Belarus loses sources of economic growth

In January – February 2014, negative trends in Belarus’ economy continued. The government’s plans to stimulate domestic demand will bring short-term positive effects, but will increase economic imbalances. Nevertheless, the government will not reduce production and will not lay off workers at loss-making enterprises. The Belarusian economy continues to be increasingly dependent on external financial support.

On March 21^st, the National Statistical Committee published Belarus’ economic performance results in January-February 2014.

In January – February 2014, GDP fell by 1.6 %. Growing stocks at warehouses have complemented the decline in industrial production. The African swine fever outbreak in 2013 reduced meat production in Belarus. Cargo carriage dropped, as well as value added in construction. Only the wholesale and retail trade have preserved positive dynamics, but their positive impact on GDP has weakened.

The National Bank’s exchange rate and interest rate policies are holding back industrial growth. Smooth depreciation of the national currency is having a positive impact on reducing the population’s devaluation expectations, however this dynamic will lead to a loss in domestic goods’ competitiveness on foreign markets.

On March 12^th, the rates on liquidity support operations reduced to 30% per annum, since then, although the interest rates on corporate loans in the banking system have gradually reduced, they have nevertheless remained unaffordable for most potential customers at 40 % per annum. Export proceeds are limited due to the declining international reserves, the lack of significant foreign inflows and frozen privatization.

The government believes that a way out of the current situation will be to increase domestic demand on goods in 2014. It plans to allocate substantial credit resources to purchase domestic engineering products, which, on the one hand, will unload stocks and on the other hand, will improve the industrial enterprises’ performance. This measure can only be used for a short time because of its significant impact on inflation and foreign exchange market. If Belarus were a market economy, it could have cut loss-making production and shifted the labour resources to other industries, thereby reducing social tension in case of layoffs. For example, Belarus’ construction industry and some other industries have a high demand for labour resources.

The government has overestimated Belarus’ economy and its potential in a deteriorating the external environment, while the government’s measures have not had the desired effect. The government needs to take tougher decisions to redistribute labour resources between economic sectors, but that would contradict the existing socio-economic model.