Minsk slightly freezes Eurasian integration to make Kremlin more cooperative
The Belarusian authorities have failed the Eurasian integration deadlines in order to strengthen their bargaining position with Moscow. Minsk and Moscow have not resolved a wide range of bilateral issues; including the oil and gas dispute. The Belarusian authorities are unlikely to have any principled objections to the interstate integration document and may sign it immediately after Russia makes counter-concessions.
President Lukashenka has approved the draft agreement on the Customs Code of the Eurasian Economic Union as a basis for negotiations.
The Belarusian authorities used the last available argument and slightly froze the Eurasian integration in order to advance their interests in the Kremlin. According to the Belarusian Foreign Ministry, President Lukashenka did not sign the Customs Code, but the decree on the negotiations about the draft Code. On December 26th, 2016, in St. Petersburg, four heads of the EEU states, Armenia, Kazakhstan, Kyrgyzstan and Russia, signed the EEU Customs Code. By not being present at the ceremony of the signing of the Code, President Lukashenka demonstrated his extreme discontent with the increased uncooperativeness of the Kremlin on crucial issues.
Until now, Belarus and Russia have not resolved several substantial issues: the price of gas and repayment of the due debt from 2016; resumption of the oil supply to the Belarusian refineries; waver of the 'visa barriers’ for foreigners at the Russo-Belarusian border. Last week, the parties only agreed on the tariffs for the Russian oil transit through Belarus. That said, under the pressure from Russian negotiators Minsk was prompted to curb its appetite for tariffs significantly.
Minsk regards the EEU as Putin’s integration project, the symbolic importance of which will increase before the 2018 presidential elections in Russia.
Minsk has no serious objections to the content of the EEU Customs Code and is likely to sign it as soon as the Kremlin makes concessions and guarantees to resume oil supplies and reduces price of the Russian gas.
The Belarusian economy was shrinking for the second year in a row, in 2016, by 2.6%. Before 2015, the Belarusian economy was growing for 18 consecutive years. In order to stop the economic slump, Belarus needs a favourable international market situation and to settle all trade disputes with Russia. The Belarusian economy is unlikely to recover before 2018.
According to the preliminary reports, in 2016, Belarus had a 2.6% GDP decline. The Belarusian economy was shrinking for the second year in a row – a 3.8% decline in 2015. Most economic indicators in 2016, except in agriculture, had negative values. Wholesale trade had the most negative impact on GDP due to falling exports of potash fertilizers and petrochemicals, as well as construction, due to reduced investment in fixed assets by enterprises and decreased housing construction volumes.
In 1996-2011, the Belarusian economy was growing most rapidly, average GDP growth rate was 6.9% per year. In 2011, amid emission injections in the economy, disproportionate growth of wages against the background of low productivity and significant financial aid for loss-making agricultural, construction and industrial enterprises, the Belarusian rouble depreciated by three times. The absence of economic reforms and significant relative weight of state in the economy amid deteriorating external economic environment led to a sharp economic slowdown – circa 1% per year in 2012-2014; the slowdown was followed by the recession, caused by a slump in the prices for basic exports from Belarus and cuts in soft loans issued to maintain production volumes.
Belarus’ budget for 2017 is based on anticipated 0.2% growth. The expected decrease in the construction volume is circa 17% in 2017, which is unlikely to allow industrial growth with the renewal of fixed assets by legal entities. Even if wages grow, they will be offset by the 15% increase in utility tariffs by late 2017. Wholesale trade is largely dependent on the potash market situation and the oil processing volume at the Belarusian refineries. In view of the planned reduction in Russian oil supply in Q1 2017 to 4 million tons, wholesale growth is only possible provided the potash market situation improves. In late 2016, engineering output increased significantly, but amid the trade conflict with Russia, she may prioritise purchases from domestic manufacturers. In the given circumstances, Belarus’ GDP would only grow in 2017, provided the Russo-Belarusian dispute over energy supplies was fully resolved, Russia removed barriers for Belarusian exports and the potash market situation improved. That said, Belarus’ GDP in 2017 is likely to decrease by 0.5% - 1% and is likely to be followed by an attempt to overcome the recession in 2018.
The Belarusian economy has been in recession for two consecutive years. Amid anticipated decline in retail trade, construction and unresolved dispute over energy supplies from Russia, economic recession is likely to persist in 2017 and the economic recovery may be postponed until 2018.