Belarusian authorities have no intentions to hold socio-economic reforms

Belarus’ top political leadership has no intentions to reform the existing socio-economic model. Instead of offering new approaches, President Lukashenka adheres to his conventional economic policies, such as import substitution, intensive use of domestic natural resources and seeking opportunities to generate revenue from oil and gas rents in cooperation with third countries. The Belarusian authorities are likely to continue with their fundraising efforts in order to preserve the existing socio-economic model, thus taking conflicting decisions and applying half-measures to reform the economy’s public sector.

Last week, President Lukashenka demanded to sort out issues with retail prices on fruits and vegetables.

The Belarusian authorities are not yet ready for structural economic reforms and hope to preserve the existing socio-economic policies after the presidential campaign.

Experts point out that the in H2 of the 2000s the Belarusian economy and therefore the well-being of the population was growing thanks to oil and gas rent, the volume of which in recent year had been consistently cut down by the Kremlin. In addition, the economic recession in Russia – the major market for Belarusian goods – has had a negative impact on industrial production in Belarus.

Amid a long-term trend towards reduction of Russian oil and gas subsidies, the president aspires to preserve the existing economic model by using domestic natural resources more extensively. For instance, in the near future the Belarusian government will hold a special meeting with president Lukashenka on mineral resources in Belarus. At a recent briefing with Environmental Minister Kovhuto, President Lukashenka said, “I simply do not believe that we do not have large amounts of oil and that we lack natural gas in our depths. From similar acreage in Russia and in other countries a lot of oil and natural gas is extracted, as well as precious metals – that is what forms the basis for well-being and stability of any economy in any state”.

In addition, the authorities are planning to enhance cooperation with third countries in developing their natural resources. The president pointed to the direction where the government and the foreign ministry should look for partners: “There are many countries which have very rich subsoil and whose leaders offer to work together – Venezuela, Zimbabwe, and other Latin American and African countries”. It is worth noting, that attempts to establish effective cooperation with these countries have been undertaken before, however, have not led to any tangible results.

In addition, the Belarusian authorities have managed to bargain favourable terms of petroleum products supply from Russia in 2016. Thus, Russia has agreed to increase the supply of oil in the next year by 1 million up to 24 million tonnes, which will be processed by Belarusian oil refineries. This should ensure additional funds for the Belarusian state budget.

Simultaneously, amid very limited budgetary resources, the Belarusian authorities have resumed their populist practices and intend to increase social benefits before the election day. For instance, as of August 2015, the government has increased the living wage budget by more than 6%, and as of September 2015 pensions will be increased by 5%. Meanwhile, in H1 2015 Belarus’ GDP shrank by 3.3%. Experts predict that such decisions may lead to a repetition of the post-election crisis of 2011, when the Belarusian rouble sharply devalued and the currency and financial markets collapsed.

In addition, the authorities intend to continue implementing the import substitution policy without considering structural economic reforms. In particular, the president has tasked the government to solve the problem with domestic greenhouse production in five years in order to stop imports of vegetables.

Overall, in the post-election period, the Belarusian authorities are set to revive the economic policy measures, which worked when the Belarusian economy was on the rise. Yet those were only effective thanks to large oil and gas subsidies from the Kremlin.