequences of the crisis in the country’s economy. The National Statistical Committee of Belarus (Belstat) registered a year-on-year acceleration of GDP growth in the country in January-April 2021. Ove the course of four months, it increased by 2.5% year on year to Br50.584 billion. To compare, in January-April 2020, Belarus’ GDP decreased by 1.4%. This year’s GDP growth drivers are the manufacturing industry, as well as such activities as “supply of electricity, gas, steam, hot water and conditioned air”. Production volume in the first sector rose by 11.3% in current prices in January-April 2021 to Br40.376 billion (+18.2% year on year in April 2021), while in the second - by 12.7% year on year to Br4.581 billion (+9.4%). Accelerated growth in the “supply of electricity, gas, steam, hot water and air conditioning” is due to this year’s prolonged cold winter. In turn, the manufacturing industry is accelerating thanks to the petrochemical complex, which operated with minimal workload early last year. According to Belstat, over January-April 2021, the production of coke and petroleum products increased by 33.4% to Br6.150 billion, chemical products - by 24.5% to Br4.039 billion. Overall, in January-April 2021, industrial output increased by 11% year on year up to Br46.275 billion. As for other sectors of the economy, there are multidirectional dynamics. Among the trends of this year, the negative dynamics of retail turnover draws special attention. According to Belstat, retail turnover reduced by 1.7% year on year in January-April 2021 to Br17.900 billion, while a year before it demonstrated growth at 4.7%. This fact is due to the change of the consumer behaviour model of private households in the conditions of crisis and uncertainty. The more rational behaviour of private households has led to a decrease in demand for non-essential goods. According to trade statistics, in the first four months of the year, private households purchased food products worth Br8.8 billion (+0.3% in comparable prices against January-April 2020), non-food products - Br9.1 billion (minus 3.6%). Thus, Belarusians have started saving on non-food products. As for the prospects of Belarus’ economy for the current year, they look more than uncertain at the moment. Negative expectations of economic agents inside the country continue to increase and the business environment is deteriorating. At the same time, there is still external pressure, including new sanctions in various directions. Companies show unstable financial results Belstat’s quarterly performance data on large and medium-sized companies show positive dynamics of the main gross indicators of key performers in the real sector. Thus, their revenues increased by 19.3% year on year to Br70.467 billion, cost of goods - by 20% to Br56.875 billion, profit on sales - by 18.3% to Br5.239 billion. At the same time, in Q1 2021, the share of loss-making enterprises by the final result in the Belstat sampling was 21.8% against 22.9% in Q1 2020. It should be taken into account that the operational data include information on agriculture with state support, which seriously distorts the real picture. The results of agricultural performance without and with state support are radically different. If 9.1% of farms with state support are unprofitable, then without state support - 56.5%, the latter figure has increased by 2.5 p.p. year on year. The GDP deflator, which reflects the aggregate growth of prices in the economy, amounted to 111.2% in the first quarter. It follows from this fact that real growth rates of financial indicators were much more modest than the nominal ones. It is also worth noting the fact that the growth of the cost of production outstrips the growth of revenues. Apparently, it is connected with a rise in prices for raw materials and semi-finished products as the world economy recovers from the crisis. If companies do not take measures to optimize costs in the coming months, it will have a negative impact on profitability. In this regard, some improvement in profits relative to 2020 cannot be called a sustainable process. Net profit of profitable enterprises in the real sector amounted to Br4.132 billion (+9.7% in nominal terms), net losses of loss-making enterprises - Br0.818 billion (a 10.9-fold decrease). The manifold reduction in losses is associated with several factors. First, in Q1 2020 there was a significant devaluation of the Belarusian ruble, which led to the formation of negative exchange rate differences. Secondly, in May 2020, the president’s ordinance #159 "On the revaluation of assets and liabilities" was adopted, which allowed commercial organizations from January 1, 2020 to December 31, 2022 to reflect the impact of exchange rate differences on the net profit, not in the period in which the differences were formed, but at the discretion of the head of the company. The efficiency of companies without regard to exchange rate differences and debt burden reflects the profitability of sales. This indicator is a qualitative indicator of the success of business as such: if the profitability is steadily low or negative, no amount of state support will be able to keep a company from going bankrupt indefinitely. In Q1 2021, about 28.4% of large and medium-sized enterprises in the Belstat sampling had negative profitability (losses from sales), about 31% showed profitability above 0%, but below 5%. In January-March, an increased share of operationally unprofitable companies compared to the real sector’s average was observed in retail trade, land and pipeline transport, construction, agriculture, and the production of non-metallic mineral products. On the whole in the real sector the proportion of unprofitable and low-profit companies was 59.5%. At the same time, in agriculture this proportion reached 64.3%, in construction - 69.3%, in retail trade - 87.8%, in land and pipeline transport - 75.4% and in wholesale trade - 68.9%. Overall, January-March 2021 showed a deceptive financial picture. Formally, the results were better for the grossing enterprises in year-on-year terms, but this happened due to the failure of profits last year and the use of accounting tricks by the enterprises, the rights for which were provided by the authorities. The improvement of operating indicators (profit from sales, profitability) should also not be considered a stable trend yet due to the outstripping growth of production costs. Today international financial institutions and analysts independent from the authorities are unanimous that the period of economic recovery growth will end in the second half of 2021, after which Belarus’ economic growth rate will become close to the statistical error. Domestic demand in the economy is likely to remain depressed. In such conditions, the biggest financial boost will be received by enterprises, which are primarily oriented to foreign markets. Inflation remains significantly higher than forecasted Inflation, which gained momentum late last year, continues to remain significantly higher than the forecast. In April 2021 consumer prices grew by 8.6% year on year against 8.5% a month earlier, the growth of prices for socially important goods (essential goods) remained at the level of the previous month - 7.1% year on year. As has been repeatedly noted, the main negative impact on acceleration of inflationary processes in early 2021 was made by the increase of the world prices of food products, as well as imported non-food products. Additional proinflationary influence in the domestic market was provided by the authorities themselves, who cancelled a number of VAT privileges. According Belstat, in April 2021, consumer prices in Belarus increased by 0.7% month on month after a 0.7% increase in March. Prices of foodstuffs rose by 0.9% month on month (+7.4% year on year in April 2021), non-food products - by 0.8% (+10.1%). Tariffs for services rose by 0.4% (+8.9% year on year). Belarus annual core inflation accelerated to 8.5% in April 2021 against 8.2% a month earlier. Trend inflation in April made 7.1% against 6.7% in March. Regulated prices and tariffs rose by 9.1% per annum against 8.7% a month earlier. MART says April saw a month-on-month increase prices of tobacco products (by 0.2% on average), medicines (by 1%) and motor fuel (by 2.1% on average). The growth of seasonal prices (fruit and vegetable products) slowed down to 9.5% against 12.8% a month earlier. Thus, there are still higher inflation risks in Belarus due to both external and internal factors. At the same time, internal factors include the actions of the authorities in the sphere of price regulation, as well as increased inflation expectations, fuelled by instability and unpredictability of the situation in the economy. Foreign trade demonstrates positive dynamics Foreign trade demonstrates positive dynamics against the background of the failed start of the year in 2020. The fall in global business activity in 2020 as a result of the COVID19 pandemic, problems with Russian oil supplies to Belarusian refineries early last year, and potash fertilizer sales had a negative impact on foreign trade in 2020. In the first quarter of this year the situation turned out to be more favourable. According to the National Bank, in January-March 2021, the surplus of foreign trade in goods and services in Belarus amounted to $828 million against $357.4 million in Q1 2020. Separately, in March 2021, the surplus in foreign trade in goods and services amounted to $102.6 million against minus $39 million in March 2020. Thanks to the gradual recovery of business activity, as well as lack of problems with supplies of crude to Belarusian oil refineries, the volume of foreign trade in goods and services has been growing this year. In January-March, it increased by 17.1% year on year to $19.794 billion. Exports of goods and services increased by 19.5% to $10.311 billion, imports - by 14.7% to $9.483 billion. The share of goods in foreign trade in the first quarter of 2021 amounted to 77.8%, services - 22.2%. The share of services decreased by 3.4 p.p. year on year. The usual trends remain in Belarus’ foreign trade – there is a negative balance in trade in goods, while the balance of trade in services is positive. According to the National Bank, in January-March 2021, the negative balance of foreign trade in goods amounted to $213.4 million against $657.4 million in Q1 2020. The balance of foreign trade in services was positive in the amount of $1.041 billion against a surplus of $1.015 billion in Q1 2020. Transportation services traditionally account for the largest volume of services turnover in Belarus (41.9% of total services exports in the first quarter of 2021, and 42.4% of imports). The second place in terms of exports is taken by computer services (30.4%), while imports - by construction services (13.4%). According to Belstat, in January-March 2021, the degree of commodity concentration of exports was characterized as low. The commodity concentration of exports was 629 against 497 in January-March 2020. The growth of the index is connected with the increase in the share of the mineral fuel, oil and petroleum products in the total export of Belarus, as specified by Belstat. The most significant increase in the export supply value on January-March 2021 occurred in such commodity groups as petroleum products (nearly 2 times up year on year, or $520.4 million), as well as potash fertilizers (+14.8%, or $78.5 million). The greatest growth in the value of import supplies was observed in the volume of crude oil, including gas condensate (by 3 times, or by $1.055 billion), as well as natural gas (+14.4%, or $96.6 million). The EEU countries accounted for 44.4% Belarus’ total exports in January-March 2021 (51.2% - in January-March 2020), including Russia - 42% (48.2%), the EU countries - 25.4% (17%), other countries - 30.2% (31.8%). Imports from the EEU countries accounted for 55.4% (47.7%) of total imports, of which 54.9% (47.2%) came from Russia, 16.5% (21.2%) from the EU countries and 28.1% (31.1%) from other countries. The increase of Russia’s share in import supplies and the decrease in export supplies in the first quarter of 2021 reflects the recovery of supplies of oil raw materials to Belarus and supplies of refined products for export. Thus, one can state that Belarus’ foreign trade remains highly dependent on the Russian market. At the same time, after the elections and the sharply deteriorating rhetoric of the Belarusian authorities towards almost all of the main trading partners this dependence will further increase. Belarusian economy remains highly exposed to political risks Overall, the situation in the Belarusian economy has not changed much in recent months. The authorities report an improvement in gross indicators, preferring to keep silent about the low comparative base of the previous year. At the same time, no new drivers of the country’s development are observed. Against this background, negative expectations of economic agents continue to grow, administrative pressure on businesses and government interference in market mechanisms are increasing. Economic agents understand that the conditions for their activities may be significantly changed at any moment on the basis of the political priorities of the authorities, which restrains investment activity and real growth of the economy. Sanctions from the U.S. and the EU will have a significant negative impact on the situation. Head of the Belarusian Scientific-Industrial Association and the Republican Union of Industrialists and Entrepreneurs Alexander Shvets says international business is very sensitive to U.S. bans, especially the transnational corporations, which prefer to dissociate themselves from any risky cooperation. “That is, the question is not a direct economic and financial damage from the sanctions, but their toxicity and indirect impact. And, above all, in terms of the perception of the country by international and foreign investors. That is the main destructive power of these sanctions,” Shvets said in an interview with the Economic Gazette. Separately, it will be possible to talk not only about the reputational, but also directly about the economic consequences of the sanctions when the European Union adopts the fourth sanctions package (June 2021). According to European officials, after the incident with the Ryanair plane, it will include sectoral sanctions. The EU is considering the possibility of giving up imports of potash fertilizers, timber, other goods from Belarus, as well as a ban on the export of technology and other possible sanctions. PrimePress Business Analysis Agency

2021-05-29

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ANALYSIS: Political crisis aggravating risks for Belarus’ economy

Monthly overview of Belarus’ real economy sector, Jan-Apr 2021

MINSK, May 28 – PrimePress. Belarus’ economy remains under pressure from the risks associated with the domestic political crisis. The Ryanair incident brought the political crisis to an international level and threatens the Belarusian economy with very unfavourable consequences.

Despite better-than-forecasted growth in gross indicators, the financial performance of enterprises remains fragile. Credit debt overburden in the corporate sector remains high, with many companies experiencing working capital problems. The inflation rate remains significantly higher than forecasted. Negative expectations among economic agents are growing.

Table 1. Key indicators of Belarus’ macroeconomic performance:

Indicator	Real figures, Jan-Apr 2021, billion Belarusian rubles	Jan-Apr 2021 on Jan-Apr 2020, %	Official forecast for 2021, %
GDP	50.584	+2.5%	+1.8% (+0.5% in H1)
Industrial output	46.275	+11%	no forecast
Fixed capital investments	7.888 (15.6% of GDP)	minus 11.2%	21.3-21.7% of GDP
Inflation growth since early 2021, %	4.6*	8.6 (Apr 2021 on Apr 2020)	5% at most
Foreign trade balance (goods and services), USD million	+828.0**	+357.4**	no forecast
Real disposable household incomes, year on year, %	+2.0**	+7.1***	+1.6% (+2.0% in Q1)

* year to date

** Jan-Mar 2021

*** Jan-Mar 2020

Low comparative base continues to ensure economic growth

Last year’s low comparative benchmarks continue to have a positive effect on the dynamics of gross indicators of the Belarusian economy in 2021. April last year was, in fact, the first month when the pandemic and the global economic crisis began to affect the statistical data. The deterioration of the situation was observed even despite the unwillingness of the Belarusian authorities to admit the presence of the pandemic and take active measures to minimize the consequences of the crisis in the country’s economy.

The National Statistical Committee of Belarus (Belstat) registered a year-on-year acceleration of GDP growth in the country in January-April 2021. Ove the course of four months, it increased by 2.5% year on year to Br50.584 billion. To compare, in January-April 2020, Belarus’ GDP decreased by 1.4%.

This year’s GDP growth drivers are the manufacturing industry, as well as such activities as “supply of electricity, gas, steam, hot water and conditioned air”. Production volume in the first sector rose by 11.3% in current prices in January-April 2021 to Br40.376 billion (+18.2% year on year in April 2021), while in the second - by 12.7% year on year to Br4.581 billion (+9.4%).

Accelerated growth in the “supply of electricity, gas, steam, hot water and air conditioning” is due to this year’s prolonged cold winter. In turn, the manufacturing industry is accelerating thanks to the petrochemical complex, which operated with minimal workload early last year.

According to Belstat, over January-April 2021, the production of coke and petroleum products increased by 33.4% to Br6.150 billion, chemical products - by 24.5% to Br4.039 billion.

Overall, in January-April 2021, industrial output increased by 11% year on year up to Br46.275 billion. As for other sectors of the economy, there are multidirectional dynamics.

Among the trends of this year, the negative dynamics of retail turnover draws special attention. According to Belstat, retail turnover reduced by 1.7% year on year in January-April 2021 to Br17.900 billion, while a year before it demonstrated growth at 4.7%. This fact is due to the change of the consumer behaviour model of private households in the conditions of crisis and uncertainty.

The more rational behaviour of private households has led to a decrease in demand for non-essential goods. According to trade statistics, in the first four months of the year, private households purchased food products worth Br8.8 billion (+0.3% in comparable prices against January-April 2020), non-food products - Br9.1 billion (minus 3.6%). Thus, Belarusians have started saving on non-food products.

As for the prospects of Belarus’ economy for the current year, they look more than uncertain at the moment. Negative expectations of economic agents inside the country continue to increase and the business environment is deteriorating. At the same time, there is still external pressure, including new sanctions in various directions.

Companies show unstable financial results

Belstat’s quarterly performance data on large and medium-sized companies show positive dynamics of the main gross indicators of key performers in the real sector. Thus, their revenues increased by 19.3% year on year to Br70.467 billion, cost of goods - by 20% to Br56.875 billion, profit on sales - by 18.3% to Br5.239 billion.

At the same time, in Q1 2021, the share of loss-making enterprises by the final result in the Belstat sampling was 21.8% against 22.9% in Q1 2020. It should be taken into account that the operational data include information on agriculture with state support, which seriously distorts the real picture. The results of agricultural performance without and with state support are radically different. If 9.1% of farms with state support are unprofitable, then without state support - 56.5%, the latter figure has increased by 2.5 p.p. year on year.

The GDP deflator, which reflects the aggregate growth of prices in the economy, amounted to 111.2% in the first quarter. It follows from this fact that real growth rates of financial indicators were much more modest than the nominal ones.

It is also worth noting the fact that the growth of the cost of production outstrips the growth of revenues. Apparently, it is connected with a rise in prices for raw materials and semi-finished products as the world economy recovers from the crisis. If companies do not take measures to optimize costs in the coming months, it will have a negative impact on profitability. In this regard, some improvement in profits relative to 2020 cannot be called a sustainable process.

Net profit of profitable enterprises in the real sector amounted to Br4.132 billion (+9.7% in nominal terms), net losses of loss-making enterprises - Br0.818 billion (a 10.9-fold decrease). The manifold reduction in losses is associated with several factors.

First, in Q1 2020 there was a significant devaluation of the Belarusian ruble, which led to the formation of negative exchange rate differences. Secondly, in May 2020, the president’s ordinance #159 "On the revaluation of assets and liabilities" was adopted, which allowed commercial organizations from January 1, 2020 to December 31, 2022 to reflect the impact of exchange rate differences on the net profit, not in the period in which the differences were formed, but at the discretion of the head of the company.

The efficiency of companies without regard to exchange rate differences and debt burden reflects the profitability of sales. This indicator is a qualitative indicator of the success of business as such: if the profitability is steadily low or negative, no amount of state support will be able to keep a company from going bankrupt indefinitely.

In Q1 2021, about 28.4% of large and medium-sized enterprises in the Belstat sampling had negative profitability (losses from sales), about 31% showed profitability above 0%, but below 5%.

In January-March, an increased share of operationally unprofitable companies compared to the real sector’s average was observed in retail trade, land and pipeline transport, construction, agriculture, and the production of non-metallic mineral products.

On the whole in the real sector the proportion of unprofitable and low-profit companies was 59.5%. At the same time, in agriculture this proportion reached 64.3%, in construction - 69.3%, in retail trade - 87.8%, in land and pipeline transport - 75.4% and in wholesale trade - 68.9%.

Overall, January-March 2021 showed a deceptive financial picture. Formally, the results were better for the grossing enterprises in year-on-year terms, but this happened due to the failure of profits last year and the use of accounting tricks by the enterprises, the rights for which were provided by the authorities.

The improvement of operating indicators (profit from sales, profitability) should also not be considered a stable trend yet due to the outstripping growth of production costs. Today international financial institutions and analysts independent from the authorities are unanimous that the period of economic recovery growth will end in the second half of 2021, after which Belarus’ economic growth rate will become close to the statistical error.

Domestic demand in the economy is likely to remain depressed. In such conditions, the biggest financial boost will be received by enterprises, which are primarily oriented to foreign markets.

Inflation remains significantly higher than forecasted

Inflation, which gained momentum late last year, continues to remain significantly higher than the forecast. In April 2021 consumer prices grew by 8.6% year on year against 8.5% a month earlier, the growth of prices for socially important goods (essential goods) remained at the level of the previous month - 7.1% year on year.

As has been repeatedly noted, the main negative impact on acceleration of inflationary processes in early 2021 was made by the increase of the world prices of food products, as well as imported non-food products. Additional proinflationary influence in the domestic market was provided by the authorities themselves, who cancelled a number of VAT privileges.

According Belstat, in April 2021, consumer prices in Belarus increased by 0.7% month on month after a 0.7% increase in March. Prices of foodstuffs rose by 0.9% month on month (+7.4% year on year in April 2021), non-food products - by 0.8% (+10.1%). Tariffs for services rose by 0.4% (+8.9% year on year).

Belarus annual core inflation accelerated to 8.5% in April 2021 against 8.2% a month earlier. Trend inflation in April made 7.1% against 6.7% in March. Regulated prices and tariffs rose by 9.1% per annum against 8.7% a month earlier. MART says April saw a month-on-month increase prices of tobacco products (by 0.2% on average), medicines (by 1%) and motor fuel (by 2.1% on average).

The growth of seasonal prices (fruit and vegetable products) slowed down to 9.5% against 12.8% a month earlier.

Thus, there are still higher inflation risks in Belarus due to both external and internal factors. At the same time, internal factors include the actions of the authorities in the sphere of price regulation, as well as increased inflation expectations, fuelled by instability and unpredictability of the situation in the economy.

Foreign trade demonstrates positive dynamics

Foreign trade demonstrates positive dynamics against the background of the failed start of the year in 2020. The fall in global business activity in 2020 as a result of the COVID19 pandemic, problems with Russian oil supplies to Belarusian refineries early last year, and potash fertilizer sales had a negative impact on foreign trade in 2020. In the first quarter of this year the situation turned out to be more favourable.

According to the National Bank, in January-March 2021, the surplus of foreign trade in goods and services in Belarus amounted to $828 million against $357.4 million in Q1 2020. Separately, in March 2021, the surplus in foreign trade in goods and services amounted to $102.6 million against minus $39 million in March 2020.

Thanks to the gradual recovery of business activity, as well as lack of problems with supplies of crude to Belarusian oil refineries, the volume of foreign trade in goods and services has been growing this year. In January-March, it increased by 17.1% year on year to $19.794 billion. Exports of goods and services increased by 19.5% to $10.311 billion, imports - by 14.7% to $9.483 billion.

The share of goods in foreign trade in the first quarter of 2021 amounted to 77.8%, services - 22.2%. The share of services decreased by 3.4 p.p. year on year.

The usual trends remain in Belarus’ foreign trade – there is a negative balance in trade in goods, while the balance of trade in services is positive. According to the National Bank, in January-March 2021, the negative balance of foreign trade in goods amounted to $213.4 million against $657.4 million in Q1 2020. The balance of foreign trade in services was positive in the amount of $1.041 billion against a surplus of $1.015 billion in Q1 2020.

Transportation services traditionally account for the largest volume of services turnover in Belarus (41.9% of total services exports in the first quarter of 2021, and 42.4% of imports). The second place in terms of exports is taken by computer services (30.4%), while imports - by construction services (13.4%).

According to Belstat, in January-March 2021, the degree of commodity concentration of exports was characterized as low. The commodity concentration of exports was 629 against 497 in January-March 2020. The growth of the index is connected with the increase in the share of the mineral fuel, oil and petroleum products in the total export of Belarus, as specified by Belstat.

The most significant increase in the export supply value on January-March 2021 occurred in such commodity groups as petroleum products (nearly 2 times up year on year, or $520.4 million), as well as potash fertilizers (+14.8%, or $78.5 million). The greatest growth in the value of import supplies was observed in the volume of crude oil, including gas condensate (by 3 times, or by $1.055 billion), as well as natural gas (+14.4%, or $96.6 million).

The EEU countries accounted for 44.4% Belarus’ total exports in January-March 2021 (51.2% - in January-March 2020), including Russia - 42% (48.2%), the EU countries - 25.4% (17%), other countries - 30.2% (31.8%). Imports from the EEU countries accounted for 55.4% (47.7%) of total imports, of which 54.9% (47.2%) came from Russia, 16.5% (21.2%) from the EU countries and 28.1% (31.1%) from other countries.

The increase of Russia’s share in import supplies and the decrease in export supplies in the first quarter of 2021 reflects the recovery of supplies of oil raw materials to Belarus and supplies of refined products for export.

Thus, one can state that Belarus’ foreign trade remains highly dependent on the Russian market. At the same time, after the elections and the sharply deteriorating rhetoric of the Belarusian authorities towards almost all of the main trading partners this dependence will further increase.

Belarusian economy remains highly exposed to political risks

Overall, the situation in the Belarusian economy has not changed much in recent months. The authorities report an improvement in gross indicators, preferring to keep silent about the low comparative base of the previous year. At the same time, no new drivers of the country’s development are observed.

Against this background, negative expectations of economic agents continue to grow, administrative pressure on businesses and government interference in market mechanisms are increasing. Economic agents understand that the conditions for their activities may be significantly changed at any moment on the basis of the political priorities of the authorities, which restrains investment activity and real growth of the economy.

Sanctions from the U.S. and the EU will have a significant negative impact on the situation.

Head of the Belarusian Scientific-Industrial Association and the Republican Union of Industrialists and Entrepreneurs Alexander Shvets says international business is very sensitive to U.S. bans, especially the transnational corporations, which prefer to dissociate themselves from any risky cooperation. “That is, the question is not a direct economic and financial damage from the sanctions, but their toxicity and indirect impact. And, above all, in terms of the perception of the country by international and foreign investors. That is the main destructive power of these sanctions,” Shvets said in an interview with the Economic Gazette.

Separately, it will be possible to talk not only about the reputational, but also directly about the economic consequences of the sanctions when the European Union adopts the fourth sanctions package (June 2021). According to European officials, after the incident with the Ryanair plane, it will include sectoral sanctions. The EU is considering the possibility of giving up imports of potash fertilizers, timber, other goods from Belarus, as well as a ban on the export of technology and other possible sanctions.

PrimePress Business Analysis Agency

2021-05-29

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