Ukraine’s currency devaluation creates new challenges for Belarus’ foreign trade
Ukraine is the second largest market for Belarusian products after Russia. Economic instability in Ukraine and substantial public debt has resulted in a sharp weakening of Ukraine’s currency (hryvnia). The hryvnia’s devaluation will result in falling export proceeds for some Belarusian goods and will create favourable conditions for growing imports from Ukraine.
Ukraine’s hryvnia to the U.S. Dollar exchange rate reached UAH 10.5 per USD 1.
In 2013, Belarus’ exports to Ukraine totalled USD 4.2 billion. The Ukrainian market is the second largest for Belarus after the Russian one. Belarus’ main exports include petroleum products (68% of the total exports to Ukraine), potash and mixed fertilizers, tyres, refrigerators, trucks and tractors.
After the leadership change, Ukraine has reported a significant lack of funds in the budget. Enterprises were forced to reserve funds for 6 days if they were buying foreign currency at the currency exchange to settle foreign trade contracts. UAH/USD exchange rate on the interbank market sometimes exceeded UAH 11 per USD 1 and foreign exchange market reported multiple hryvnia exchange rates. Dividends from foreign currency deposits have been frozen. Until Ukraine receives foreign aid from the IMF or other international donors, the hryvnia might continue to sink.
Problems with converting the hryvnia on the interbank market have led to reduced export of Belarus’ petroleum products to Ukraine and an oversupply of fuel on the Belarusian market. Fuel surplus stock is sold to Russia and the EU. Belarus has used Ukrainian ports to transit her petrochemical goods to Mediterranean countries, however currently such exports carry risks of cargo safety. In addition, exporters of petroleum products may face delays in payments by buyers. The uncertainty with the hryvnia exchange rate will also result in reduced exports of other Belarusian goods. Foodstuff industry might suffer huge losses, because it will lose its competitiveness on the Ukrainian market, while food imports from Ukraine might increase considerably, namely, sunflower oil, waste vegetable oils, and confectionery.
Belarus’ estimated losses in exports may reach 10-15% of total sales in 2014, while imports from Ukraine may increase by 5-10% if Customs Union does not introduce new restrictions.
Belarus will lose a share in the Ukrainian market because of the devalued hryvnia. Only by shifting exports to other countries will she be able to compensate for the losses. Meanwhile, only petroleum products exports allow for minimal financial losses. Exports of other goods will either reduce or incur substantial financial losses due to lower prices.
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.