Despite failure to meet outlined targets, Belarus is unlikely to change its economic policy

In H1 2016, none of the key economic development targets for 2016 was met, due to unjustified reckoning on the improvement of the situation on foreign markets. Belarus’ economic policy is unlikely to change before the end of 2016 and its main goal would be to freeze the foreign market situation and to slowdown the economic decline.

According to the National Statistics Committee, in H1 2016 Belarus’ GDP declined by 2.5% with an expected growth of 0.1%, labour productivity decreased by 1% instead of the planned 0.1% increase. Exports have declined by 16.5% (!) instead of the projected 1.3% growth. Retail trade turnover decreased by 1.6% due to the 7% reduction in people’s real incomes.

The forecast assumed yield of people’s incomes to the June 2015 standard. As of July 1st, 2016, none of the key parameters was implemented.

The forecast has not been met due to the overestimated economic capacity and the underestimated impact of external factors on the situation in Belarus. In Q1 2016, low oil prices had the most negative impact on the Belarusian economy as they led to a reduction in export earnings from petroleum products, lower prices for export goods from Belarus to Russia and reduced production in the Belarusian industry.

In Q2 2016, the economy is unlikely to recover due to the excess supply of potash on foreign markets, which has already led to a decrease in production in the chemical industry and has had a negative impact on industrial performance. Amid a shortfall in export duties on oil, oil products and potash fertilizers, the Finance Ministry and the National Bank have restricted budget spending to stimulate the economy and policy loans, which allowed keeping the foreign exchange market afloat, but has led to stagnation in industry requiring loans for current operations.

Dynamics of economic indicators leaves no hope for their performance by the year-end. However, the economy is slightly recovering and industrial production output is approximating the 2015 standard. The sharp increase in tariffs on communal services for the population has hit hard on people’s pockets, but has reduced pressure on the budget in terms of housing and utilities subsidies. In addition, the currency market situation has allowed the National Bank to buy part of the currency from the population and service the country’s internal and external debts.

Amid the funding gap, the current government is likely be praised for stabilising the currency market situation and saving the economy from a deeper recession. Economic failures will be attributed to the unfavourable external situation and a marked trend in wage growth will be regarded as economy finding its way out of the crisis. Amid the lack of skilled managers, economic policy is unlikely to change before late 2016.

Overall, the H1 2016 economic results have demonstrated that the authorities had overestimated Belarus’ economic capacities in the view of unfavourable foreign market situation. Economic failures are unlikely to lead to a change in the economic policy before late 2016.