Macro: COVID-19 Update Belarus: Political crisis on top of pandemic

COVID-19 development: From July to mid-August, there was a steady trend towards a decrease in daily new COVID-19 cases, but now official statistics turned again to some growth trend. Meanwhile, the cumulative number of infected with coronavirus people almost reached 75,000.
Economic development and inflation: In addition to the pandemic, after announcement of Aleksandr Lukashenkos victory on the presidential elections on 9 August, widespread protests broke out in Belarus. One month of political crisis caused more troubles to the economy than six months of pandemic. First, political instability has primarily impacted the financial sector, resulting in 10% BYN devaluation against the USD since 9 August and the highest historical FX reserves drop by USD 1.4 bn. Meanwhile, various statistics showed some macro indicators improving. The GDP dropped only by 1.3% in 8M vs 1.7% in H1, industrial output decreased by 2.5% in 7M vs 3.1% in 1H, CPI remained at the same 5.2% level. Despite of relatively improvement of macro indicators, we see substantial risks for the economy in H2.
Fiscal policy implications and external accounts: The pandemic in tandem with the political crises puts strong pressure on the government budget. In this context we kept our forecast for Belarus public deficit at 2.5-3.0% of GDP for 2020. H1 foreign trade statistic showed us a significant recovery of potash exports from a 30% drop in Q1 to 3.6% decrease in H1, meanwhile oil exports have also improved but much slower - 42.6% drop in H1 vs 60% in Q1. However, the political crisis adds uncertainty to our forecast.

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.