December 1 – December 7, 2014

Fall in oil prices prompt Belarusian government to lower 2015 economic development indices

The situation has not changed
Fall in oil prices prompt Belarusian government to lower 2015 economic development indices

The draft economic development forecast for 2015 presented by the Government on October 31st had to be revised as soon as the next month,.due to the lower oil prices and the further devaluation of the Russian ruble. If negative trends persist, the government might be prompted to revise GDP forecast for 2015 downward.

On October 31st, the Government presented the initial draft socio-economic development plan for 2015. GDP growth was projected at 2%. When calculating the forecast, the government assumed the average price on oil would be USD100/barrel and the average exchange rate RUR/USD at 39/1. On November 22nd, the government presented an updated version of the forecast with GDP growth at 0.5%. In the new draft, the oil price is at USD 83/barrel, and RUR/USD exchange rate is 43/1.

The government was prompted to revise the GDP forecast due to stagnation on the world oil market. The oversupply caused by a higher production of shale oil, among other factors, has led to a slump in oil prices. The OPEC countries have failed to agree on reducing oil production in order to reduce the supply, which should have increased oil prices. In Russia, the slumped oil prices, coupled with the western sanctions, have led to further devaluation of the Russian ruble. For Belarus, exports to Russia made up 42.4% of total exports in January- October 2014. The projected average annual RUR/USD exchange rate at 39/1 wasdeemed to be inflated, however, readjusting the average annual exchange rate upwards would imply a decline in foreign trade with Russia in dollar terms and a decrease in foreign currency proceeds in 2015.

The new draft forecast is also hardly feasible. Inflation forecast at 12% (December to December) is unrealistic due to cutbacks in state subsidised funding programmes and higher utility tariffs. Belarus has assumed that proceeds from export duties on oil products will be circa USD 1.9 billion and would be used to repay the public debt. Oil prices fell to USD 70/barrel, meaning that Belarus may earn less from export oil duties in 2015. The Russian rouble might strengthen only if oil prices go up again and if the West lifts its sanctions. Therefore, given the rapidly changing external situation, Belarus might readjust its 2015 forecast indices once again, projecting zero GDP growth. In the worst case scenario, the government might revise the GDP forecast and introduce negative GDP growth.

The initial draft socio-economic development forecast disregarded the low oil prices factor. Since the Belarusian budget is highly dependent on this parameter, the government might come up with new forecasts with zero or negative GDP growth.

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