In the red: Belarus’ foreign trade balance

Foreign trade balance has been in the chronic red ever since the solvent scheme was suspended 15 months ago. Modernization hit hard on Belarus’ foreign trade in 2013. Regardless of Russian subsidies and participation in the Customs Union on favourable terms, Belarusian economy is still not self-sufficient.

Since 2006, Belarus reported foreign trade surplus in goods only in mid-2011 through mid-2012 (when it invented the “solvent scheme” and devaluation sharply reduced the cost of Belarusian goods). Foreign trade balance has been in chronic red ever since the solvent scheme was suspended 15 months ago. In October 2013, foreign trade deficit in goods reached record high USD 719.4 million.

The structure of goods imports in 2013 clearly highlights a problem with Belarus’ foreign trade. Amid falling petrochemical exports and reduced volumes of imported oil, the supply of capital goods has increased substantially. Imports of investment goods increased by at least 20% in January – September 2013. Simultaneously, exports of Belarusian investment goods have decreased. Consumer imports increased due to higher wages in the economy.

To some extent, Belarus reckoned on support from Russia in the framework of the Customs Union. And in fact, it does receive support, bearing in mind the discounts on gas and oil supplied from Russia. The average price of natural gas supplied to Belarus is USD 150 per 1000 m3. In 2013 22 billion m3 of gas will have been supplied to Belarus. Other countries in the region receive gas at USD 164 per 1000 m3. Ergo, Belarus is saving circa USD 3 billion. In addition, Belarus receives oil for domestic consumption free from export duties at USD 392 per ton.

Potentially, these significant amounts of aid could help remedy the deficit in foreign trade in goods. However, Belarus has an inefficient economic system based on redistribution of resources, which, coupled with technically backward industrial production, led to a foreign trade deficit of more than USD 4 billion in January – October 2013.

The amount of support from Russia to Belarus is immense, but it is still not enough to compensate for inefficient economic management. If Russia’s economic situation deteriorates, it will reduce its support to its Western neighbour, which will threaten the viability of the Belarusian economic model.