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Belarus Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

Belarusian President Alexander Lukashenko's position will remain strong in the years ahead, as the violence of the Ukraine crisis will continue to dampen support for the opposition, and entry to the Eurasian Economic Union in June ensures a continuation of Russian economic assistance. Belarus will run a small budget deficit in 2014 and 2015, as a preelection boost to expenditure mitigates the positive impact of an increase in refined oil product export revenue. Over the longer term we highlight the risk posed to government finances by a sustained increase in public sector wages.

Belarus will remain closely linked to the Russian economy in 2014 and 2015 as a result of its renewed geopolitical importance and Eurasian Economic Union membership. Incentives offered by Russia in the wake of the Ukraine crisis will support low growth in 2014 and 2015, but without structural reform of state-owned firms real GDP growth will fail to hit pre-crisis levels.


Major Forecast Changes

We believe EEU membership, combined with Kremlin concerns about the potential for a Belarusian pivot Westwards, will ensure the maintenance of favourable trade terms for Belarus with regard to hydrocarbons. This will support government revenues, which in turn will sustain subdued but stable real GDP growth, as government current and capital spending increase. As a result we have revised up our forecasts for real GDP growth in 2014 and 2015, from -0.5% and 0.3% to 0.1% and 0.7% respectively.

Table Of Contents

Belarus Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Lukashenko's Power Entrenched By Fears Of Ukraine Violence
Belarusian President Alexander Lukashenko's position will remain strong in the years ahead as the violence of the Ukraine crisis will
continue to dampen support for the opposition, and entry to the Eurasian Economic Union in May ensures a continuation of Russian
economic assistance.
TABLE: Political Overview..8
Long-Term Political Outlook 9
Focus Remains On Russia
Belarus's long-term political stability is jeopardised by the country's lack of institutional development beyond the executive branch.
Consequently, while our core scenario is for President Alexander Lukashenko's regime to maintain its hold over the long term, we
do not rule out the possibility of growing public dissatisfaction resulting in a sudden change of leadership or direction. The most likely
spark of any public unrest is the November 2015 presidential election, with large protests erupting following the 2010 poll. We believe
the country's greatest challenge over the coming decade will stem from the regime's efforts to diversify its foreign policy agenda while
maintaining strong links with Russia.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings... 13
Economic Activity... 14
Economy To Remain Tied To Russia
Belarus will remain closely linked to the Russian economy in 2014 and 2015 as a result of its renewed geopolitical importance and
Eurasian Economic Union membership. Incentives offered by Russia in the wake of the Ukraine crisis will support low growth in 2014
and 2015, but without structural reform of state-owned firms real GDP growth will fail to hit pre-crisis levels.
tABLE: Economic Acti vit y..14
Balance Of Payments.. 16
Current Account Deficit To Remain
Russia's provision of a USD2.0bn loan to Belarus in September will ease pressure on the rouble and negate the risk of a balance of
payments crisis in the next two years. However, anticompetitive exports and weak external demand from key markets will see a sizeable
current account deficit remain in place over the course of 2014 and 2015.
TABLE: Current Account...16
Fiscal Policy. 18
Finances Under Pressure Despite 2015 Revenue Boost
Belarus will run a small budget deficit in 2014 and 2015 as a preelection boost to expenditure mitigates the positive impact of an
increase in refined oil product export revenue. Over the longer term we highlight the risk posed to government finances by a sustained
increase in public sector wages.
TABLE: Fiscal Policy18
Monetary Policy... 19
Inflation To Remain Among Highest Globally
Belarusian consumer price inflation will remain elevated over the next two years due to strong public sector wage growth and gas
imports from Russia becoming more costly. Fundamentally the pro-growth bias of the nominally independent central bank means our
outlook for consumer price growth remains to the upside.
TABLE: Monetar y Polic y20
Chapter 3: 10-Year Forecast... 23
The Belarusian Economy To 2023... 23
Economy Faces Tough Years Ahead
We remain cautious towards Belarus' long-term growth potential on the back of the large footprint of the state on the economy, which
will stifle productivity and deter private fixed investment. We do, however, expect the country to pursue a modest degree of political
liberalisation, although we caution that meaningful democratisation is unlikely and that Moscow will remain Minsk's principal benefactor.
TABLE: Long -Term Macr oec onomic Forecasts 23
Chapter 4: Business Environment. 25
SWOT Analysis 25
BMI Business Environment Risk Ratings.. 25
Business Environment Outlook. 26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS26
TABLE: BMI LEGAL FRAMEWORK RATING.27
Infrastructure... 28
TABLE: LABOUR FORCE QUALITY..28
TABLE: EMERGING EUROPE - ANNUAL FDI INFLOWS.29
Market Orientation... 30
TABLE: TRADE AND INVESTMENT RATINGS.30
Operational Risk.. 32
TABLE: TOP EXPORT DESTINATIONS, 2004-2011, US$mn ...32
Chapter 5: BMI Global Assumptions. 33
Global Outlook. 33
Emerging Market Deceleration33
Table : Global Assumpti ons .33
Table : Devel oped States , Real GDP Growt H, %...34
Table : BMI VERSUS BLOO MBERG CONSENSUS REAL GDP GROWTH FORECASTS, %. 34
Table : Emerging Markets , Real GDP Growth , %..35

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