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Belarus Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views The removal of EU sanctions on Belarus in February 2016 points to a shift in Brussels’ stance towards Minsk from isolationist to integrating it with the West. Nevertheless, there are many impediments to a potential Belarusian pivot to the West, not least high economic dependence on Russia, meaning Belarus will remain firmly entrenched in Russia’s orbit for the foreseeable future. Belarus will continue to register modest fiscal surpluses in the coming years due to the prudent fiscal policy course outlined by its IMF loan arrangement. However, budget surpluses mask the precarious condition of public finances, with rising contingent liabilities stemming from overleveraged and unprofitable state-owned enterprises posing a significant risk to the sovereign balance sheet. Consumer price growth in Belarus will slow in 2016 due to limited inflationary pressures from FX pass-through, subdued domestic demand and ultra-tight monetary policy stance by the authorities.

We forecast inflation to average 10.5% in 2016, down from 14.1% in 2015. Belarus has undergone sizeable external adjustment in recent quarters, mainly due to a reduction in imports, which narrowed its massive trade deficit. Nevertheless, we forecast the country’s current account deficit to remain wide at -4.7% of GDP in 2016, and -4.5% in 2017, due to its sizeable primary income deficit, underpinned by loan repayments to Russia. Major Forecast Changes We have revised down our forecast for GDP growth in Belarus, as Russia – Belarus’ main trading partner – will remain in contractionary territory in 2016, weighing on the outlook for Belarusian exports. Consumer price inflation has been slow to build over the course of 2015, prompting us to revise down our forecast for inflation to average 10.5% y-o-y in 2016 from 14.1% previously.

Table Of Contents

Belarus Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Contracting On Weak External Demand8
We have revised down our forecast for GDP growth in Belarus, as Russia - Belarus' main trading partner - will remain in contractionary
territory in 2016, weighing on the outlook for Belarusian exports
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE : FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Fiscal Surpluses Masking Rising Risks To Public Finances11
Belarus will continue to register modest fiscal surpluses in the coming years due to the prudent fiscal policy course outlined by its
IMF loan arrangement However, budget surpluses mask the precarious condition of public finances, with rising contingent liabilities
stemming from overleveraged and unprofitable state-owned enterprises posing a significant risk to the sovereign balance sheet
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
Monetary Policy 13
Inflation To Subside Mainly On Weak Domestic Demand13
Consumer price growth in Belarus will slow in 2016 due to limited inflationary pressures from FX pass-through, subdued domestic
demand and ultra-tight monetary policy stance by the authorities We forecast inflation to average 105% in 2016, down from 141% in
Monetary Policy Framework 14
External Trade And Investment Outlook 15
External Adjustment On Import Contraction To Prove Transitory15
Belarus has undergone sizeable external adjustment in recent quarters, mainly due to a reduction in imports, which narrowed its
massive trade deficit Nevertheless, we forecast the country's current account deficit to remain wide at -58 % of GDP in 2016, and-61
% in 2017, due to its sizeable primary income deficit, underpinned by loan repayments to Russia
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE16
TABLE : TOP FIVE IMPORTS IN 201516
TABLE: TOP FIVE EXPORTS IN 2015 17
Chapter 2: 10-Year Forecast 19
The Belarusian Economy To 2025 19
Long-Term Growth Prospects Subdued19
We remain downbeat on 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 MACROECONOMIC FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Despite EU's Overtures, Belarus Remains Firmly In Russia's Orbit22
The removal of EU sanctions on Belarus in February 2016 points to a shift in Brussels' stance towards Minsk from isolationist to
integrating it with the West Nevertheless, there are many impediments to a potential Belarusian pivot to the West, not least high
economic dependence on Russia, meaning Belarus will remain firmly entrenched in Russia's orbit for the foreseeable future
TABLE: POLITICAL OVERVIEW22
Long-Term Political Outlook 23
Lukashenko And Russia To Determine State Evolution23
Belarus' long-term future depends almost entirely on two factors: the longevity of President Alexander Lukashenko, and the country's
relationship with Russia Lukashenko is likely to remain in power for at least the next few years, due to opposition weakness, but he will
eventually prove vulnerable to removal Regardless of who succeeds Lukashenko, Belarus' history and geography suggest that Russia
will play the dominant role in its future development
Chapter 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK 28
Trade Procedures And Governance 29
TABLE: EMERGING EUROPE - TRADE PROCEDURES AND GOVERNANCE 29
TABLE : EXPORT AND IMPORT DOCUMENTS30
TABLE: TRADE PROCEDURES BREAKDOWN30
Vulnerability To Crime 31
Chapter 5: BMI Global Macro Outlook 35
Global Macro Outlook 35
Tail Risks Mounting Amid Sub-Par Growth35
TABLE: GLOBAL ASSUMPTIONS 35
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %36
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 36
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 37
TABLE: MACROECONOMIC DATA and FORECASTS39

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