Fall in oil prices prompt Belarusian government to lower 2015 economic development indices
The draft economic development forecast for 2015 presented by the Government on October 31st had to be revised as soon as the next month,.due to the lower oil prices and the further devaluation of the Russian ruble. If negative trends persist, the government might be prompted to revise GDP forecast for 2015 downward.
On October 31st, the Government presented the initial draft socio-economic development plan for 2015. GDP growth was projected at 2%. When calculating the forecast, the government assumed the average price on oil would be USD100/barrel and the average exchange rate RUR/USD at 39/1. On November 22nd, the government presented an updated version of the forecast with GDP growth at 0.5%. In the new draft, the oil price is at USD 83/barrel, and RUR/USD exchange rate is 43/1.
The government was prompted to revise the GDP forecast due to stagnation on the world oil market. The oversupply caused by a higher production of shale oil, among other factors, has led to a slump in oil prices. The OPEC countries have failed to agree on reducing oil production in order to reduce the supply, which should have increased oil prices. In Russia, the slumped oil prices, coupled with the western sanctions, have led to further devaluation of the Russian ruble. For Belarus, exports to Russia made up 42.4% of total exports in January- October 2014. The projected average annual RUR/USD exchange rate at 39/1 wasdeemed to be inflated, however, readjusting the average annual exchange rate upwards would imply a decline in foreign trade with Russia in dollar terms and a decrease in foreign currency proceeds in 2015.
The new draft forecast is also hardly feasible. Inflation forecast at 12% (December to December) is unrealistic due to cutbacks in state subsidised funding programmes and higher utility tariffs. Belarus has assumed that proceeds from export duties on oil products will be circa USD 1.9 billion and would be used to repay the public debt. Oil prices fell to USD 70/barrel, meaning that Belarus may earn less from export oil duties in 2015. The Russian rouble might strengthen only if oil prices go up again and if the West lifts its sanctions. Therefore, given the rapidly changing external situation, Belarus might readjust its 2015 forecast indices once again, projecting zero GDP growth. In the worst case scenario, the government might revise the GDP forecast and introduce negative GDP growth.
The initial draft socio-economic development forecast disregarded the low oil prices factor. Since the Belarusian budget is highly dependent on this parameter, the government might come up with new forecasts with zero or negative GDP growth.
Over the past year, military-political relations between Minsk and Kyiv have become complicated. Due to their high inertia and peculiarities, this downward trend would be extremely difficult to overcome.
The root cause of the crisis is the absence of a common political agenda in the Belarusian-Ukrainian relations. Minsk is looking for a market for Belarusian exports in Ukraine and offers its services as a negotiation platform for the settlement of the Russo-Ukrainian war, thereby hoping to avoid political issues in the dialogue with Kiev. Meanwhile, Ukraine is hoping for political support from Minsk in the confrontation with Moscow. In addition, Ukraine’s integration with NATO presupposes her common position with the Alliance in relation to Belarus. The NATO leadership regards the Belarusian Armed Forces as an integral part of the Russian military machine in the western strategic front (the Baltic states and Poland). In addition, the ongoing military reform in Ukraine envisages a reduction in the number of generals and the domestic political struggle makes some Ukrainian top military leaders targets in politically motivated attacks.
Hence, the criticism of Belarus coming from Ukrainian military leadership is dictated primarily by internal and external political considerations, as well as by the need to protect the interests of generals, and only then by facts.
For instance, initially, the Ukrainian military leadership made statements about 100,000 Russian servicemen allegedly taking part in the Russo-Belarusian military drill West-2017. Then the exercises were labelled quazi-open and military observers from Ukraine refused to provide their assessment, which caused a negative reaction in Minsk. Further, without citing specific facts, it was stated that Russia was building up its military presence in Belarus.
Apparently, the Belarusian and Ukrainian Defence Ministries have entangled in a confrontational spiral (on the level of rhetoric). Moreover, only a small part of the overly hidden process has been disclosed. That said, third states are very likely to take advantage of the situation (or have already done so). This is not only about Russia.
The Belarusian Defence Ministry officials are restrained in assessing their Ukrainian counterparts. However, such a restraint is not enough. Current military-political relations between Belarus and Ukraine are unlikely to stabilise without the intervention of both presidents.