Country Report Belarus May 2009

Outlook for 2009-10

Although economic recession 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 his 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 relaxing business regulation and on privatisation, but far-reaching structural economic reforms and market liberalisation remain unlikely. Real GDP is expected to contract by 2% in 2009 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 is forecast to slow, to an annual average of 12.1% in 2009 and 10% in 2010, because of lower oil prices and demand pressures. Despite a weaker export performance owing to falling demand in leading markets, the current-account deficit will narrow, to an average of around 6% of GDP in 2009-10, as financial constraints prompt a collapse in import demand.

The political scene

Mr Lukashenka sacked a long-time associate, the interior minister, Uladzimir Naumav, in April, but this does not appear to herald any substantive relaxing of repression. Nevertheless, the EU continues its policy of engagement, inviting Belarus to join its new Eastern Partnership, which was launched in May.

Economic policy

Budget data for the early months of 2009 show a substantial deterioration in the fiscal position, and the government is preparing substantial spending cuts, in line with its IMF programme. Despite a new openness to foreign investment, moves towards economic liberalisation remain limited.

The domestic economy

The economy has slowed sharply; real GDP growth in January-April 2009 was just 1.2%, as the global downturn has led to a collapse in export demand. Industrial output fell by 3.6% in January-April, although the pace of decline may be slowing. Inflation has resumed a downward trend.

Foreign trade and payments

Exports and imports recorded massive year-on-year contractions in the first quarter of 2009, of 48.8% and 31.9%, respectively. As imports are proving slower to adjust, the trade deficit widened to US$1.87bn, up from US$754m a year earlier. The current-account deficit widened again in the final quarter of 2008.

This report covers the following industry codes:
SIC Code: 60;37;22;49;20;70;39
NAICS Code: 52;336;313;22;311;72