2021 will be the most difficult year for the Belarusian economy over the past 20 years

2020 not only did not solve the problems of Belarus, but also added new ones. So, the expectations that next year it will be possible to get significant benefits due to lower energy prices, were not satisfied: the gas price remains at the level of 2020, and the oil price will even increase due to the tax maneuver in Russia. The question of the timing of the receipt of the second part of the Russian loan funds remains unresolved.

Main events and phenomena of 2020

2020 began for Belarus with a dispute with Russia over the size of the premium for oil supplies. It was about the amount of USD 80-90 million. The result of the disagreements was the decrease in the volume of Russian oil supplies in the first quarter by almost 2.4 times.

The decline in world oil prices at the beginning of the year and the weakening of the Russian ruble led to a weakening of the Belarusian ruble in March. The currency crisis was complimented by the first wave of the coronavirus epidemic.

This affected all indicators of the economy – in the first quarter, GDP decreased by 0.3%, industrial production – by 2.7%, and gold reserves – by 20%.

And if the currency crisis led to an outflow of deposits and a decrease in the gold reserves against the background of the devaluation of the national currency, then the coronavirus led to a decrease in turnover in foreign trade and the consumer services sector. Retail trade and public catering were especially affected, the turnover of which almost halved at that time. Tourism and travel services were also hit hard.

As a result, during the April, the drop in GDP turned out to be 4.3%.

To create the appearance of an improvement in the situation in the economy, especially before the elections, the difference between the consumer price index and the GDP deflator index has sharply increased since June, by 5 pp. As a result, the GDP index changed from 95-96% in April-May to 99% in June-July, and the consumer price index fluctuated around 103.5% in April-July, despite the spring devaluation.

The second currency crisis was a consequence of the political crisis that erupted after the announcement of the results of the presidential elections. And it was perceived by business and the public as a long-term lingering problem. Therefore, in addition to the demand for foreign currency, there was an outflow of deposits from banks, which caused a shortage of foreign currency and ruble liquidity in the banking sector. And also a drop in consumer lending volumes. It should be noted that in the spring, after the devaluation, the population and banks managed to restore confidence in consumer lending in two months, and in the fall, after the devaluation, confidence in consumer lending did not recover in two months.

Due to a significant decrease in gold and foreign exchange reserves, the National Bank managed to keep the rate down, and already in October, the outflow of deposits and the demand for foreign currency significantly decreased. In November, the outflow of ruble deposits decreased to BYN 7 million, outflow of the foreign currency ones decreased to USD 72 million per month.

At the same time, the growth of industrial production, which began in September, and a decrease in warehouse stocks, as well as a decrease in budget expenditures after the elections, made it possible to reduce the republican budget deficit to BYN 600 million as of November 1.

Against the background of some stabilization in the economy by the end of the year, the main problem remains to be the insufficient volume of gold and foreign exchange reserves, which lost almost USD 2.5 billion due to the growth in demand for foreign currency after two currency crises, as well as the outflow of population’s ruble deposits and, especially, foreign currency deposits. This noticeably weakened the stability of the banking system of Belarus, which is unlikely to withstand another crisis.

At the same time, the weakening of the Belarusian ruble with the simultaneous containment of interest rates on ruble resources and of the refinancing rate led to an increase in ruble borrowings of business entities. At the same time, the practice of issuing preferential loans to state-owned enterprises continues, the share of which only increased by the end of the year.

The increased demand for foreign currency, significant payments on government bonds in foreign currency with the closed foreign and domestic borrowing markets converted the gold and foreign exchange reserves into the main source of foreign currency. As a result, the gold and foreign exchange reserves of Belarus have come very close to the lower level determined by the plans for 2020. Along with devaluation expectations and high rates on ruble resources, this caused inflation to rise above 6% over 11 months.

Belarus ends 2020 amid crisis. According to our estimates, the real drop in GDP was 4.5 – 5%. And although manipulations with the deflator index managed to minimize the official decline in the GDP index, the political crisis that commenced after the elections is starting to have a decisive impact on the country's economy.

The state of industries 2020-2021

Leading industries

The highest growth in the industrial production index in January-November 2020 was demonstrated by the woodworking and pulp and paper industries (114.9%). The main growth was formed due to the launch of a bleached sulphate pulp mill at the Svetlogorsk pulp and paper mill.

In addition, according to the assessments of market participants, large international companies were increasing their output at the commissioned and existing capacities. We note the growth of production of certain types of board products (fiberboard), including due to export opportunities. The preservation of concessional lending also contributed to the increase in turnover in the industry.

In 2021, the industry is also expected to grow, primarily due to the utilization of previously commissioned capacities. At the end of 2020, the Newsprint Plant in Shklov mastered the production of base paper for decorative facing materials. Market participants also hope for an increase in the production of board products for furniture production, which can presumably increase exports.

Pharmaceutical production occupies the second place in the year of the pandemic (110.9%). The main growth factor was the increased demand from the population and the hospital sector for drugs used in the treatment of coronavirus and to strengthen the immune system, as well as the need to create sufficient stocks of these drugs. In addition, manufacturers note a shift in consumer demand to lower price segments, where domestic medicines are presented.

At the same time, the Belarusian market of medicines as a whole has grown slightly, primarily due to the re-profiling of a number of departments (trauma, ENT departments, etc.) to provide care for patients with coronavirus infection. This reduced the need for drugs for routine care in these specialized departments.

The industry forecast for 2021 will depend mainly on the epidemic situation in the country and the world.

We also note the growth in the production of vehicles and equipment (103.2%) and in the food industry (103.1%).

Passenger cars made a significant contribution to the growth of vehicle production. At the same time, we note that with the growth of production, the warehouse stocks of manufactured vehicles and equipment also increased.

Food production increased mainly due to the main export positions: meat and milk. In general, satisfactory conditions for access to the Russian market (despite the fact that the Rosselkhoznadzor periodically continues to close certain Belarusian enterprises for deliveries to Russia) and domestic demand made it possible to increase the production of these products. Diversification of sales thanks to the market of China and the ones the Asian post-Soviet republics also strengthened this trend.

The prospects for both industries in 2021 will depend primarily on relations between Moscow and Minsk. With their aggravation, economic pressure from Russia is possible through restricting access to its product markets. Sales of vehicles will also depend on the overall level of investment activity in Russia and the world.


The most significant drop in the industrial production index was recorded in oil refining (86.9% compared to January-November 2019). The industry was sagging mainly due to the conflict with Russia that broke out at the beginning of the year over the conditions for obtaining Russian oil and the subsequent interruptions in the supply of raw materials.

In 2021, Belarus intends to import 18 million tons of oil from Russia. A tax maneuver in Russia will increase the cost of Russian raw materials for Belarusian refineries. The parties have already agreed on the terms of delivery for the next year, the price calculation formula will remain the same.

Other terms of oil supplies (for example, intergovernmental transfers to compensate for premiums to Russian suppliers), which determine the amount of energy rent that Belarus can count on, are not yet planned.

Also, the industry's prospects will depend on the West's sanctions policy regarding Belarus.

The production of machinery and equipment not included in other groups (89.9%) sagged due to the contraction of external demand. The production of mining dump trucks and refrigeration and ventilation equipment dropped the most.

The pace of recovery or recession in the global economy will determine the sales prospects for Belarusian machinery and equipment in 2021.

Warm weather, especially in the first months of the year, made it possible to reduce the production of services in the housing and communal sector. The index of industrial production in the supply of electricity, gas, steam, hot water and conditioned air was 95.6%.

The main problems for the Belarusian economy to face in 2021

2020 not only did not solve the problems of Belarus, but also added new ones. So, the expectations that next year it will be possible to get significant benefits due to lower energy prices, were not satisfied: the gas price remains at the level of 2020, and the oil price will even increase due to the tax maneuver in Russia. The question of the timing of the receipt of the second part of the Russian loan funds remains unresolved.

At the same time, foreign trade in goods maintains a negative balance, which is compensated by foreign trade in services, but the growth driver of services exports – the IT sector – has started to slow down the growth of export earnings since August. Therefore, one cannot count on a noticeable increase in the foreign trade surplus next year.

Accordingly, the problem of servicing the foreign currency government bonds of Belarus remains suspended in mid-air due to the actual closure of the external and internal borrowing markets. The volume of payments on government obligations of Belarus in 2021 is about USD 3 billion. Two tranches of the Russian loan with a total amount of USD 1 billion, as well as USD 1-2 billion of benefits received in the event of a decrease in energy prices, would make it possible to survive the coming year without serious shocks. However, so far there is reason to count only on USD 1 billion of Russian credit. And the decline in energy prices by Russia is directly linked to the acceleration of integration. At the same time, the protests that have been going on in Belarus for the fifth month have reduced the number of supporters of deepening relations with Russia.

The main factors influencing the economy of Belarus in 2021:

1. Political situation in Belarus

2. Political and economic isolation of Belarus

3. Relations Belarus – Russia, USA and EU – Belarus and USA – Russia

4. Epidemiological situation in the world

5. Cost of oil and other commodities

6. Stock market risks

Thus, the main impact on the economy of Belarus in 2021 will be made by the political situation.

Scenarios for Belarus for 2021

Basic scenario

The basic scenario assumes the preservation (or, let's say, attempts to preserve) of the current political situation by the authorities.

- The sluggish process of constitutional changes continues, allowing the current authorities to retain its powers, at least for a while

- Integration processes also do not go beyond meetings and conversations

- Funds from the Russian loan will be used as a settlement for previous loans

- The introduction of sanctions by the EU and the US continues

- Restrictions on the access of Belarusian goods to the Russian market are increasing

- The coronavirus epidemic pace is not reduced

- Oil prices are in the range of 40-50 USD / bbl.

- The outflow of population and business abroad continues

- The authorities resort to raising taxes and increasing pressure on business

- Foreign currency shortage and economic decline lead to a pre-default state

- Protests against the current government will continue

- Repression against those who do not support the authorities intensifies

Integration with Russia

The catastrophic economic decline, the prospect of default and the growth of protests are forcing the authorities to take real steps towards integration with Russia.

- All integration cards of the Union State of Russia and Belarus are signed

- Belarus receives the necessary resources to support the economy, including through lowering prices for energy resources and the entry of Russian investors into the capital of enterprises

- Real constitutional reform begins and preparations for new elections under the full control of Russia

- It is possible to hold early elections, where the Russian candidate "wins"

- Protests are intensified

- The outflow of business and population abroad continues

- The US and the EU are increasing sanctions against Russia. Armed conflict is possible

- Russian business is actively entering Belarus, the redistribution of markets begins

"Black Swan"

This scenario presupposes an unexpected radical change in the balance of power. For example, the sudden release of the seat of the President of Belarus. In this case, Russia does not have time to prepare for the new elections and propose its own candidate. Further events will depend on the election results.

If the pro-Russian candidate wins and integration begins, events will be developed according to the scenario described above.

If a pro-Western or pro-Belarusian candidate wins, who is unable or unwilling to negotiate with the Kremlin, and refuses to integrate with Russia, Russian aid, both financial and resource, will be terminated. The access of Belarusian goods to the Russian market will be severely limited, as a result of which many Belarusian enterprises will begin to experience financial difficulties, up to and including closure. The ability of the new administration to attract debt financing in the West, primarily from international financial institutions, as well as the availability of political willingness and experience to carry out structural reforms in the economy, will determine the prospects and timing of overcoming the crisis. Considering the closure of the Russian market and the lack of an immediate result of reforms, the situation in the Belarusian economy will be worsening. The patience of the population and business will be needed, a desire to overcome difficulties and an understanding of the need to work hard. Indignation is possible due to the prolonged economic crisis. In the absence of trust in the authorities, fertile ground for the growth of pro-Russian and socialist sentiments will appear. It is not excluded that in case of the victory of the pro-Western candidate, Russia will attempt to forcefully keep Belarus in its orbit.

An unexpected change in the leadership of Russia may become the second "black swan". Further actions will depend on the new leadership. If a representative of pro-imperial views comes to power, integration pressure on Belarus will intensify, and if a representative of liberal views comes to power, Russia will join the demands of the US and the EU regarding the Belarusian authorities.

In any case, in 2021 there are no scenarios that would allow the political situation to be preserved without catastrophic consequences for the economy. This means that political change in 2021 is inevitable. And, most likely, it will be accompanied by a geopolitical choice.

P.S. The Pink Unicorn scenario

Everyone, even we – soulless realistic economists – wants to believe in miracles. And, of course, we all want our home country to be happy. Therefore, we will make a wish that in 2021 the authorities find the strength and courage to start a real, and not fake, dialogue with society, release political prisoners, hold new fair elections with an open vote count, allow the people to independently choose the path of the country's development, considering all the pros and cons, all risks and bonuses. This will help to avoid a severe economic crisis that would turn the country into an easy target. It will allow Belarus to become a country which everyone wants to be friends with, and cooperate as with an honest and decent partner. It will help stop the outflow of talented, smart and promising – those who must lead Belarus forward – and will return those who have already left. It will allow Belarusians to become a strong people who, as the hardships of 2020 showed, together can overcome everything. It will allow us to look to the future with optimism, invest, develop, increasing the welfare of everyone and the country as a whole...

Happy New Year! May all our dreams come true!

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