Belarus

Dynamic economic growth in 2024 set to moderate in 2025

Growth will remain solid in 2024 before moderating in 2025, although Belarusian economic data is scarce and unreliable. In 2024, consumption, the main GDP item (73% of GDP in 2023), particularly household consumption which accounts for almost half of GDP, was supported by the significant increase in real wages (13.3% year-on-year from January to July 2024, after 11% in 2023), particularly in the public sector, which remains largely dominant. Household consumption should moderate in 2025 as nominal wages grow less. Gross fixed capital formation (24% in 2023) should remain stable. The majority of investment in fixed capital will continue to be made by the private sector, which includes public companies with less than 50% state ownership (52% in 2023), closely followed by the public sector (42%), with the remainder coming from foreign direct investment, mainly from Russia. The public/private split will remain relatively stable, while the share of FDI will continue to fall (4.5% in 2023, compared with 9.2% in 2019). Trade will make a negative contribution to growth, owing both to lower demand from Russia – by far the country's leading trading partner – and to the continued imposition of sanctions by the European Union, which was previously the country's second-largest trading partner and which accounted for 20% of merchandise trade in 2021.

Inflation is expected to remain relatively stable thanks to the government's continued price controls on manufacturers, importers and retailers since October 2022. Under the mechanism, industrial producers are only authorised to increase their prices on economic grounds, a decision which is conditional on approval by a higher authority. Importers’ and retailers’ margins are subject to a limit. Despite this, inflation remains high due to import restrictions and bottlenecks in local production. The National Bank of the Republic of Belarus (NBRB) has kept its key interest rate unchanged at 9.5% since June 2023. It hopes to reduce dollarisation (48% of bank deposits and 24% of loans were in foreign currencies at the end of July 2024) by increasing banks' foreign currency reserve requirements. This operation is proving difficult, given the risk associated with the Belarusian rouble and the reluctance of foreign banks to hold this currency.

Public and external accounts influenced by Russia and sanctions

The current account is expected to improve slightly in 2024 before deteriorating again in 2025 due to the weakness of the Belarusian rouble, a reflection of a weak Russian rouble, which is weighing on trade with Russia. In response to EU and US sanctions, Belarus' trade has been redirected notably towards Russia, which was previously its main trading partner. A softening of the Russian economy could widen Belarus's trade deficit. While the balance of trade in services is expected to remain in surplus, it is under threat from a ban on transit trade, particularly rail trade between China and Europe. The country is also bearing the brunt of EU sanctions, notably the ban on Belarusian road haulers entering EU territory and the ban on information technology services. These two sectors accounted for two-thirds of the services balance (43% and 29%, respectively, in 2021), and the EU was formerly Belarus' main trading partner for services (31% in 2021). Added to this is the effect of IT sector employees moving abroad (estimated at 50% from 2022), a trend that is set to continue. The primary income balance will make a negative contribution to the current account balance due to the fall in income from cross-border workers given sourer relations with neighbouring countries, particularly Poland. Lower remittances from expatriates, particularly from Russia, will also have a negative impact.

With Russia's help, Belarus has introduced a plan to replace Western imports to alleviate sanction-induced supply problems by stimulating domestic production. Russia is providing aid in the form of sovereign loans at below-inflation rates, with initial financing of US$1.7 billion approved in September 2022. Further bilateral negotiations are under way as Belarus seeks additional funding for this programme. To date, 20 projects are unde rway, while seven others are still in the negotiation phase. In 2024, plans for a common energy market were endorsed which could come into force in January 2025. Belarus is likely to be able to export surplus electricity to Russia.

The government forecasts a reduction in the budget deficit in 2024, continuing into 2025. Tax revenues are expected to increase by 32%. The increase is the result of tax reforms that came into force in January 2024, in particular the increase in the tax rate on corporate profits to 25% when the latter exceeds BYN 25 million (previously 20%), and an increase in personal income tax to 25% for incomes exceeding BYN 200,000, superseding the single rate of 13%. However, these tax increases will not be enough to turn the deficit into a budget surplus. Expenditure will be boosted by an increase of almost 14% in social spending. Public sector wages are set to rise by 14.7%, while increases in social benefits and pensions are also expected. Defence spending will also increase. In addition, high inflation and falling oil revenues will weigh heavily on the economy: not only are exports of refined products to the EU banned, but exports to Russia are made at lower prices.

A regime that refuses to budge and a controversial role in the war in Ukraine

The re-election in August 2020 of President Alexander Lukashenko, who has been in power since 1994, triggered major demonstrations on back of claims that the election was not free, election rigging and massive voter fraud. The violent reaction by the authorities against the demonstrators and political opponents, and the orchestration of a migratory crisis using its borders with Poland, Lithuania and Latvia to channel Afghan, Syrian and Iraqi migrants through the country prompted the EU, the US, the UK and Canada to impose several series of sanctions, the most recent, in August 2024, against 28 additional people responsible for internal repression and human rights violations in Belarus.

In addition to the sanctions aimed specifically at the regime, others are being applied in response to Belarusian support for Russia's invasion of Ukraine, since the latter was able to use the other's territory to launch its initial offensive. These sanctions also affect individuals and several areas of the economy, such as the banking system (banning of five Belarusian banks from the SWIFT system, prohibition of transactions with NBRB), and restrict bilateral trade. As a result of these sanctions, Belarus has strengthened its trade links with Russia, but also with countries in Central Asia, notably Kyrgyzstan and Kazakhstan in order to circumvent them. Belarus continues to support neighbouring Russia in its war against Ukraine. Although its army is not fighting on Ukrainian territory, Belarus is directly involved, either through logistical support or the stationing of Russian soldiers on its territory. However, in mid-February 2023, Mr Lukashenko declared that he would only mobilise his troops in the event of a direct Ukrainian attack on the Belarusian people. In August 2024, he declared that Russia and Ukraine should negotiate an end to the conflict to prevent it spreading to Belarus.

The parliamentary elections in February 2024 confirmed the regime in power. For the first time, supporters of President Alexander Lukashenko ran as the Belaya Rus' party, previously a support association, rather than as independents as in previous elections. The party won 51 of the 110 seats in the House of Representatives, with the remainder going to other pro-government parties and independents. The municipal elections also favoured the Presidential party (with 3,234 municipal councillors out of 12,000 winning votes). The Presidential election scheduled for 2025 should result in Lukashenko's re-election for a seventh term.

Last updated: September 2024