While putting together the medium-term economic development plan, the government relied on the operating matrix envisaging preservation of the existing socio-economic model. This makes meeting the economic growth parameters extremely difficult, as they primarily base on the assumption that external factors improve. The government will have to tighten austerity while it waits for the political decision to adjust the existing model.
The draft decree on Belarus’ socio-economic development in 2017 envisages the following basic growth parameters: GDP by 1.5%, exports by 3.6%, labour productivity by GDP - 1.6%. In addition, the government anticipates to yield a positive foreign trade balance (at least USD 100 million) and to raise USD 1.4 billion from FDI. The government’s medium-term plan is based on the operating matrix of the Socio-Economic Development Programme for 2016-2020, which, in essence aims to preserve the existing model thanks to a positive dynamics in the external factors. For instance, socio-economic development indicators are based on the forecast for the average annual oil price at USD 45 per barrel, Russian rouble exchange rate at RUB 70 per USD 1, and Russia’s GDP growth by 1%.
In the 2017 state budget, the government was less optimistic and assumed the average annual oil price at USD 35 per barrel, RUB 75 per USD 1 and a decline in Russian GDP by 1%. In addition, the government has requested to generate a budget surplus sufficient to service the external debt at circa USD 3.2 billion.
According to current statistic and trends in the external factors’ dynamics, the government’s development plan is a mere declaration. For instance, in January-May 2016, Belarus’ foreign trade turnover in comparison with the same period last year decreased by 16.4% to USD 19.433 billion, including exports by 19.2% to USD 8.904 billion. The current account deficit increased in the first five months to 10.3% of GDP, industrial production index remained negative at 98.1%. In H2 2016, external environment may somewhat improve only on the potash market due to a likely recover in demand from India and Brazil. However, proceeds from oil duties are likely to continue to decline and Russia is likely to increase the oil price for Belarus to the world price level due to the ‘tax manoeuvre’. That said, Moscow has not yet revoked its decision to cut oil supplies to Belarus by 5 million tons in response to the gas Minsk’s gas demarche.
In anticipation of a political decision about adjusting the existing economic model, the government is likely to tighten austerity, to apply the usual tactics of micro management in response to a systemic crisis and to continue searching for additional external funding sources. Incidentally, thanks to the principled stance of external creditors (the IMF and the EFSD), the debate about systemic economic reforms is still relevant. For instance, the Eurasian Development Bank has strongly recommend Belarusian authorities to “focus on improving the non-energy balance as a key factor in reducing external imbalances, due to the consistent implementation of structural reforms", and creating the conditions “for privatization and private sector development".
The Belarusian authorities are likely to demonstrate their readiness to some economic reforms in September, when the government will present the draft Industrial Restructuring Programme.
