showCASE No. 109 I Belarusian economy at the crossroad – three scenarios for the near future
In this issue of showCASE, we 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.
Sierž Naŭrodski | President, CASE Belarus
Aleś Alachnovič | Vice-President, CASE Belarus
The presidential elections that took place in Belarus on August 9th, 2020 were incontestably the most controversial ones in the modern history of the country. Jailing and banning key election rivals, lack of transparency, and multiple recorded falsifications during the votes counting (the incumbent Alexander Lukashenka claimed an improbable 80% of the vote) predictably angered the Belarusian people. As excessive and unlawful use of force against peaceful demonstrators after the election results were announced only added fuel to the fire. Since then, Belarusian citizens have mobilised on an unprecedented scale. Every day thousands of people have been protesting against Lukashenka despite hundreds of them if not thousands being imprisoned on a weekly basis. Every Saturday, Women’s March gathers roughly ten thousand women. Every Sunday, over 100,000 people all over the country take part in National Marches. The protests have already lasted for over eight weeks.
What does this political turmoil mean for the near future of the Belarusian economy? Will the economy survive if the protests continue? What will be the key to economic recovery? We look at three different political scenarios and explain what economic outcome is most realistic for each one of them.
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.
As a starting point, let us 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.