Belarus Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

A cornerstone of Belarus’s economy was the availability of heavily subsidized natural gas and crude oil from Russia for a long time. It provided cheap energy for the industry and the opportunity to re-export refined oil products to Western Europe with good profits. When Russia began to raise energy prices, the result was a serious breakdown. In recent years, Belarus has tried to escape from dependence on Russia. Not least, economic cooperation with China has been encouraged.

Belarus (Belarus) is sometimes referred to as Europe’s last planned economy. The state’s involvement in the economy is large and most companies are state-owned. The most important industries are the service sector and the manufacturing industry. In third place comes agriculture, which is partly also managed by the state.

Countryaah.com: Major imports by Belarus, covering a full list of top products imported by the country and trade value for each product category.

Access to heavily subsidized crude oil and natural gas from Russia has provided cheap energy to industry and the opportunity to re-export refined oil products to Western Europe. Despite attempts to reduce dependence on Russia, Belarus still needs to buy Russian oil and natural gas to cope with energy consumption and keep the heavy industry going. The country also receives good income from transit trade in oil and gas from Russia to Western Europe. Like Ukraine, Belarus is concerned by the Russian-German gas pipelines that are being developed in the Baltic Sea and may reduce the need for transport via Belarus.

President Aleksandr Lukashenko advocates “market socialism”. The regime aims to retain state-owned enterprises, although they are often outdated and inefficient, and to keep unemployment down. About three-quarters of the economy is controlled directly by the state, which makes central decisions on loans, wage levels, price controls and profit margins. In addition, the regime is often involved in the management of private companies. Misbehaving businessmen and business executives risk being arrested. The privatization that takes place is at the initiative of the president, and the freedom to invest is limited. Planned privatizations often fail, partly because companies do not attract investors.

Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including BEL which represents the country of Belarus. Check findjobdescriptions to learn more about Belarus.

In 2019, the Minister of Finance, before the European Bank for Reconstruction and Development (EBRD), whose business is focused on supporting the market economy in the east, claimed that Belarus economy is “as open to investment as it can be”. A first pilot project for cooperation between public and private money was prepared: the renovation of a motorway.

China has been interested in establishing itself in Belarus as well. An industrial area with special conditions is set up near Minsk International Airport. At the end of February 2020, the Belta news agency reported that Belarus’s exports to China had increased by 38 percent in 2019, but also that the Chinese investment rate had slowed. The report appeared to describe the situation even before the coronavirus pandemic created disruptions in China’s industry, and in world trade.

Uncertain financial data

At independence in 1991, many believed that Belarus, thanks to its comparatively modern industry, would better transition to the market economy than other former Soviet republics. Instead, Belarus came afterwards. After a period in the early 1990s with the sale of state-owned enterprises and reforms to facilitate private initiatives, the state re-emerged as a dominant force.

Officially, the economy was growing during the 1990s, but the data is uncertain. The state’s control over the economy means that comparisons are still difficult, and transparency is poor. However, during the early 2000s, the Belarussian economy appears to have experienced significant growth. Not least, the sale of fuel to the EU generated revenue. At the same time, many industrial companies and agriculture suffered a loss.

The EU, the United States, the World Bank and the International Monetary Fund (IMF) have urged Belarus to sell state-owned companies and invest in private enterprise. Otherwise, they are hesitant to provide loans and assistance. Russia, too, is pushing for market reform – with the exception that it is explicitly expected that Russian companies will take precedence when Belarussian assets are sold. Many of the Russian companies in question are at least partially state-owned or controlled, which means that from the Belarussian horizon Russia may be looking to buy Belarus. A clear example is the energy sector.

At the beginning of the 2000s, Belarus’s Russian domestic gas prices were projected – assuming that Russian gas giant Gazprom took part in the state gas company Beltransgaz. It opposed the regime in Minsk. But Moscow used the gas price as a political and economic means of pressure. From 2007, Russia began to raise prices. This caused both energy shortages and a crisis in the balance of payments in Belarus, which had to agree to sell shares in Beltransgaz. That happened gradually, but in 2011 Gazprom had completely taken over the ownership. In exchange, Belarus again received a substantial discount on natural gas.

According to a 2010 agreement, Belarus has been allowed to trade Russian oil tax-free, but has then undertaken to transfer customs revenues to Russia from refined oil products sold to third parties. Belarus has become accustomed to bypassing the agreement and selling gasoline and diesel with good profits, judging by Moscow’s good memory. But cooperation with Moscow has grinned. In 2020, a new agreement on oil supplies from Russia was signed, but Belarus has also started to buy Norwegian and Saudi oil.

Hyperinflation and devaluation

The rise in energy prices in 2007 and the impact of the global financial crisis in 2008 – when major exports fell – highlighted weaknesses in the Belarusian economy. A balance of payments crisis occurred, as did a large currency deficit. Belarus received billion loans from both Russia and the IMF. As part of the settlement with the IMF, the Belarussian ruble was written down by 20 percent in 2009. The currency’s depreciation was a shock to many Belarusians, who had to prepare for reduced real wages.

Despite the faltering economy, the government spent generously ahead of the 2010 presidential election. Among other things, the public employees received salary increases. It diluted the budget deficit and contributed to the crisis in 2011.

Now the IMF frantically turned to new loans because of the government’s economic policy. Russia agreed on new loans on condition that state Belarussian assets were sold to Russian interests. Chinese banks also gave credit. The currency was further devalued. People hoarded basic food in 2011 in anticipation of the expected write-down of the ruble. By the end of the year, Belarus had suffered from hyperinflation with a price increase of over 100 percent. In 2012, the central bank introduced a banknote with a nominal value of 200,000 rubles, twice the amount of the previous highest denomination. The situation stabilized in 2012 when inflation was pushed down and banks gained new capital. However, growth remained weak.

Belarussian currency crisis

At the end of 2014, the economic situation became serious again as a result of Russia’s economic crisis. Lukashenko gave orders that trade with Russia could only be in dollars or euros. A 30 percent tax was imposed on purchases of foreign currencies and companies were ordered to sell 50 percent of their foreign currency assets. Foreign exchange reserves decreased by $ 760 million in December alone. In January 2015, the ruble was devalued twice within a few days, with seven percent both times.

In November 2015, Lukashenko ordered the removal of four zeros from the ruble as of July 2016. A new ruble would correspond to 10,000 old rubles. By the end of 2015, the value of the currency had been eroded to around 19,000 rubles on one euro.

Belarus applied for a new loan from the IMF in 2015. In exchange, the government would implement a series of reforms that it previously refused to agree to. When the forecasts in the spring indicated that the country’s economy would shrink substantially in 2016, the government decided to gradually raise the retirement age, from 55 to 58 years for women and from 60 to 63 years for men.

In 2017, Lukashenko took another measure to raise money for the Treasury: a tax for residents who work less than 183 days per year and for unemployed persons who have not registered with the authorities. About 430,000 Belarusians were ordered to pay the tax, but the days before the deadline expired, only about 10 percent had done so. Extensive popular protests against the “sponge tax” forced Lukashenko to withdraw it.

Facts for 2017, according to official figures, showed that the development had finally turned. The country’s economy had grown. But warnings still sounded, developments are considered uncertain as Belarus has remained dependent on trade exchanges with Russia. That goes to 40 percent of Belarusian exports, and from that comes more than half of imports. In addition, when Russia is subject to international sanctions (in protest of the Russian annexation of the Crimean Peninsula 2014), it also creates pressure on the Belarusian currency. The IMF estimated in 2019 that Belarus’s GDP has grown, but has continued to demand that government involvement in the economy be reduced. Public statistics from the beginning of 2020 showed that growth in the economy was 1.2 percent in 2019.

The capital of Minsk is located as a hub for trains between the Baltic and Ukraine and between Russia and Poland. The country has an expanded canal system connected to the large rivers, where both passengers and goods are transported. Belarus lacks coast but through agreement with Poland can ship goods from Polish Gdynia. Oil imports from, for example, Norway and Saudi Arabia are unloaded in Klaipeda, Lithuania and transported to Belarusian refineries by rail.