Country Report Belarus December 2008

Outlook for 2009-10

Although slowing economic growth and rising energy input prices will increase pressure on his administration, the president, Alyaksandar Lukashenka, will retain control of the political scene. He will use populist policies to keep crucial constituents on side, and will employ tough measures if necessary to suppress political opposition. Despite some thawing of relations between Belarus and the West, lack of political liberalisation will prevent significantly closer ties, and the relationship with Russia will continue to be Belarus's main foreign policy priority. There will be some progress on privatisation, but far-reaching structural economic reforms and market liberalisation remain unlikely. Real GDP growth will slow sharply in 2009, to around 2.5%, as access to foreign financing is constrained by global financial turmoil, forcing a correction in domestic demand, before rebounding modestly in 2010 as external conditions improve. Inflation will slow considerably, to an annual average of 8.5%, because of sharply lower oil prices and demand pressures. Despite rising gas import prices, and a weaker export performance owing to falling demand in leading markets, the current-account deficit will narrow, to an average of just over 5% of GDP in 2009-10, as financial constraints prompt a drop in import demand.

The political scene

The regime adopted a more accommodative stance towards opposition activity ahead of the parliamentary election in September 2008. However, the conduct of the election was a disappointment, since no opposition members were elected. Nevertheless, the EU and the US relaxed sanctions against Belarus.

Economic policy

The government has embarked on a wide-ranging privatisation programme and is actively seeking foreign investment. It has announced measures to reduce the impact of the global crisis on Belarus, and has approached the IMF for financial assistance. The rubel depreciated sharply in the final months of the year.

The domestic economy

Real GDP growth was 10.7% in January-October. However, growth is likely to have slowed sharply in the final quarter: the money has supply contracted and industrial output growth has slackened. Inflation appears to have peaked, slipping to 15.7% year on year in October.

Foreign trade and payments

Export performance, although still strong, has weakened, recording growth of 52% in January-October 2008, and import growth has also eased. This is partly the result of falling oil prices. The current-account deficit continued to widen in the second quarter. Foreign direct investment (FDI) inflows remained robust.