ANALYSIS: Sanctions pressure on Belarus economy intensifies

Monthly overview of Belarus’ real economy sector, Jan-Jul 2021 MINSK, Aug 31 – PrimePress. Belarus’ economy continues to show contradictory results driven by both internal and external factors. On the one hand, the GDP, industry and foreign trade are showing signs of positive dynamics. On the other hand, inflation remains high, investment activity is falling, and the growth of real household incomes is slowing down. All this is happening against the backdrop of growing uncertainty due to the unpredictable behaviour of the Belarusian authorities, as well as growing sanctions pressure from Western countries. Moreover, despite the fact that the sanctions are not imposed immediately and are mostly verbal so far, some foreign companies are already refusing to cooperate with Belarus in order to minimize possible risks. Table 1. Key indicators of Belarus’ macroeconomic performance: <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> Indicator </td> <td> Real figures, Jan-Jul 2021, billion Belarusian rubles </td> <td> Jan-Jul 2021 on Jan-Jul 2020, % </td> <td> Official forecast for 2021, % </td> </tr> <tr> <td> GDP </td> <td> 95.418 </td> <td> +3.3% </td> <td> +1.8% (+1.1% in Jan-Sep 2021) </td> </tr> <tr> <td> Industrial output </td> <td> 84.077 </td> <td> +9.3% </td> <td> no forecast </td> </tr> <tr> <td> Fixed capital investments </td> <td> 15.471 (16.2% of GDP) </td> <td> minus 8.3% </td> <td> 21.3-21.7% of GDP </td> </tr> <tr> <td> Inflation growth since early 2021, % </td> <td> 5.9* </td> <td> 9.8 (Jul 2021 on Jul 2020) </td> <td> 5% at most </td> </tr> <tr> <td> Foreign trade balance (goods and services), USD billion </td> <td> +1.725** </td> <td> +0.782** </td> <td> no forecast </td> </tr> <tr> <td> Real disposable household incomes, year on year, % </td> <td> +3.4** </td> <td> +5.4*** </td> <td> +1.6% (+1.8% in H1) </td> </tr> </tbody> </table> * year to date ** Jan-Jun 2021 *** Jan-Jun 2020 Authorities intend to maintain GDP growth rate, EDB sees slowdown ahead After analyzing the country’s economic performance in January-July 2021, the National Statistical Committee of Belarus (Belstat) reported a 3.3% year-on-year increase in GDP growth to Br95.418 billion. At the same time the official forecast for 2021 is +1.8%. The country’s gross domestic product (GDP) is anticipated to grow on a low base of the previous year and thanks to a favourable external environment. The outpacing rate of GDP growth has exacerbated the traditional problem of the Belarusian authorities, when they try to pass off the coincidence of favourable circumstances at a given moment as a long-term trend, with intensifying risks pushed into the background. In the meantime, the Ministry of Economy of Belarus has improved its target forecast for GDP growth in Belarus in 2021 by 1.5 percentage points to 3.3%. Belarus’ Minister of Economy Alexander Chervyakov made a statement to this effect before the meeting of the Council of Ministers on August 18. “The target set by the head of state is 103.3%. This is the figure we are aiming for by the end of the year. Today we will consider issues related to measures that will ensure this growth. 103.3% is the task the government will accomplish,” BelTA reports citing Chervyakov as saying. Experts of the Eurasian Development Bank (EDB) do not share the optimism of the Belarusian authorities. EDB analysts noted a month-on-month slowdown of 0.6-1 percentage points in the dynamics of Belarus’ GDP in July 2021 to 3-3.4% year-on-year. This is stated in the EDB’s weekly review of economic news published on August 23. EDB experts say the slowdown in Belarus’ GDP dynamics in Belarus in July 2021 took place against the background of the “completion of the active phase of external demand recovery”. Currently, the EDB forecasts 1.3% growth of Belarus’ GDP in 2021 (a 0.1% decrease was expected in the previous forecast, which was associated with the effects of domestic political crisis and economic losses from the pandemic coronavirus). The baseline scenario assumes that the current rate of GDP will be maintained in 2022. According to Belstat, the main drivers of GDP growth this year have been industry (positive contribution to GDP of 2.3% in January-July), information and communication (+0.7%), and wholesale and retail trade (including car and motorbike repair (+0.3%). The biggest negative contribution to GDP in Jan-Jul 2021 was provided by construction (minus 0.8%). Meanwhile, the growth rate of industry as a whole and of its individual sectors is gradually slowing down against the recovery of last year’s comparative base. At the same time, it should be noted that Belstat has stopped publishing certain indicators that characterize the performance of “strategic” industries. For instance, the production of coke and refined petroleum products as well as chemical products disappeared from public sources. The favourable external economic situation, which has not yet been affected by the sanctions, is contributing to a reduction in the level of stocks of finished products at Belarusian industrial enterprises. As of 1 August 2021, they accounted for 54.2% of the average monthly industrial output against 74% the year before. In nominal terms, as of 1 August 2021 stockpiles of finished goods at corporate warehouses amounted to Br5.234 billion, down 1.3% year on year. Thus, against the backdrop of negative expectations and increasing sanctions pressure, the country’s economic growth remains unstable and exposed to a wide range of risks outside the influence of the Belarusian authorities. Administrative interference in economic processes in the context of the political crisis only aggravates the situation and contributes to increased distrust among economic agents. Inflation expectations remain high in Belarus As much as 89.8% of participants in the survey of the real sector conducted by the National Bank of Belarus (NBB) expect an increase of consumer prices in Aug-Oct 2021. “89.8% of respondents expect an increase in consumer prices in the next three months, of which 49.4% believe that the intensity of consumer price growth will remain at the current level and 31.2% of respondents believe that price growth will accelerate. In addition, in August-October 2021, respondents expect the depreciation of the Belarusian ruble against the U.S. dollar and a slowdown of its decline against the Russian ruble,” says the NBB survey. Thus, negative expectations in the economy continue to drive inflation, which is already well above the authorities’ initial forecasts (5% Dec 2021 on Dec 2020). In July 2021 the year-on-year increase in consumer prices amounted to 9.8% against 9.9% a month earlier, while the increase in prices for socially important goods was 7.7% against 8.6% in June this year. According to Belstat, consumer prices in Belarus rose by 0.1% month on month in July 2021 (+5.9% year to date). Prices of foodstuffs fell by 0.2% (+5.7%), non-food products went up by 0.4% (+6.7%). Tariffs for services increased by 0.2% (+5.3%). The annual core inflation in Belarus accelerated to 10.2% in July 2021 against 10.1% a month earlier. Trend inflation in July was 8.6% vs. 8.5% in June. Regulated prices and tariffs increased by 9.5% year on year to compare with 9.6% in June. According to MART, in the sector of administered prices and tariffs, July saw an increase in tariffs for medical services (by 0.3% month on month), prices for vodka and tobacco products (by 0.7% and 0.8% respectively, to compensate the increase in excise duties rates), prices for motor fuel rose again (by about 2%, MART says, due to increase in oil price quotations on the global market). The increase in seasonal prices (fruit and vegetable products) slowed down to 4.5% against 8.6% the month before. Thus, there are still elevated inflation risks in Belarus due to both external and domestic factors. As far as domestic factors are concerned, special attention should be paid to high inflation expectations and the actions of the authorities in the area of price regulation. Belarus' economy short of FDI in H1 2021 Belarus’ net inflow of foreign direct investments (FDI) decreased by 12.6% year on year in Jan-Jun 2021 to $1.185 billion (excluding debt to direct investor for goods. In 2021, Belarus enjoyed FDI inflow of $1.247 billion in the first quarter, and the second quarter saw net FDI outflow of $62 million. As a rule, the largest dividends are withdrawn by Gazprom - from its subsidiary Gazprom Transgaz Belarus (formerly Beltransgaz). For instance, on 26 March 2021, the sole shareholder of Gazprom Transgaz Belarus decided to pay dividends for Q2-4 2020 in the amount equivalent to Br421.6 million ($168.64 million at the rate of National Bank of Belarus) within 60 days. In January-June 2021, about 84.1% of investment in the Belarusian economy was provided by enterprises in five sectors - manufacturing ($435 million), trade ($121 million), transport ($24 million), information and communication ($191 million), as well as financial and insurance activities ($225 million). In January-June 2021, investments in both the real and banking sectors decreased year on year. Foreign direct investments in the real sector decreased by 13.3% year on year down to $945 million, and in the banking sector by 13.1%, down to $197 million. Since investments in the real sector are many times higher than in the banking sector, the main contributor to the reduction of investment flows in 2021 was a drop in investments in the real sector. Investments in the financial and insurance sector determine the volume of resources invested in Belarusian banks. It should be noted that Belarusbank, Belagroprombank and Belinvestbank have been under EU sanctions since late June. In August, the U.S. sanctions were imposed on Absolutbank. From H2 2021 onwards, the Belarusian banking system has become essentially "toxic" to foreign investors. The degree of this toxicity will increase as new sanctions packages are adopted by the EU, the U.S., the UK, Switzerland and other countries. In H1 2021, over 50% of investments in Belarus came from Russia ($276 million vs. $320 million in H1 2020) and Cyprus ($278 million vs. $204 million in H1 2020). The involvement of Russian investors is explained by close foreign trade ties - trade with Russia accounts for up to half of all flows into/from Belarus. The activity of Cypriot investors is due to the convenience of this jurisdiction in terms of taxation for registration and operation of management companies by entrepreneurs from the former Soviet Union. On June 15, Deputy Economy Minister Anzhelika Nikitina said that between 2021 and 2025, the country plans to attract more than $5.5 billion in net foreign direct investment. Thus, on average, the Economy Ministry representative expects foreign direct investment of about $1.1 billion a year over the current five-year period. These amounts are significantly less than the actual inflow in any of the periods of the past five-year period (2016 - $1.307bn, 2017 - $1.247bn, 2018 - $1.635bn, 2019 - $1.327bn, 2020 - $1.415bn). In view of the sanctions threats to Belarus’ economy, which will be implemented from 2020, we do not exclude the possibility that Nikitina’s cautious estimate may become overly optimistic and that the actual amount of foreign investment will be below $1.1bn per year. Foreign trade shows positive dynamics Foreign trade shows positive dynamics on the low base of H1 2020. The fall in global business activity in 2020 as a consequence of the COVID19 pandemic, problems with Russian oil supplies to Belarusian refineries early last year had a negative impact on foreign trade in 2020. According to the National Bank of Belarus, in January-June 2021, the surplus of foreign trade in goods and services in Belarus amounted to $1.725 billion compared to a surplus of $0.782 billion in H1 2020. Separately, in June 2021, the surplus of foreign trade in goods and services amounted to $481.1 million against $204.4 million in June 2020. June’s foreign trade surplus was the highest since 2013. This year, thanks to the gradual recovery of business activity and the absence of problems with Russian oil supplies, the volume of foreign trade in goods and services has been on the rise. In January-June, it rose by 30.5% year on year to $42.399bn, of which exports of goods and services increased by 32.7% to $22.062 billion, imports - by 28.3% to $20.337 billion. The share of goods in foreign trade in H1 2021 was 78.1%, and that of services - 21.9%. At the same time, the share of services decreased by 2.8 p.p. year on year. The usual tendencies are still in place in Belarus’ foreign trade - a negative balance in trade in goods, while services trade comes with a positive balance. According to the National Bank, in January-June 2021, the balance of foreign trade in goods amounted to $437.3 million against $1.121 billion in H1 2020. The balance of foreign trade in services was positive in the amount of $2.162 billion, compared to a surplus of $1.903 billion in H1 2020. Transportation services traditionally account for the largest share of services turnover in Belarus (42.3% of total services exports in the first half of 2021, and 42.1% of imports). The second largest breadwinner in terms of exports is computer services (29.9%); imports - construction services (14.1%). Of Belarus’ total exports in H1 2021, the share of the EEU countries was 44.5% (50.1% in H1 2020), Russia accounted for 41.8% (47.2%), the EU countries - 25.4% (17.1%), other countries - 30.1% (32.8%). Imports from the EEU countries accounted for 55.9% of total imports (in H1 2020 - 49.1%), of which Russia accounted for 55.4% (48.7%), the EU countries 16.6% (21.2%), other countries - 27.5% (29.7%). The increase in Russia’s share in imports and decrease in exports in January-June 2021 reflects the recovery of crude oil supplies to Belarus and export supplies of refined petroleum products. At the same time, Belstat would not disclose data on oil and oil products supplies, so it is difficult to estimate the actual volume of trade in these commodities. Thus, we can state that Belarus’ foreign trade remains highly dependent on the Russian market. Belarus economy faces escalating sanctions threats August saw a sharp intensification of the sanctions rhetoric against Belarus - several Western countries at once announced sanctions against individuals and companies from Belarus: on 9 August, the UK, Canada, and the US updated their sanctions lists; Switzerland joined them on 11 August. The range of sanctions is quite broad and affects aviation, trade, industry, finance, including the insurance sector, as well as individuals personally. At the same time, despite the fact that a number of countries have decided to impose sanctions against Belarus, the U.S. sanctions should be considered as the main blow to Belarus. By means of the dollar, the US authorities control a significant part of the global financial system and the world’s settlement of foreign trade transactions. US President Joe Biden on 9 Aug 2021 signed an executive order, which extends the effect of Executive Order 13405 of June 16, 2006 (Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus). Executive Order 13405 was signed by U.S. President George Bush Jr. Biden’s executive order comes with a broad definition of the Government of Belarus. The document says the term “Government of Belarus” means the Government of Belarus, any political subdivision, agency, or instrumentality thereof, including the National Bank of the Republic of Belarus, and any person owned, controlled, or directed by, or acting for or on behalf of, the Government of Belarus. Quite expectedly, the Belarusian authorities are making attempts to curb the negative effects of the European and US sanctions. It is Russia to whom they turn for help in the first place. On 13 July, Alexander Lukashenko and Vladimir Putin had a personal meeting in St Petersburg. According to the Kremlin’s spokesman Dmitry Peskov, the sides agreed on credit support for Belarus in connection with Russia’s tax manoeuvre. On 9 August, Alexander Lukashenko said that he had asked the Russian leadership to extend a loan through the Eurasian Development Bank (EDB). However, no specific amounts and deadlines for financial support, as well as forms of other possible assistance from Russia to Belarus, have been specified so far. It should be noted that Lukashenko and Putin are due to meet again on 9 September, and a meeting of the Union Council of Ministers of Belarus and Russia is scheduled for 10 September, after which the details and terms of Russia’s further support for the Belarusian economy may become known. PrimePress Business Analysis Agency

2021-09-01

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ANALYSIS: Sanctions pressure on Belarus economy intensifies

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

MINSK, Aug 31 – PrimePress. Belarus’ economy continues to show contradictory results driven by both internal and external factors. On the one hand, the GDP, industry and foreign trade are showing signs of positive dynamics. On the other hand, inflation remains high, investment activity is falling, and the growth of real household incomes is slowing down.

All this is happening against the backdrop of growing uncertainty due to the unpredictable behaviour of the Belarusian authorities, as well as growing sanctions pressure from Western countries. Moreover, despite the fact that the sanctions are not imposed immediately and are mostly verbal so far, some foreign companies are already refusing to cooperate with Belarus in order to minimize possible risks.

Table 1. Key indicators of Belarus’ macroeconomic performance:

Indicator	Real figures, Jan-Jul 2021, billion Belarusian rubles	Jan-Jul 2021 on Jan-Jul 2020, %	Official forecast for 2021, %
GDP	95.418	+3.3%	+1.8% (+1.1% in Jan-Sep 2021)
Industrial output	84.077	+9.3%	no forecast
Fixed capital investments	15.471 (16.2% of GDP)	minus 8.3%	21.3-21.7% of GDP
Inflation growth since early 2021, %	5.9*	9.8 (Jul 2021 on Jul 2020)	5% at most
Foreign trade balance (goods and services), USD billion	+1.725**	+0.782**	no forecast
Real disposable household incomes, year on year, %	+3.4**	+5.4***	+1.6% (+1.8% in H1)

* year to date

** Jan-Jun 2021

*** Jan-Jun 2020

Authorities intend to maintain GDP growth rate, EDB sees slowdown ahead

After analyzing the country’s economic performance in January-July 2021, the National Statistical Committee of Belarus (Belstat) reported a 3.3% year-on-year increase in GDP growth to Br95.418 billion. At the same time the official forecast for 2021 is +1.8%. The country’s gross domestic product (GDP) is anticipated to grow on a low base of the previous year and thanks to a favourable external environment.

The outpacing rate of GDP growth has exacerbated the traditional problem of the Belarusian authorities, when they try to pass off the coincidence of favourable circumstances at a given moment as a long-term trend, with intensifying risks pushed into the background.

In the meantime, the Ministry of Economy of Belarus has improved its target forecast for GDP growth in Belarus in 2021 by 1.5 percentage points to 3.3%. Belarus’ Minister of Economy Alexander Chervyakov made a statement to this effect before the meeting of the Council of Ministers on August 18.

“The target set by the head of state is 103.3%. This is the figure we are aiming for by the end of the year. Today we will consider issues related to measures that will ensure this growth. 103.3% is the task the government will accomplish,” BelTA reports citing Chervyakov as saying.

Experts of the Eurasian Development Bank (EDB) do not share the optimism of the Belarusian authorities. EDB analysts noted a month-on-month slowdown of 0.6-1 percentage points in the dynamics of Belarus’ GDP in July 2021 to 3-3.4% year-on-year. This is stated in the EDB’s weekly review of economic news published on August 23.

EDB experts say the slowdown in Belarus’ GDP dynamics in Belarus in July 2021 took place against the background of the “completion of the active phase of external demand recovery”.

Currently, the EDB forecasts 1.3% growth of Belarus’ GDP in 2021 (a 0.1% decrease was expected in the previous forecast, which was associated with the effects of domestic political crisis and economic losses from the pandemic coronavirus). The baseline scenario assumes that the current rate of GDP will be maintained in 2022.

According to Belstat, the main drivers of GDP growth this year have been industry (positive contribution to GDP of 2.3% in January-July), information and communication (+0.7%), and wholesale and retail trade (including car and motorbike repair (+0.3%). The biggest negative contribution to GDP in Jan-Jul 2021 was provided by construction (minus 0.8%).

Meanwhile, the growth rate of industry as a whole and of its individual sectors is gradually slowing down against the recovery of last year’s comparative base.

At the same time, it should be noted that Belstat has stopped publishing certain indicators that characterize the performance of “strategic” industries. For instance, the production of coke and refined petroleum products as well as chemical products disappeared from public sources.

The favourable external economic situation, which has not yet been affected by the sanctions, is contributing to a reduction in the level of stocks of finished products at Belarusian industrial enterprises. As of 1 August 2021, they accounted for 54.2% of the average monthly industrial output against 74% the year before.

In nominal terms, as of 1 August 2021 stockpiles of finished goods at corporate warehouses amounted to Br5.234 billion, down 1.3% year on year.

Thus, against the backdrop of negative expectations and increasing sanctions pressure, the country’s economic growth remains unstable and exposed to a wide range of risks outside the influence of the Belarusian authorities. Administrative interference in economic processes in the context of the political crisis only aggravates the situation and contributes to increased distrust among economic agents.

Inflation expectations remain high in Belarus

As much as 89.8% of participants in the survey of the real sector conducted by the National Bank of Belarus (NBB) expect an increase of consumer prices in Aug-Oct 2021.

“89.8% of respondents expect an increase in consumer prices in the next three months, of which 49.4% believe that the intensity of consumer price growth will remain at the current level and 31.2% of respondents believe that price growth will accelerate. In addition, in August-October 2021, respondents expect the depreciation of the Belarusian ruble against the U.S. dollar and a slowdown of its decline against the Russian ruble,” says the NBB survey.

Thus, negative expectations in the economy continue to drive inflation, which is already well above the authorities’ initial forecasts (5% Dec 2021 on Dec 2020). In July 2021 the year-on-year increase in consumer prices amounted to 9.8% against 9.9% a month earlier, while the increase in prices for socially important goods was 7.7% against 8.6% in June this year.

According to Belstat, consumer prices in Belarus rose by 0.1% month on month in July 2021 (+5.9% year to date). Prices of foodstuffs fell by 0.2% (+5.7%), non-food products went up by 0.4% (+6.7%). Tariffs for services increased by 0.2% (+5.3%).

The annual core inflation in Belarus accelerated to 10.2% in July 2021 against 10.1% a month earlier. Trend inflation in July was 8.6% vs. 8.5% in June. Regulated prices and tariffs increased by 9.5% year on year to compare with 9.6% in June.

According to MART, in the sector of administered prices and tariffs, July saw an increase in tariffs for medical services (by 0.3% month on month), prices for vodka and tobacco products (by 0.7% and 0.8% respectively, to compensate the increase in excise duties rates), prices for motor fuel rose again (by about 2%, MART says, due to increase in oil price quotations on the global market).

The increase in seasonal prices (fruit and vegetable products) slowed down to 4.5% against 8.6% the month before.

Thus, there are still elevated inflation risks in Belarus due to both external and domestic factors. As far as domestic factors are concerned, special attention should be paid to high inflation expectations and the actions of the authorities in the area of price regulation.

Belarus' economy short of FDI in H1 2021

Belarus’ net inflow of foreign direct investments (FDI) decreased by 12.6% year on year in Jan-Jun 2021 to $1.185 billion (excluding debt to direct investor for goods.

In 2021, Belarus enjoyed FDI inflow of $1.247 billion in the first quarter, and the second quarter saw net FDI outflow of $62 million.

As a rule, the largest dividends are withdrawn by Gazprom - from its subsidiary Gazprom Transgaz Belarus (formerly Beltransgaz). For instance, on 26 March 2021, the sole shareholder of Gazprom Transgaz Belarus decided to pay dividends for Q2-4 2020 in the amount equivalent to Br421.6 million ($168.64 million at the rate of National Bank of Belarus) within 60 days.

In January-June 2021, about 84.1% of investment in the Belarusian economy was provided by enterprises in five sectors - manufacturing ($435 million), trade ($121 million), transport ($24 million), information and communication ($191 million), as well as financial and insurance activities ($225 million).

In January-June 2021, investments in both the real and banking sectors decreased year on year. Foreign direct investments in the real sector decreased by 13.3% year on year down to $945 million, and in the banking sector by 13.1%, down to $197 million. Since investments in the real sector are many times higher than in the banking sector, the main contributor to the reduction of investment flows in 2021 was a drop in investments in the real sector.

Investments in the financial and insurance sector determine the volume of resources invested in Belarusian banks.

It should be noted that Belarusbank, Belagroprombank and Belinvestbank have been under EU sanctions since late June. In August, the U.S. sanctions were imposed on Absolutbank.

From H2 2021 onwards, the Belarusian banking system has become essentially "toxic" to foreign investors. The degree of this toxicity will increase as new sanctions packages are adopted by the EU, the U.S., the UK, Switzerland and other countries.

In H1 2021, over 50% of investments in Belarus came from Russia ($276 million vs. $320 million in H1 2020) and Cyprus ($278 million vs. $204 million in H1 2020).

The involvement of Russian investors is explained by close foreign trade ties - trade with Russia accounts for up to half of all flows into/from Belarus. The activity of Cypriot investors is due to the convenience of this jurisdiction in terms of taxation for registration and operation of management companies by entrepreneurs from the former Soviet Union.

On June 15, Deputy Economy Minister Anzhelika Nikitina said that between 2021 and 2025, the country plans to attract more than $5.5 billion in net foreign direct investment. Thus, on average, the Economy Ministry representative expects foreign direct investment of about $1.1 billion a year over the current five-year period. These amounts are significantly less than the actual inflow in any of the periods of the past five-year period (2016 - $1.307bn, 2017 - $1.247bn, 2018 - $1.635bn, 2019 - $1.327bn, 2020 - $1.415bn).

In view of the sanctions threats to Belarus’ economy, which will be implemented from 2020, we do not exclude the possibility that Nikitina’s cautious estimate may become overly optimistic and that the actual amount of foreign investment will be below $1.1bn per year.

Foreign trade shows positive dynamics

Foreign trade shows positive dynamics on the low base of H1 2020. The fall in global business activity in 2020 as a consequence of the COVID19 pandemic, problems with Russian oil supplies to Belarusian refineries early last year had a negative impact on foreign trade in 2020.

According to the National Bank of Belarus, in January-June 2021, the surplus of foreign trade in goods and services in Belarus amounted to $1.725 billion compared to a surplus of $0.782 billion in H1 2020. Separately, in June 2021, the surplus of foreign trade in goods and services amounted to $481.1 million against $204.4 million in June 2020.

June’s foreign trade surplus was the highest since 2013.

This year, thanks to the gradual recovery of business activity and the absence of problems with Russian oil supplies, the volume of foreign trade in goods and services has been on the rise. In January-June, it rose by 30.5% year on year to $42.399bn, of which exports of goods and services increased by 32.7% to $22.062 billion, imports - by 28.3% to $20.337 billion.

The share of goods in foreign trade in H1 2021 was 78.1%, and that of services - 21.9%. At the same time, the share of services decreased by 2.8 p.p. year on year.

The usual tendencies are still in place in Belarus’ foreign trade - a negative balance in trade in goods, while services trade comes with a positive balance. According to the National Bank, in January-June 2021, the balance of foreign trade in goods amounted to $437.3 million against $1.121 billion in H1 2020. The balance of foreign trade in services was positive in the amount of $2.162 billion, compared to a surplus of $1.903 billion in H1 2020.

Transportation services traditionally account for the largest share of services turnover in Belarus (42.3% of total services exports in the first half of 2021, and 42.1% of imports). The second largest breadwinner in terms of exports is computer services (29.9%); imports - construction services (14.1%).

Of Belarus’ total exports in H1 2021, the share of the EEU countries was 44.5% (50.1% in H1 2020), Russia accounted for 41.8% (47.2%), the EU countries - 25.4% (17.1%), other countries - 30.1% (32.8%). Imports from the EEU countries accounted for 55.9% of total imports (in H1 2020 - 49.1%), of which Russia accounted for 55.4% (48.7%), the EU countries 16.6% (21.2%), other countries - 27.5% (29.7%).

The increase in Russia’s share in imports and decrease in exports in January-June 2021 reflects the recovery of crude oil supplies to Belarus and export supplies of refined petroleum products. At the same time, Belstat would not disclose data on oil and oil products supplies, so it is difficult to estimate the actual volume of trade in these commodities.

Thus, we can state that Belarus’ foreign trade remains highly dependent on the Russian market.

Belarus economy faces escalating sanctions threats

August saw a sharp intensification of the sanctions rhetoric against Belarus - several Western countries at once announced sanctions against individuals and companies from Belarus: on 9 August, the UK, Canada, and the US updated their sanctions lists; Switzerland joined them on 11 August.

The range of sanctions is quite broad and affects aviation, trade, industry, finance, including the insurance sector, as well as individuals personally.

At the same time, despite the fact that a number of countries have decided to impose sanctions against Belarus, the U.S. sanctions should be considered as the main blow to Belarus. By means of the dollar, the US authorities control a significant part of the global financial system and the world’s settlement of foreign trade transactions.

US President Joe Biden on 9 Aug 2021 signed an executive order, which extends the effect of Executive Order 13405 of June 16, 2006 (Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus). Executive Order 13405 was signed by U.S. President George Bush Jr.

Biden’s executive order comes with a broad definition of the Government of Belarus. The document says the term “Government of Belarus” means the Government of Belarus, any political subdivision, agency, or instrumentality thereof, including the National Bank of the Republic of Belarus, and any person owned, controlled, or directed by, or acting for or on behalf of, the Government of Belarus.

Quite expectedly, the Belarusian authorities are making attempts to curb the negative effects of the European and US sanctions. It is Russia to whom they turn for help in the first place.

On 13 July, Alexander Lukashenko and Vladimir Putin had a personal meeting in St Petersburg. According to the Kremlin’s spokesman Dmitry Peskov, the sides agreed on credit support for Belarus in connection with Russia’s tax manoeuvre. On 9 August, Alexander Lukashenko said that he had asked the Russian leadership to extend a loan through the Eurasian Development Bank (EDB).

However, no specific amounts and deadlines for financial support, as well as forms of other possible assistance from Russia to Belarus, have been specified so far. It should be noted that Lukashenko and Putin are due to meet again on 9 September, and a meeting of the Union Council of Ministers of Belarus and Russia is scheduled for 10 September, after which the details and terms of Russia’s further support for the Belarusian economy may become known.

PrimePress Business Analysis Agency

2021-09-01

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