Macro: COVID-19 Update Belarus: Macroeconomic outlook worsens despite contained pandemic

The COVID-19 pandemic already took a heavy toll on Belarus economy with GDP decline reaching 1.7% yoy in H1 2020. More signs of the slowdown emerge as the boarders with main trading partners remain closed and a 15% BYN devaluation negatively impacts domestic demand too. We believe that Belarus economy will extend its decline at a 4.5% rate in 2020.

Meanwhile inflationary risks should remain contained due to the suppressed domestic demand and Belarus National Bank efforts to tighten its grip on consumer lending. On the other hand, the BYN devaluation and higher energy prices remain a source of the upside risk. At the same time, ongoing monetary easing in main partner economies and worldwide, together with tamed inflation expectations and fragile economic situation should empower NBRB to deliver more cuts in H2 2020.

The pandemic also adds pressure on the government budget. The Finance Ministry preannounced a 0.7% of GDP budget deficit for 2020 which does not include the compensation from Russia for the loss of revenue from oil tax maneuver. Meanwhile the government still did not announce measures that could aim to compensate for the loss of oil custom duties, which are also important source of the revenue. In this context we downgraded our forecast for Belarus public deficit to 2.5% of GDP for 2020.

We also expect debt burden ratios to deteriorate due to the rising debt levels and falling GDP and exports, against which debt is measured. Still, with FX reserves covering some 79% of short-term external debt and higher likelihood of debt rollovers from Russia, Belarus should be able to sustain paying its external debt. On the other hand, faster depletion of FX reserves can add an unwanted pressure on Belarus rouble.

The balance of payments outlook also looks challenging with net surplus for services unable to offset the impact of plunging exports. The absence of the subsidies from Russia will also aggravate the situation, thus we believe that current account deficit will deepen in the coming quarters and for the whole year.


This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.