The Belarusian government are looking for a way out of recession

Government bodies are looking for additional sources of economic growth along with the preparation of the official forecasts. The economy is in crisis, and the authorities are pondering a way out.

In October, after long discussions, the government should finish their preparation of economic forecasts for the next year. According to BelaPAN, in the second half of October – after the presidential elections – the Council of Ministers will present such forecasts to the head of the country.

Representatives of research centers told BelaPAN their vision on the economic perspectives of the country.


Opportunities and Risks of Stimulation

Traditionally, economic growth of the country depends on the internal and external demand for Belarusian goods and services. The internal demand is depressed due to obvious reasons.

Real wages (adjusted for inflation) have decreased by 5% from the beginning of the year. Last year, officials’ initiative to peg incomes to productivity of the population caused the fact that wages in the country were virtually frozen.

Under such circumstances one cannot expect an increase of domestic sales to stimulate economic growth. However, there may still be an opportunity.

According to BelaPAN, along with the other propositions of the government, there is also an idea to intensify consumer lending as an instrument of economic stimulation.

As it stands, this summer the Ministry of trade announced that they had prepared a draft decree of soft lending for the purchase of domestic goods.

An expert at Belarusian Economic Research and Outreach Center (BEROC), Dmitry Kruk, considers that mass granting of preferential loans can stimulate economic growth in the short-run.

“But they should be very careful when using this measure in order not to disrupt stability of the financial market” – the economist warns.

Experts constantly remind us that former attempts of stimulation negatively affected the exchange rate of the Belarusian ruble.

“Previous attempts to stimulate internal demand have led to growth of imports. In the current situation, with floating exchange rate of Belarusian ruble, such actions can rapidly destabilize the currency market” – believes the head of the Research Center IPM Alexander Chubrik.

Moreover, Belarusian analysts warn that soft consumer lending can stimulate GDP in the short-run, but in the long-run economic growth will be affected adversely.

“What concerns long-term growth this approach is inefficient. By stimulating sales of domestic goods with the help of preferential consumer lending we support non-competitive companies which wouldn’t be able to sell their products in normal market environment” – says Dmitry Kruk.

Experts doubt that the government will be able to initiate mass stimulation of internal demand in the coming months. Contacts at the highest governmental level indicate that today’s official Minsk wants new loans, while creditors always had negative attitudes towards artificial heating of the Belarusian economy.


Recession Turning into Stagnation

For now there is hardly any perspective of external sources of national economy stimulation. Certainly, for Moscow they anticipate slight GDP recovery in 2016 in comparison with 2015, but even then, according to the Bank of Russia, the Russian economy will still decrease in 2016 by 0.5-1%.

According to the Research Center IPM, the Belarusian economy has got a similar outlook. Experts estimate that national economy is able to generate economic growth of around 0% – excluding the impact of internal and external shocks – without outside help.

Experts believe that today neither internal nor external factors can help the Belarusian economy to grow further.

“The external demand on Belarusian products depends highly on the situation within the Russian market. Low oil prices negatively influence Russian economy, and as such Belarus can hardly grow by means of external demand” – Alexander Chubrik assumes.

Experts believe that the government has very few internal reserves for economic stimulation; large payments from the state budget on public debt reduce opportunities to increase government spending, in an effort to warm up the economy.

Analysts suggest structural economic reforms as the only effective way out of the current recession.

“Monetary levers won’t be used for economic stimulation. The external conjecture is unfriendly, so the objective should be to restructure the economy in order to increase its efficiency” – Alexander Chubrik summarized.

As of last week, the National Bank announced that economic authorities of Belarus plan to publish a programme of structural reforms for 2016-2020 in mid-October. We hope that the publication of the programme will only be the beginning of working towards creating a prosperous economy once more.


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