Belarusian GDP resumed its fall signalling of unresolved economic problems
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.
Belarus and Russia have different views on the development of their relations with the West. While Minsk seeks to use the West-2017 exercise to demonstrate its integrity and openness, Moscow regards the exercise within the overall confrontation with the West, which is unlikely to end anytime soon.
“West-2017”, the Russo-Belarusian military exercise, is fraught with additional political complications between Belarus and Russia. This is due to a difference in approaches to the political dimension of the event.
The “West-2017” military exercise, is a traditional and routine event. The problem is that the parties have different views on its political significance. Minsk, due to open and transparent conduct of the exercise would like to demonstrate its good will and readiness to continue a political dialogue with the EU, USA and Ukraine. The Belarusian authorities understand that the political agenda in relations with the West is extremely short. Accordingly, Western capitals have only limited interest in Belarus. In addition, Belarus has to demonstrate that she is a responsible and, most importantly, an independent player in European politics, rather than Russia’s appendage as many western states believe, including, recently, Ukraine.
Russia, in turn, regards the "West-2017" exercise within the framework of the confrontational strategy as a pressure instrument on the Baltic states, Poland and Ukraine. In addition, it aims to demonstrate that Belarus is, as they say in Moscow, "a zone of privileged Russian interests”. That said, the Kremlin appears irritated about the differences in the Belarusian and Russian positions.
During the “West-2017” exercise, Minsk would aspire to gain maximum control over Russian military activity in Belarus. The transparency of the exercise for Western and Ukrainian observers would be a kind of insurance for the Belarusian authorities should Russia decide to use provocations against the neighbouring states. Meanwhile, Moscow is likely to stick to the hard line and would attempt to impose it on Minsk, albeit unlikely to succeed. Hence, until the “West-2017” exercise ends, Russo-Belarusian relations would be exposed to additional risks.