Risk drivers and outlook

In the past, the lack of coherent macroeconomic policies and repeated attempts by the authorities to boost economic activity while delaying much-needed structural reforms resulted in large macroeconomic imbalances in a context of weak liquidity and two balance-of-payment crises in 2008 and 2011. Since the end of 2014, macroeconomic and financial policies have improved significantly. Moreover, liquidity has improved recently, as highlighted by two consecutive upgrades of the short-term political risk rating (in September 2017 and February 2018). The current account deficit has narrowed and external debt ratios are on a downward trend. Taking into account these improvements but also the ongoing transition of the economy and the risky rebalancing strategy towards the West and away from Russia, Credendo upgraded the MLT political risk of Belarus to category 6 in May this year.

Facts & figures


  • Improved macroeconomic and financial policies
  • Moderate current-account deficit
  • Well-educated labour force


  • Impaired corporate and bank balance sheets
  • Weak competitiveness
  • Lack of structural reforms


  • Alexander Lukashenko

Head of government

  • Andrei Kobyakov


  • 9.5 m

GDP (in 2017)

  • USD 54.4 billion

Income per capita

  • USD 5,280

Income group

  • Upper middle income

Country risk assessment


  • Improved macroeconomic and financial policies
  • Stronger real GDP growth thanks to a favourable external environment
  • Still high reliance on Russia, its main trade partner
  • Difficult balance between reforming state-owned enterprises (SOEs) and maintaining social stability
  • Contingent liabilities and exchange-rate volatility are the main risks for general government finances
  • Improved but still weak liquidity

Stronger real GDP growth but lacklustre MLT growth prospect

The improved macroeconomic policies and a more favourable external environment (higher real GDP growth in Russia and in the EU) have supported economic recovery and contributed to lower inflation (down to 4.6% at the end of 2017 from double digits in the 2011-16 period). Real GDP growth recovered last year after two years of deep recession. Looking ahead, MLT economic growth is expected to be at a relatively low level. It is impeded by negative demographics, low export diversification, heavy reliance on Russia, impaired corporate and bank balance sheets and weak competitiveness. The state continues to play a large role in the economy. This significant state presence has contributed to inefficiency and misallocation of resources in the economy as many loans were provided to ultimately unviable enterprises.

Unemployment is low but there is significant excess employment in SOEs, reflecting the difficult balance between restructuring inefficient SOEs and maintaining social stability.

Looking ahead, the authorities will try to attract more investment in the private sector, notably in the IT sector, which is of growing importance, with an attractive fiscal package, and to improve the business environment. In this regard, it is worth noting that Belarus ranks 38th in the 2018 World Bank Doing Business indicator, just behind Russia and Kazakhstan. That being said, in the coming years the private sector is unlikely to create sufficient jobs to compensate for potential job losses in the event of the rapid restructuration of SOEs. In this context, the regime is unlikely to adopt any significant structural reform that could threaten political stability.

Contingent liabilities and exchange-rate volatility are the main risks for general government finances

The general government debt surged from less than 40% of GDP in 2014 to 53.5% in 2016 before starting to decrease in relative terms in 2017. It is likely to continue to decrease amid a favourable growth environment. That being said, public debt remains vulnerable to exchange-rate shocks and contingent liabilities (related to SOEs and banks). Moreover, despite the authorities’ attempt to keep the fiscal deficit under control – it is expected to peak at 3% of GDP in 2019 from a deficit of 1.7% in 2017 – the major importance of quasi-fiscal operations continues to put pressure on public debt. On the positive side, general government debt remains moderate compared to public revenues (at about 120% of public revenues in 2017) and public interest payments are low but rising. 

Narrowed current account deficit but large negative net international investment position

While appearing relatively diversified, goods exports are concentrated on petroleum products (for the European markets), potash and non-energy products (dominated by manufactured goods) (for the Russian markets). Belarus is frequently at odds with its large neighbour over trade issues such as oil and gas, and most recently dairy products and other foodstuffs (note the export ban introduced in March 2018).

Although current account deficits were large before 2014, they narrowed markedly in 2015-2016 on the back of sharp import compression. In 2017, the situation improved further, partly thanks to a more favourable external environment and an energy pricing agreement with Russia. This year and next year, the current account deficit is likely to deteriorate slightly due to higher imports associated with the construction of a nuclear plant, and to gradually improve (but remain in deficit) in the coming years. Given the limited direct investment inflows, current account deficits were and continue to be financed mainly by debt-creating inflows and foreign exchange reserves.

Gross external debt rose rapidly between 2008 and 2016 and started to decrease slightly in 2017, driven by a strong rebound in GDP in USD terms as external debt further increased in absolute value. The country’s net investment position followed the same path. Looking ahead, external debt in absolute value is expected to level off while declining in relative terms. Debt-service ratios have also increased rapidly and weigh on the country’s ability to pay back its external debt.

Stronger liquidity position

Liquidity has long been one of the main weaknesses of Belarus, which has suffered two balance-of-payment crises (in 2008 and 2011). Indeed, gross foreign exchange reserves have been very limited (close to one month of import cover in 2014). The decision of the Central Bank to adopt a more flexible exchange-rate regime in January 2015 is a game-changer as it means that the Central Bank no longer has to use its limited foreign exchange reserves to support a fixed exchange rate but can intervene to smooth fluctuation. Moreover, the issuing of MLT sovereign bonds (in June 2017 and February 2018) and balance-of-payments support from Russia (received in 2017) have improved liquidity and the maturity structure of the external debt. This is positive as the high short-term external debt and the reliance on Russia for refinancing have long been Belarus’s Achilles heel. Last but not least, in the past, large wage increases (outpacing productivity growth) have put pressure on external competitiveness and thus on foreign exchange reserves. Given that the exchange rate is more flexible, an increase in wages above productivity – a situation that the authorities avoided between 2014 and 2017 – is likely to result in depreciation rather than in a sharp drop in foreign exchange reserves and a balance-of-payments crisis as has been the case in the past.

Despite the improvement, it should be noted, however, that the liquidity situation of Belarus remains weak and the country remains reliant on Russia and highly vulnerable to external shocks. Gross foreign exchange reserves cover less than 2 months of imports and less than 60% of the short-term external debt.

Analyst: Pascaline della Faille –p.dellafaille@credendo.com