By Uladzimir Akulich and Sierž Naūrodski, CASE Belarus
Tiny Belarus, often-derided for the closed nature of its economy, is far more dependent on the outside world than it would appear at first glance. In the third quarter of 2016, Belarus’ current account (CA) balance turned positive, amounting to 1.9% of GDP, but the overall trend for the year has been negative: from January-August, the cumulative CA deficit amounted to USD 1.4 billion, or 4.6% of GDP (compared to 2.2% of GDP in 2015 for the same period).
This performance has been driven by a deterioration of trade in energy goods, with physical volumes of oil product exports and crude oil imports declining each by about 10%. However, due to price differences, the revenues from oil exports decreased by USD 1.9 billion, and payments for the crude oil imports by only USD 1.1 billion. As for the trade in non‑energy commodities, in 2016 a positive balance was kept, equal to as much as USD 400 million (almost the same as in the analogous period of 2015, when it was USD 372 million).
What can be expected by the end of the year is that trade in both energy and non-energy goods will be negative for Belarus. The early start of the heating season and the holiday period in the fourth quarter will lead to an increase in imports, while exports will continue to stagnate. There is also statistical evidence that the last quarter is traditionally highly import-intensive for all kinds of traded goods in Belarus.
Given this, the cumulative CA deficit is bound to increase to approximately 5.4% of GDP by the end of 2016. By comparison, the recent reports by IMF and EBRD forecast a CA deficit of around 4.9% of GDP.
Is that level safe for the country? Economists in Belarus agree that the acceptable limit of the CA deficit is 2–3% of GDP, based on the fact that this amount can be financed by existing foreign investment. However, a deficit above 5% of GDP will most probably result in further external borrowing by Belarus in order to avoid shortage of foreign exchange reserves (currently equal to only two months of total imports). Belarusians should therefore ask Ded Moroz for a warm winter that would bring their energy consumption down. With only two weeks to go until Orthodox Christmas, however, it is likely that other, more economic reforms will be needed.