Three Scenarios for Belarusian Economy

Will the Belarusian Economy survive if the protests continue?

What is the key to economic recovery? 

 

In the recent issue of showCASE, CASE Belarus Managers, Sierž Naŭrodski and Aleś Alachnovič, discuss the future of the Belarusian economy following the political turmoil of the August 2020 presidential elections in the country. Against the background of growing global uncertainty and deepening macroeconomic instability in Belarus, a true dialogue between the two sides and organisation of new, free, and fair presidential elections in the nearest future appear as the only options to ensure quick economic recovery in 2020-2021.

Based on the analysis of the previous crises in Belarus, we explore performance of several indicators – such as Belarusian rouble (BYN) nominal exchange rate, inflation rate, bank liquidity measured by interbank 1-day credit rate, and investment growth rate – as measures of the impact of political decisions on the country’s economy.

We look at three different political scenarios and explain what economic outcome is most realistic for each one of them:

Scenario 1. Economic crisis if no dialogue at all amid ongoing protests

Scenario 2. Economic stagnation if Lukashenka fakes dialogue and the society is divided

Scenario 3. Economic recovery if new presidential elections are held

 

As a starting point, we briefly describe the situation shortly before the elections. Belarus’ GDP over January-July 2020 contracted by 1.6% y/y, among others due to the impact of COVID-19 pandemic crisis on the global economy and oil and gas tensions between Belarus and Russia. Despite high liquidity in the banking sector – average interbank daily credit rate stood at record low 3.5% in July(compared to 10.6% in July 2019), the investment in the economy over January-July 2020 fell by 0.5% y/y. The Belarusian rouble had been losing value vis-à-vis euro since the beginning of 2020, but the year-on-year inflation (CPI) was up to 5.2%, exceeding only slightly the 5% target of the National Bank of Belarus (NBB) for 2020.

 

Below are the key outcomes for each of the three scenarios. 

Scenario 1. Economic crisis if no dialogue at all amid ongoing protests

Should the political situation in the country remain unchanged, with daily and weekly protests, no signs of dialogue from Lukashenka, and police continuing to brutally pacify the protests and arrest scores of people on a daily basis, we predict that by the end of the year the Belarusian economy will be in a state of total disarray.

 

Scenario 2. Economic stagnation if Lukashenka fakes dialogue and the society is divided

To put it briefly, without a comprehensive political dialogue between Lukashenka and the civil society, the economic outlook for the country is rather bleak.

 

Scenario 3. Economic recovery if new presidential elections are held

In our opinion, the only scenario in which the economy experiences recovery in 2020-2021 is the commencement of a true dialogue between the two sides of the political conflict and, crucially, organisation of new, free and fair presidential elections as soon as possible.

 

Read more about those three scenarios in a short (4 pages) showCASE issue  kindly prepared by CASE:

 

 

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