Belarusian GDP resumed its fall signalling of unresolved economic problems

August 24, 2016 18:11
Photo: ej.by

In July 2016, GDP fell by 2.7%. Curtailed oil supply from Russia has demonstrated the Belarusian economy’s heavy dependence on the refinery. In the given circumstances, the Belarusian authorities have limited ability to influence the situation in the economy and are likely to wait for external factors to improve.

According to the National Statistics Committee, in January-July 2016 Belarus’ GDP declined by 2.7% compared to the same period in 2015. In H1 2016, GDP fell by 2.5%. Over the past five months, there was a consistent reduction in the GDP gap as compared with 2015. In January 2016, the decline in GDP was 4.4%. Only agriculture, mining and transport industries have demonstrated growth. Construction, wholesale and retail trade and industry have major negative impact on GDP.

In July 2016, GDP dynamics changed, which was due to several factors. Firstly, petroleum production fell sharply in July 2016, which was likely due to curtailed oil supplies from Russia, amid Belarus’ overdue debt for Russian gas. In addition, Belarus could no longer re-export Russian oil products as anti-oxidants, which had a negative impact on chemical production in the Vitebsk region.

Secondly, in July 2016, motor vehicles production reduced sharply. Finally, falling cash incomes of the population reinforced the negative trend in retail sale, where performance slumped in July 2016.

GDP fall in July 2016 implies that imbalances in the Belarusian economy have not disappeared. Exports remain poorly diversified; a list of major exports is limited; and any problems with the oil prices or reduced demand for oil, petroleum products or food industry lead to reduced production throughout the country. The fall in exports cannot be compensated with other exports due to their low specific weight in the foreign trade turnover. Sometimes Belarus benefits from her transit position and re-exports goods to Russia, but the latter has learned to reveal such schemes and to use them to apply pressure on Belarus where needed. That said, Belarus has limited opportunities to resume economic growth. As Belarus has no plans to improve the investment climate, she may only hope for external factors to improve.

Amid economic imbalances and the lack of desire to carry out structural economic reforms, the Belarusian authorities may only rely on external factors to improve, since their reserves to influence the economy are limited.

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The authorities are often forced to revise their decisions on curtailing social assistance to different social groups during their implementation, without preliminary impact assessment and feedback from the population, so as they lead to the growth in social tension. Due to the centralised decision making, languishing state resources and the lack of public debate as a balancing instrument in issues related to social protection, the state administration is losing control of the population.

Perhaps, the compensatory mechanisms of the state apparatus lack the time to adjust to dwindling state resources for supporting the existing social model, even in a reduced form. The authorities have completely or partially paralysed operations of independent public institutions and representative bodies, through which they could monitor public moods and receive feedback from the population, such as local councils, the parliament, political parties and NGOs. Last year, under the pressure of the authorities, the last independent institute for measuring public sentiment, IISEPS, suspended operations.

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Hence, a lacuna has formed in the state decision-making after the president reduced participation in the current socio-economic policy formation, which leads to an increase in manifestations of dysfunction in the public administration.