ECONOMIC MONITOR BELARUS - German Economic Team
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ECONOMIC MONITOR BELARUS Issue 12 | June 2020 Overview • Due to the COVID-19 pandemic, the economy is forecast to shrink by 6.0% in 2020. In 2021, real GDP will grow by 3.5% • The main negative impact comes from the external side, where oil-related problems with Russia and low global energy prices reinforce the shock. Contrary to most other countries, domestic lockdown measures are rather weak • Inflation remains under control (2020: 6.5%), and the National Bank continues to cut the key interest rate. Real wages keep growing in the run-up to the presidential elections • All the factors mentioned put pressure on the budget: balance will deteriorate significantly in 2020 to -4.6% of GDP. Correspondingly, the debt ratio will jump in 2020 (59.6% of GDP) • The exchange rate weakened significantly during 5M 2020 (-14.5%), and the national bank had to sell foreign exchange reserves (latest: USD 7.9 bn); import coverage dropped to 2.6 months • Current account deficit will widen in 2020 (-2.9% of GDP), before improving slightly in 2021 (-2.5%) • External trade will take a hit in 2020, as both exports (4M 2020: -19.1%) and imports (-20.6%) shrink among the global COVID-19 crisis, the energy dispute with Russia and low global energy prices Topics • Russian oil tax manoeuvre. Gradual loss of preferential access to Russian oil imports poses significant mid-term challenges to the budget and external accounts • COVID-19. Development of cases, domestic measures, policy response, international financial support © Berlin Economics
Basic indicators
Belarus Russland Ukraine Moldova Georgia
GDP, bn USD 63.1 1,699.9 153.8 12.0 17.6
GDP/capita, USD 6,658 11,587 3,648 4,476 4,763
Population, m 9.5 146.7 42.1 2.7* 3.7
Source: IMF, National Statistics Offices, German Economic Team; data for 2019; *Population in 2018
Trade structure
Exports Imports
EU 25% | Russia 41% | Other 34% EU 18% | Russia 56% | Other 26%
Other Minerals Other
13% 21% 13% Machinery,
Wood and supplies and
Metals
paper transport vehicles
9%
5% Chemicals 26%
19%
Metals
7% Foodstuffs
12%
Foodstuffs
Machinery, supplies Minerals
17% Chemicals
and transport vehicles 26%
14%
18%
Source: Belstat, 2019; Note: trade in goods
© Berlin Economics 2Economic growth
Real GDP growth GDP
% yoy
4 • Significant economic slowdown in 2019
2 (+1.2%) due to external factors
0
• Tensions continued in Q1 2020: temporary
halt of oil supplies from Russia
-2
• Thus: already weakened economy even
-4 before COVID-19 pandemic
-6 COVID-19
2017 2018 2019 2020* 2021*
• Significant impact of COVID-19, even though
Source: Belstat; *Forecast of the IMF
containment measures less restrictive
Comparison of real GDP forecasts – 2020: strong negative impact on GDP
% 2020 (old) ∆ 2021 (old) ∆ – 2021: “swoosh-shaped” recovery; catch-
up effects of private consumption and
IMF WEO -6.0 (0.3) -5.7 3.5 (0.1) +3.4
stabilization of foreign trade
JPM -3.0 (1.5) -4.5 4.0 (2.0) +2.0 • Overall, strong decline of real GDP in 2020
(-6.0%) and recovery in 2021 (+3.5)
World Bank -4.0 (1.0) -5.0 1.0 (0.9) +0.1
Conclusion
EBRD -5.0 (1.2) -6.2 3.5 (#NA) #NA • Pandemic hit an already weakened
economy, limited space for government
Source: JP Morgan, IMF World Economic Outlook, World Bank, EBRD
Note: ∆ = Difference of forecasts before und after Covid-19 support
© Berlin Economics 3Sectoral perspective
Composition of GDP • Manufacturing (25%), trade (11%),
% of GDP Manufacturing agriculture (8%) and ICT (7%) are the most
25%
Other important sectors
36% Wholesale • Negative impact of COVID-19 containment
and retail
trade measures and temporary halt of Russian oil
11% supply:
Construction
Agriculture, – Manufacturing: -4.2% (4M 2020)
forestry and
6% fishery – Trade: -3.0%
Transport and 8%
– Transport and logistics: -7.4%
logistics ICT
7% 7% • Some sectors were less restricted / barely
Source: Belstat; 2019 data affected by the pandemic
Sectoral dynamics – Agriculture: +5.0% (4M 2020)
% yoy – ICT: +9.8%
10
– Construction: +6.3
5 • New contract of BLR refineries with “Rosneft”
foresees delivery of 9 m t oil in 2020;
0 diversification efforts continue
-5
• Price negotiations with “Gazprom” continue
ICT
Construction
forestry and
Transport
Manufacturing
Wholesale and
Agriculture,
logistics
Conclusion
retail trade
fishery
and
• External factors significantly weaken activity
in largest sectors, uncertainty remains
Source: Belstat; 4M 2020 data
© Berlin Economics 4Inflation and wages
Inflation Inflation
8 % yoy
• Inflation to increase due to sharp
6 depreciation of BYN and utility tariff hike
• 2020: increase to 6.5% eop
4 – Price regulations and decline of domestic
economic activity mitigate the increase
2 – But: NBRB cut the key policy rate to 8% in
response to COVID-19
0 • 2021: 4.9%, return to target (< 5.0%)
2017 2018 2019 2020* 2021*
Wages
Source: Belstat, IMF, *Forecast; Note: eop
• Real wages still on the rise, even during the
Real wages pandemic (4M 2020: +7.8%)
15
% yoy • As wage growth in the public sector is
10
disconnected from productivity, inflation
pressure arises
5
• Nominal wages in USD slightly decreased, as
the BYN depreciated (Q1 2020: 516 USD)
0 Conclusion
• Inflation to rise again, but still under control
-5
2016 2017 2018 2019 4M2020
• Wages continue to grow in the run-up to the
presidential elections in August
Source: Belstat, Note: average monthly wage in BYN
© Berlin Economics 5Public finances and government debt
Budget balance Budget balance
3 % of GDP
• Deficit to widen again in 2020 (-4.6% of GDP)
1
• Revenues declined by 5.7%, while
expenditures up by 5.4% (4M 2020)
-1 – Negative impact of tax manoeuvre, halt of
oil supplies and worsened economic activity
-3 led to strong decline in profit tax (-43%)
and foreign trade revenues (-37%)
-5 – Public sector wage increases continue,
2017 2018 2019* 2020* 2021*
somewhat offset by lower-than-planned
Source: IMF, * Estimate/Forecast nuclear power plant expenditures
Public debt Government debt
60
% of GDP
• Sharp increase of public debt in 2020 (59.6% of
GDP), followed by reduction in 2021 (54.7%)
55 – Negative impact of BYN depreciation as
almost all debt is denominated in FX
50 – Search for additional funding sources (IMF,
Russian market, China)
45
Conclusion
40 • Fiscal pressure increases, leaving limited room
2017 2018 2019 2020* 2021* for COVID-19 support measures
Source: IMF, * Estimate/Forecast
© Berlin Economics 6Current account and exchange rate
Exchange rate and currency reserves Exchange rates and reserves
USD bn BYN/USD
10 2.6 • Strong depreciation of 18% vs. USD (Apr-20
vs. Jan-20); stabilization in May-20
8 2.4
– As dollarization remains high (FX share in
6 2.2
corporate lending over 50%), depreciation
4 2.0 bears systemic risks
2 1.8 • Foreign exchange reserves declined
significantly (May-19: USD 7.9 bn)
Apr-17
Oct-17
Apr-18
Oct-18
Apr-19
Oct-19
Apr-20
Jan-17
Jan-18
Jan-19
Jan-20
Jul-17
Jul-18
Jul-19
– Debt servicing and FX interventions
International reserves (ls) Official exchange rate (rs)
Source: NBRB
– Import coverage down to ca. 2.6 months
Current account Current account
1
% of GDP • Higher deficit in 2020 (-2.9% of GDP) and
2021 (-2.5%) to be expected
0
– Weak goods exports and losses from tax
-1 manoeuvre partly compensated by strong
IT sector (services exports) and low energy
-2
prices
-3 Conclusion
-4
• Stabilization of BYN is key to avoid additional
2017 2018 2019 2020* 2021* financial risks in times of COVID-19
Source: World Bank, *Forecast
© Berlin Economics 7External trade
External trade • Weak development of external trade in 2019
% yoy
Exports Imports – Exports: -2.9%; imports: +2.3%
30
– Decline in exports mainly due to
15 contamination of Druzhba pipeline
• Sharp decline of external trade over 4M 2020
0
– Exports: -19.1%; imports: -20.6%
-15 • Main reason: temporary halt of oil supplies
from Russia in Q1 2020
-30 – No exports of crude oil, as everything was
2016 2017 2018 2019 4M2020
used for domestic production
Source: Belstat; Note: trade in goods
– Exports of oil products declined by 63%
Exports of crude oil and oil products
– Imports of oil from Russia down by 75%
30 % yoy • Stabilization of the situation in sight, as new
contract with “Rosneft” was negotiated
10
Conclusion
-10
• Worsening of external trade due to tensions
-30 in oil supply
• Uncertainty about future terms of crude oil
-50
and gas remains as price negations continue
-70 • Impact of COVID-19 on trade yet to be seen
2016 2017 2018 2019 3M2020
Source: Belstat; Note: based on the value of exports
© Berlin Economics 8Bilateral trade between Belarus and Germany
External trade with Germany • 3M 2020: mostly positive development even
EUR bn
2.0 German exports German imports Balance
in times of pandemic
1.5 – German exports: +17.3%
1.0 – German imports: -1.6%
0.5
– Trade volume: +11.7%
• German exports of the most important
0.0
product groups continued their positive
-0.5
development over 3M 2020
-1.0 – Machinery: +85.8%
2016 2017 2018 2019 3M2020
– Chemicals: +4.5%
Source: German Federal Statistics Office; note: trade in goods
– Foodstuffs: +32.2%
German exports to Belarus
• Mostly negative dynamic of German imports
Other
22%
of the most important product groups over
Electronics Machinery 3M 2020
28%
2%
– Iron and steel: -4.8%
Foodstuffs
5% – Wood: -15.8%
Electrical – Furniture: + 38.3%
machinery
6%
Conclusion
Chemicals
20% • So far, positive development of German
Motor vehicles and parts
18% exports to Belarus, but continuation of the
Source: German Federal Statistics Office, 2019; note: trade in goods
trend uncertain
© Berlin Economics 9Economic impact of the Russian oil tax manoeuvre
Change in the oil price Background
USD per
900 Tonne Import price (after tax change) • Belarus receives ca. 24 m t of oil from Russia
750 Import price (without tax change)
World market price (Urals) each year, exempted from export duties
600
• Russian tax manoeuvre: export duties in
450
Russia are gradually to be replaced until 2024
300
by a mineral extraction tax
150 Increase of ca.
USD 130 / t Economic impact of the tax manoeuvre
0
• The oil import price is to increase until 2024
by about 30%, or ca. USD 130 per t
Source: Belstat, EIA forecast starting 2020, GET calculations
• Three main effects on the economy to be
Impact on budget revenues (annual) expected after full implementation:
Expected change
Type of budget income
(BYN m) 1. Decline of domestic demand for oil
Export duties from oil products no change products by ca. 18%
Import VAT charged on imported oil and oil products
from Russia
+ 300 2. Additional costs for oil processing
Transfer from Russian budget of the amount of export industry of ca. BYN 2.4 bn (1.5% of GDP)
- 5,900
duties received from “peretamozhka” 3. Budget revenue shortfall of BYN 7.3 bn
Domestic VAT (20%) motor fuel selling on domestic
market
- 100 (15% of budget revenues or 5.5% of GDP)
Excises on fuel sold on the domestic market - 100 Conclusions
Shareholder income of state-owned enterprises - 1,700 • Loss of preferential access to Russian oil
Total fiscal effect -7,300
Compared to 2019 budget revenues -15%
• Structural reforms and diversification of trade
Source: GET calculations; Note: effect after full implementation of the tax (also in the energy/oil sector) are needed
manoeuvre, based on 2019 data
© Berlin Economics 10Corona: overview of cases
Cumulative Corona cases Domestic perspective
60000
Total Recovered • March/April: rapid increase of new cases
Active Death
50000
• Mai: numbers still growing, slight decrease of
40000 new cases
30000 • June: number of active cases started to decrease
20000 International comparison
10000 • Highest number of cases per population in the
region
0
28 Feb 13 Mar 27 Mar 10 Apr 24 Apr 8 May 22 May 5 Jun • Test capacity reasonably high, still relatively low
Source: Johns Hopkins University number of deaths reported
Absolute numbers Per 1 m population
Total Cases Deaths Recovered Active Total Cases Deaths Active Tests
Belarus 53,973 308 30,103 23,562 5,712 33 2,493 77,654
Ukraine 31,154 889 14,082 16,183 712 20 370 11,186
Poland 29,392 1,247 14,226 13,919 777 33 368 31,408
Lithuania 1,768 75 1,427 266 649 28 98 133,474
Latvia 1,097 28 845 224 581 15 119 67,543
Russia 528,964 6,948 280,050 241,966 3,625 48 1,658 101,967
Germany 187,671 8,870 172,200 6,601 2,240 106 79 56,034
France 157,220 29,407 72,859 54,954 2,409 451 842 21,215
Source: Worldometer, data as of 14 June 2020
© Berlin Economics 11Corona: containment measures and lifting
Lockdown index Domestic perspective
100 Index • Very limited lock-down measures
90 – Cancellation of mass events and
80 business trips
70 – Obligatory self-isolation for 14 days
60
after entering the country
50 – Schools still open, with parental
40
discretion regarding attendance;
distance learning for students
30
– Mandatory registration of all
20
contacts of COVID-19 patients
10
International comparison
0
• Late response to COVID-19 by
1 Feb
1 Jan
1 Apr
1 Mar
1 May
1 Jun
Belarus Germany France Poland Belarus, especially in comparison to
Russia Ukraine Sweden neighbouring Russia
Source: Oxford COVID-19 Government Response Tracker
Note: the stringency index aggregates policy responses related to containment, • Very modest measures in
closure and public information campaigns on a scale from 0 (lowest) to 100
(highest) comparison to regional peers
© Berlin EconomicsCorona: measures by the government
Fiscal / Economic policy Monetary policy
• Additional resources for the • NBRB cut the key rate from 8.75 to 8%
healthcare sector (BYN 2.4
• FX interventions to mitigate the BYN depreciation
m), including salary
allowances for essential • Mitigation of a number of prudential requirements
personnel (e.g. several indicators tied to credit risk)
• Tax payments in instalments • Guidance/recommendations to banks …
• State owned property rentals – … to provide credit holidays
receive a 6 months holiday – … to restrain from increasing interest rates on
• BYN 180 m allocated for top- restructured debt
up payments (up to mini- – … to minimize the margin between FX sales and
mum wage) in case of forced purchases
part-time or downtime (for – … to avoid extra charges / fees for banking
non-budget funded workers) operations
• Price regulations on certain • Overall guidance to suspend dividend distributions
goods (i.e. essential goods
such as disinfectants and • Prolongation of maturity of NBRB’s refinancing loans
respiratory protection) for banks
Source: IMF, own research, Note: information as of 15 June 2020
© Berlin Economics 13Corona: international support
International assistance by IFIs/partners
Organisation Amount of support Status
IMF USD 900 m (RFI) Applied
EIB EUR 100 m (rapid crisis financing) In preparation
World Bank EUR 90 m (for medical equipment / tests) Approved
USA USD 1.7 m (for medical purposes) Approved
Source: own display; Note: based on information available on 15th June 2020
• So far: limited funds available from international partners
– Highest amount (USD 900 m) applied for is a loan under the IMF’s Rapid
Financing Instrument (RFI)
– In discussion: EUR 60 m EU support for immediate and short-term needs,
but might depend on an agreement with the IMF
• However: only limited spending on fiscal and economic support
programmes by the government
© Berlin Economics 14About the German Economic Team The German Economic Team (GET) advises the governments of Ukraine, Belarus, Moldova, Georgia and Uzbekistan regarding the design of economic policy reform processes and a sustainable development of the economic framework. As part of the project we also work in other countries on selected topics. In a continuous dialogue with high-level decision makers of the project countries, we identify current problems in economic policy and then provide concrete policy recommendations based on independent analysis. In addition, GET supports German institutions in the political, administrative and business sectors with its know-how and detailed knowledge of the region’s economies. The German Economic Team is financed by the Federal Ministry of Economic Affairs and Energy. The consulting firm Berlin Economics has been commissioned with the implementation of the project. CONTACT Dmitry Chervyakov, Project Manager Belarus chervyakov@berlin-economics.com German Economic Team Tel: +49 30 / 20 61 34 64 0 c/o BE Berlin Economics GmbH info@german-economic-team.com Schillerstraße 59 www.german-economic-team.com 10627 Berlin © Berlin Economics
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