Under pressure from Eurasian Economic Integration – digest of the Belarusian economy
As of 26 December 2016, the oil and gas dispute between Belarus and Russia remains unresolved.
Moreover, Russia persistently rejects any tradeoffs: this deprives Belarus of a substantial part its foreign exchange earnings from petroleum product sales, thus aggravating the economic recession in Belarus.
In turn, the growth of state debt points to the formation of stable insolvency for most state-owned enterprises and increases the risk of a banking crisis in the economy.
The energy sector: losing ground
The current oil and gas dispute between Russia and Belarus has deteriorated since the beginning of the year. Minsk has decided to pay its own gas price of $73 (a fair price which conforms to the agreement on the transition to equal-income prices between countries). However, the contract claims that the price should be $132.
As a result, according to the Russian gas monopoly Gazprom, Belarus owes approximately $340m for gas deliveries from January to September.
In response to this debt, Russia decided in the middle of the year to nearly halve the quantity of oil supplies to Belarusian refineries: from 5.3m to 3.5m tonnes in the third quarter of the year, and to only 3m tonnes in the fourth quarter. Moreover, on 23 December 2016 Deputy Prime Minister of Russia Arkady Dvorkovich announced the court proceedings on the gas dispute.
Meanwhile, after some improvement at the end of last year and in the first quarter of this year, the country's economic growth has worsened again. One of the main reasons for this is the reduction in the amount of Russian oil processed.
According to Prime Minister of Belarus Andrei Kobyakov, the loss of 1.6m tonnes of oil in the third quarter has led to a chain reduction in industrial production and wholesale trade resulting in a 0.3 per cent GDP drop. By the end of 2016, this drop could reach 0.5 per cent (see Figure 1).
In turn, this reduces the real income of the population and effective demand within the country, thus creating preconditions for the formation of deeper systemic problems in the economy. For example, the number of foreign companies to close has overtaken the number of newly registered ones in Belarus in 2016.
Economic integration: a time of tough decisions
The main Belarusian argument in the energy dispute is grounded in the process of Eurasian integration, which implies four key economic freedoms for the participants in the Eurasian Economic Union (EAEU): free movement of goods, services, capital and labour.
However, this integration project includes various exemptions and limitations. In particular, the plans for the formation of a single energy market has been delayed until 2025.
At the same time, the creation of a common electricity market for the EAEU is scheduled for mid-2019. However, Russia and Belarus must first reach a compromise. Since Belarus produces electricity mainly from gas, the country urgently needs equal prices with the Russian regions by 2019.
However, Russia has so far shown few signs of willingness to radically amend its position (by transitioning to equal-income prices); it is offering to compensate only $300m a year for the difference in gas prices and only through resale abroad of part of the Russian oil supplied to Belarusian refineries.
This scheme thus reduces the oil flow to Belarus, as well as the amount of petroleum products produced from it, further decreasing its foreign exchange earnings. Moreover, Russia wishes to determine the volumes of oil supplies to Belarus on a quarterly basis, increasing Belarus's economic dependence even further.
In addition, Russia may insist on other tough conditions, including a requirement to redirect the export of oil products from Baltic to Russian ports and to sell the Minsk Wheel Tractor Plant – a very important asset for the Russian defence industry.
State debt: missing the target
The problems in the energy sector put pressure on the internal and external debt of Belarus. In particular, in 2017 Belarus may have to return approximately $3.5bn to its creditors.
At the same time, the economic slowdown in Russia (the main trading partner of Belarus) has led to the weakening of external demand for Belarusian products. As a result, export earnings have decreased and a substantial part of enterprises transfer from profitable to unprofitable, further limiting the ability of Belarusian enterprises to finance their debt obligations.
On 15 December 2016 Alisher Mirzoyev, the Director of the project group on financial loans of the Eurasian Fund for Stabilisation and Development, stated that the decrease in efficiency of state-owned enterprises (SOEs) and the low efficiency of long-term projects financed primarily through directed lending have formed a significant part of the debt burden in Belarus.
The directed lending has created large imbalances in the economy. For example, interest rates on preferential loans in 2015 reached only 9 per cent versus market rates of around 35 per cent. Therefore, according to the Deputy Minister of Economy of Belarus Dmitry Krutoy, in 2016 the volume of directed lending has decreased almost by half (from $20bn) in comparison with 2015.
However, risks of insolvency of SOEs still lead to loss of revenue for the country's budget. Moreover, deterioration of the financial conditions of SOEs lead to an increase in problem assets of the banking system and exacerbate the problem by creating an additional crisis in this sector of the economy.
For example, since the beginning of this year the share of problem assets of Belarusian banks has increased by 2.2 times. If at the beginning of January they constituted only 6.8 per cent of risk assets, in November they reached 14.9 per cent (see Figure 2).
Thus, the problems in the energy sector aggravate the economic recession in Belarus further, affecting the capabilities of profitable enterprises to repay their debts and harming the overall investment attractiveness of the country.
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)
Top 10 of Belarus civil society in 2016
On the eve of the winter holidays, the NGO 'Pact' usually takes a look at the most prominent events to affect Belarusian civil society over the past year.
Here we present our take on the top ten developments of 2016 (categories are in alphabetical order).
Our categories may vary from year to year as it is not our goal to track trends, but rather to highlight major events taking place in Belarus each year.
Civic start ups of the year: Press Club Belarus and Aleksievich’s intellectual club
In March 2016, Press Club Belarus officially opened in Minsk. The Press Club's goal is to organise numerous visible activities which serve as a professional platform for the exchange of ideas and opinions between journalists, politicians, experts, and opinion leaders.
Pact also whishes to acknowledge a civic initiative by the first Belarusian Nobel laureate: in December, Svetlana Alexievich launched her Intellectual Club in Minsk to 'to deeply discuss the important things'. 600 people registered to attend the first meeting but only 200 were admitted.
Grassroots of the year: The City Urban Show
The City has become the first reality show in Belarus to offer an attractive format for civic activism. It aims to motivate a wider audience to be more active in community life. The entire process, starting from training leaders and ending in the implementation of their ideas on the ground was recorded in 11 video episodes. Next year, the Centre for Cultural Management, which designed and implemented the project, will launch the 2nd season of The City.
Event(s) of the year: Minsk Dialogue Track-II platform
In 2016 Minsk Dialogue, a permanent Track-II (non-governmental) expert platform, organised a series of events to address the most challenging issues and foster international cooperation across dividing lines. Experts reviewed the Minsk agreements on the situation in Ukraine, Pan-European integration, post-Soviet protracted conflicts, 25 years without the USSR, and more. The events were attended by high-ranking officials, experts and diplomats such as Belarus’ MFA Head, the Minister of the Eurasian Economic Commission, the Head of EU Delegation to Belarus et al.
Local fundraising of the year: Imena magazine
Launched in April 2016, The Imena (or names) online magazine has become the first Belarusian public media platform entirely financed by readers, without state or business support. The magazine’s stories about people in need led to a wide public reaction and motivated many readers to donate. Collecting money through the Talaka.by platform, Imena set two crowdfunding records – it raised over $20K for its own activites and $34,6K for the Children's boarding.
Political event of the year: two opposition MPs in the parliament
For the first time in 12 years, two representatives of the opposition made it into the Belarusian Parliament: Hanna Kanapackaja of the United Civic party and Aliena Anisim of the Belarusian Language Society. They won seats in the 110-member House of Representatives following the elections in September. According to critics, Aliaksandr Lukashenka only permitted the appointment of two independent deputies because of pressure from the West.
State 'fundraising' of the year: fines for activists
According to the human rights centre Viasna’s website, in 2016 the Belarusian courts imposed 415 fines to activists and journalists, amounting to $148K: 3.5 times more than last year. Such a sharp increase in fines could be related to the Belarusian authorities fine-tuning their tactics. Instead of arrests, they are using financial persecution against participants of protest actions and independent journalists, thus avoiding a harsh reaction from the West.
Think tank of the year: BEROC
In 2016, the Belarusian Economic Research and Outreach Centre (BEROC) topped the Belarus Think Tanks Rating. Organised by the Belarus Research Council (BRC), the Rating measures Belarusian think tanks according to their levels of institutional capacity, information outreach, and analytical and research activities. BEROC's high position is primarily due to their well-elaborated and extensive educational and research programme.
Trend of the year: intensification of contacts between state and civil society
In 2016, public events organised by CSOs were attended by top-level officials: the Belarusian Prime Minister opened the Belarusian Forum co-organised by BISS; the Deputy Head of the Presidential Administration and First Deputy Minister of Economy attended the 4th Kastryčnicki Economic Forum, KEF, etc. A number of inter-sectoral consultations and events were held on human right issues (the abolition of the death penalty, police monitoring, adoption of national plan). CSO representatives had personal meetings with the Heads of the MFA and Information Ministry.
Volunteer initiative of the year: environmental action Zrobіm!
On 9 April 2016, an environmental action to clean illegal dumps, Zrobim! (Let's Do It!), attracted a record number of people – around 22,700 volunteers from 43 Belarusian cities and villages removed dumps and cleaned recreational areas in cities, forests, and beaches. The action has been held in Belarus since 2012 and is organised by the Green Network, the Centre for Environmental Solutions, Interaction Fund, Minsk Cycling Society, and several government ministries.
And for something completely different of the year: the first ever Belarusian billionaire
The business assets of the 39-year-old Belarusian who founded the company Wargaming, Viktar Kisly, are estimated at $1.5 billion (by the Bloomberg Agency). The personal wealth of the billionaire is more than $1 billion. Wargaming, along with its signature product World of Tanks, is one of the most successful companies in the field of online games.
Pact Belarus Team