Negotiations with IMF, death penalty, change of the Constitution – digest of Belarusian analytics
Ostrogorski Centre analyzes Belarusian foreign and national security policy. Belarus Security Blog releases the September analysis of the situation in the field of national security and defence.
Prelude to KEF 2016: Aliaksandr Čubryk argues that the key reason for Belarus‘ negotiations with IMF is the recognition of structural reform needs.
Grigory Ioffe: a healthy dose of realpolitik might be a good prescription for the Belarus’ indecision malaise between Russia and West. Belarus in Focus: since the September parliamentary elections, the general political trends in the country remain. Analysts consider why Lukashenka wants to change the Constitution.
Andrej Kazakievič believes that Belarusian expert community needs to step out of isolation. This and more in the new edition of digest of Belarusian analytics.
Foreign and security policy
Ostrogorski Centre: Belarus becomes neutral to survive – Ostrogorski Centre releases the first major publication on neutrality in Belarusian foreign and national security policy authored by Siarhei Bohdan and Gumer Isaev. For a long time, the trend towards a real neutrality of Belarus was misinterpreted as Minsk opportunistically moving back and forth between Moscow and the West. Yet by the mid-2010s, these elements of neutrality became a reliable part of Belarusian foreign and national security policy.
Belarus the object of two peculiar tugs of war – Grigory Ioffe observes that pulled in opposite directions by two peculiar tugs of war – dependency versus magnanimity from Russia and interests versus values from the West – Belarus retains composure but suffers from lingering economic decline. The expert believes that a healthy dose of realpolitik might be a good prescription for the indecision malaise.
Situation in the field of national security and defense of Belarus. September 2016 – According to the Belarus Security Blog’s monthly monitoring, the Belarusian authorities are trying to get the problems of democracy and human rights out of the Belarusian-American dialogue replacing them by regional security issues. The economic crisis and the compression of the Russian financial support forced the official Minsk to be more active in the western direction.
Negotiations between Belarus and IMF: key points and balance of interests – Aliksandr Čubryk, IPM Research Center director, during a round table organised by the state news agency BelTA notes that "Belarus applied to the IMF for support under the enhanced structural changes mechanism, not for the stabilisation program, like last time. That is, Belarus recognises the existence of structural imbalances, that should be addressed to gain sustainable economic growth."
Election trends remain, cyclic recurrence interrupted – Belarus in Focus notes that for 1,5 months since the September parliamentary elections, general political trends in the country remain: the political environment’s mitigation, constructivisation of opposition, soft Belarusisation, etc. Thus, the vicious circle has been broken when liberalisation trends replaced by the deteriorating political situation after the electoral campaigns.
Lukashenka will change the constitution to hand over power? Hardly – On October 7, Aliaksandr Lukashenka in his address to outgoing and newly elected members of the parliament made a statement on the possibility to adjust Belarus' Constitution to meet present-day challenges. Analysts believe that a possible referendum on changing the Constitution is most likely a PR action because so far Lukashenka is not going to give any niches to anyone.
Why Belarusians want, but do not give birth to children – Belarusians dream of a family with two or three children, and men want a greater number of children. These are the results of a recent survey of the Belarusian Institute for Strategic Studies (BISS). The reproductive desire is constrained mainly by economic factors – availability of housing, child benefits, availability of kindergartens and the overall stability of the economy.
Crowdfunding turned from exotics into inevitable future – Trends in national funding, its inevitability and unqualified efficiency were discussed at the recent Second Conference on Crowdfunding in Minsk. In particular, the head of the Belarusian crowdfunding platform Ulej.by notes its success: in the first 12 months, the platform has attracted about $80,000, while every 4 months the amount of funding is doubling.
A new approach to professional development of civil servants in Belarus A wider use of foreign educational programmes and activities could become an essential component of the new approach to professional development of civil servants in Belarus. Read more
Safety measure or an ineffective tool for revenge? "Duel" on the death penalty in Belarus– Is the Belarusian society ready for the abolition of the death penalty or that is still needed? The TUT.by talk show Duel brings together human rights activists who take fundamentally different positions on the issue – Andrej Paluda, Human Rights Defenders against the Death Penalty campaign and Aliena Krasoŭskaja-Kaspiarovič, Region 119 human rights organisation.
Belarus resumes executions after EU sanctions dropped – The Guardian raises the points of the recent Human rights report on death penalty. According to a landmark investigation of FIDH and the Viasna human rights centre, Belarus, the last European country to retain capital punishment has resumed sentencing people to death since EU sanctions against its president were dropped this year.
Andrej Kazakievič: Belarus’ expert community needs to step out of isolation – Andrej Kazakievič, the director of Political Sphere Institute, shares the results of the 6th International Congress of Belarusian Studies that took place on 7-9 October, in Kaunas. Namely, Kazakievič notes that a new generation of analysts is growing as well as the Congress fosters and expands influence of the Belarusian expert community.
The tax system of Belarus. This paper provides a comprehensive analysis of taxation in Belarus. The author compares the dynamics of the tax rates and the tax revenue in Belarus to the world averages and to other countries of the Eurasian Union. The paper studies the harmonisation of the rates within the union and the efficiency of tax collection. Finally, the author discusses two possible reforms of taxation in Belarus and its possible consequences: an increase of VAT and reintroduction of the progressive personal income tax.
The tax system of Belarus The two possible reforms of taxation in Belarus and its possible consequences are discussed: an increase of VAT; reintroduction of the progressive personal income tax. Read more
A new approach to professional development of civil servants in Belarus. In order to adapt the skills of Belarusian civil servants to the rapidly changing modern environment and to develop their ability to generate and implement non-standard management tasks, Belarusian civil service needs a new approach to their professional development. A wider use of foreign educational programmes and activities could become an essential component of this new approach.
Belarus Digest prepared this overview on the basis of materials provided by Pact. This digest attempts to give a richer picture of the recent political and civil society events in Belarus. It often goes beyond the hot stories already available in English-language media.
Autumn of tough economic decisions – digest of the Belarusian economy
On 17 October 2016, new macroeconomic data from Belstat, Belarus's national statistical committee, indicated that this year's economic decline seems to have finally halted. The GDP stopped falling and foreign trade saw a slight revival.
However, on 21 September the IMF warned the Belarusian authorities about new threats to macroeconomic stability, namely the high level of bad assets in the banking sector and the sustainability of state debt.
Meantime, the tight embrace of the Russian economy continues to squeeze Belarus – this time because of petroleum product transportation.
Economic growth: waiting for recovery
On 17 October 2016, Belstat announced that the downturn the GDP experienced in January to September reached 2.9 per cent year-on-year against 3.0 per cent year-on-year in January to August (see Figure 1). In other words, after entering a new slowdown phase in June, the economy is showing some signs of recovery.
However, household consumption, which accounts for approximately half of Belarus's GDP, is still failing to contribute to growth, unlike in previous years. For example, in September retail turnover (as a proxy for household consumption) dropped by 4.4 per cent year-on-year.
Thus, Belarusians continue to reduce their spending, expecting the economic recession to take a further toll on their financial resources. An important reason for this relates to the government's aim to link the growth of real wages with productivity improvements.
As a result, due to the weakening economy and a deteriorating external environment, in September real wages dropped by 2.4 per cent, coming to only $377. Moreover, according to Belstat the real disposable income of Belarusians in January-August decreased by 7.1 per cent year-on-year.
Another major component of GDP – capital investments – has also exhibited downward dynamics. After some recovery in the second quarter of the year, capital investment has become much weaker in recent months. In January-September it dropped by 19.5 per cent year-on-year.
Net exports, on the other hand, have stopped deteriorating. By the end of August, the trade deficit from the first half of the year had reverted to a trade surplus.
The financial sector: exposing hidden threats
Meanwhile, according to IMF reports published on 21 September 2016, there are two important new threats to the Belarusian economy. The first threat is the high level of bad assets in the banking sector (see Figure 2), resulting from the common practise of prolonging loans and changing their agreement conditions (mainly in order to restructure them).
Moreover, IMF experts have stated that the accumulated nonpayment risks in the banking sector are rapidly approaching the "red zone", which could trigger a new wave of financial instability. In order to prevent such a situation, the banking sector urgently needs to take new stabilising measures. This could mean the creation of a special body with powers to privatise debtors to address the issue of bad loans.
The second threat has to do with the sustainability of state debt, which according to IMF estimates will continue to worsen. Moreover, the state debt consists mainly of loans denominated in foreign currency. Thus, in coming years the debt's servicing and repayment to creditors will become one of the largest problems for the state budget due to the loans' sensitivity to shock from the exchange rate.
The only way for the government to alleviate budget pressure in the current economic climate is by repaying old debts with new ones. However, as a result this money will not actually boost the Belarusian economy but merely increase the state debt even more.
The right decision would be to introduce structural and institutional reforms. This sort of twin strategy could stimulate productivity growth and establish a basis for sustainable long-term economic growth.
The transport sector: the road less travelled
On 10 October 2016 it appeared that Belarus and Russia had almost resolved the oil and gas conflict. However, it seems that Belarus overpaid for this deal. In order to continue to receive duty-free oil, Russia may insist on "freezing" the transport routes of Belarusian petroleum products through nearby Baltic ports in favour of Russian carriage bays.
In order to displace the Baltic States (Latvia and Lithuania) the JSC "Russian Railways" (the main operator of railways in Russia) is offering an unprecedented 25 per cent discount on the transportation of Belarusian petroleum products to Russian ports.
Extraordinary discounts from Russia come with substantial pitfalls Read more
The discount will be valid until 31 December 2018 and makes the Russian Railway's tariffs for Belarus comparable with the transportation tariffs at the Latvian port of Ventspils or the Lithuanian port of Klaipeda. However, as is usually the case when it comes to relations with Russia, such an extraordinary discount comes with substantial pitfalls.
In order to force Belarus's hand, Moscow is attempting to include commitments to export certain predetermined volumes of petroleum products via Russian ports into an intergovernmental agreement. The agreement regulates the duty-free supply of Russian oil for processing at Belarusian oil refineries.
However, such a set-up does not provide much economic incentive to Belarus. The Lithuanian port of Klaipeda and the Latvian port of Ventspils operate most of the transportation of Belarusian goods by sea and offer better conditions.
First of all, the Baltic ports are much closer to Belarus. For example, the distance between Mozyr (the second largest refinery centre in Belarus) and Klaipeda amounts to 783 km, while the distance between Mozyr and St. Petersburg comes to 1031 km. Secondly, Lithuanian and Latvian railways offer better services. Thirdly, such a re-orientation would involve additional logistical expenses.
Unfortunately, Russia is still playing a hard geopolitical game, and it will be difficult for Belarus not to get entangled in its eastern neighbour's ambitions. Therefore, the only remaining question is what toll these impending economic decisions will take on the Belarusian economy.
Aleh Mazol, Belarusian Economic Research and Outreach Center (BEROC)
This article is a part of a joint project between Belarus Digest and Belarusian Economic Research and Outreach Center (BEROC)