Russo-Belarusian alliance terms deteriorate

December 19, 2016 11:16
Image: Reuters

Minsk and the Kremlin abstain from escalating information tension in bilateral relations. Meanwhile, Moscow has not relaxed pressure on the Belarusian government and put the oil and gas dispute on hold. Despite the fact that the Kremlin has not voiced a clear position, apparently, it has serious claims to Minsk either about integration, or about privatisation.

Last week, Russian Ambassador to Belarus Alexander Surikov said that all controversial oil and gas issues would be resolved in the near future.

The Russian authorities have not issued any public statements about the detention of the pro-Kremlin writers for REGNUM news agency by the Belarusian law enforcement. Perhaps the Kremlin wants to abstain from an escalation with its closest ally before the holiday season. In turn, the Belarusian authorities also did not continue the information confrontation with the Kremlin. That said, the article in the Sovetskaya Belorussia, Presidential administration’s newspaper, about Russian Agricultural Administration head Dankvert was frankly feeble.

Amid neutral information background, the Kremlin continues to exert pressure on Minsk. For instance, the Eurasian Development Bank postponed the transfer of the third tranche worth USD 300 million to Minsk. The EDB insists on the adoption of two presidential decrees: first, to raise unemployment benefits for laid off from reorganised enterprises; second, to transfer insolvent companies to trust management. These two decrees should give a start to closing insolvent companies.

Russia promised to increase oil supply to Belarus in Q1 2017 to 4.5 million tons, which in fact is a reduction as compared with Q1 2016. Only if Belarus pays out due debt for gas at USD 425 million, Russia will supply 24 tons of oil in 2017, which would still be two tons less than in previous years.

Simultaneously, Russia offered a subsidy: Belarus would be able to export three million tons of oil without processing and keep the oil duty in her budget (the duty on oil is double the duty on petrochemicals). However, this subsidy is less than the reduction in the gas price for other Gazprom clients (USD 300 million in total) and is inconsistent with the principle of netback parity stated in the agreements.

Overall, even if Belarus fully complies with Moscow’s terms, oil and gas cooperation with Russia will deteriorate in 2017, and if the dispute spins out - relations will deteriorate even more. That said, the delay in repaying due debt for gas will lead to the deterioration of the oil and gas cooperation terms. In 2016, Russia will undersupply circa 5.5 million tons of oil to Belarus and the Belarusian budget will not earn more than USD 220 million from export duties on petrochemicals.

Publicly, the Kremlin has not formulated clear requirements for Belarus to resume oil supplies and oil benefits in full. Different public officials voiced various requirements for resolving the oil and gas dispute and improving access to the Russian market for Belarusian products. Inter alia, they proposed: to introduce a single visa policy, establish a single agricultural control service of the Union State, deploy a new Russian military base in Belarus, reorient Belarusian transit via Russian North-Western ports, and resume five integration projects on privatization of Belarusian state assets (including MZKT).

Minsk is under strong pressure of the Kremlin, which refuses to accept arguments previously used in bilateral relations.

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Economic growth in Belarus may be delayed until 2018
January 23, 2017 11:13
Image: Novy Chas

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.