Belarusian economy at the crossroad — three scenarios for the near future

7 min readOct 8, 2020

Sierž Naŭrodski | President, CASE Belarus

Aleś Alachnovič | Vice-President, CASE Belarus

The presidential elections that took place in Belarus on August 9th, 2020 were incontestably the most controversial ones in the modern history of the country. Jailing and banning key election rivals, lack of transparency, and multiple recorded falsifications during the votes counting (the incumbent Alexander Lukashenka claimed an improbable 80% of the vote[1]) predictably angered the Belarusian people. As excessive and unlawful use of force against peaceful demonstrators after the election results were announced only added fuel to the fire. Since then, Belarusian citizens have mobilised on an unprecedented scale. Every day thousands of people have been protesting against Lukashenka despite hundreds of them if not thousands being imprisoned on a weekly basis. Every Saturday, Women’s March gathers roughly ten thousand women. Every Sunday, over 100,000 people all over the country take part in National Marches. The protests have already lasted for over eight weeks.

What does this political turmoil mean for the near future of the Belarusian economy? Will the economy survive if the protests continue? What will be the key to economic recovery? We look at three different political scenarios and explain what economic outcome is most realistic for each one of them.

Based on the analysis of the previous crises in Belarus, we explore performance of several indicators — such as Belarusian rouble (BYN) nominal exchange rate, inflation rate, bank liquidity measured by interbank 1-day credit rate, and investment growth rate — as measures of the impact of political decisions on the country’s economy.

As a starting point, let us briefly describe the situation shortly before the elections. Belarus’ GDP over January-July 2020 contracted by 1.6% y/y, among others due to the impact of COVID-19 pandemic crisis on the global economy and oil and gas tensions between Belarus and Russia. Despite high liquidity in the banking sector — average interbank daily credit rate stood at record low 3.5% in July (compared to 10.6% in July 2019), the investment in the economy over January-July 2020 fell by 0.5% y/y. The Belarusian rouble had been losing value vis-à-vis euro since the beginning of 2020, but the year-on-year inflation (CPI) was up to 5.2%, exceeding only slightly the 5% target of the National Bank of Belarus (NBB) for 2020.

Scenario 1: Economic crisis if no dialogue at all amid ongoing protests

Should the political situation in the country remain unchanged, with daily and weekly protests, no signs of dialogue from Lukashenka, and police continuing to brutally pacify the protests and arrest scores of people on a daily basis, we predict that by the end of the year the Belarusian economy will be in a state of total disarray.

The most recent data from August and September give an indication of how it might look like. The uncertainty caused by political tensions prompted people and businesses alike to withdraw transferable deposits and other bank deposits in domestic currency in the sum of BYN 1.6 billion (11.5%) and in foreign currencies in the sum of USD 375 million (3.3%) in August 2020 alone. This, in turn, resulted in a record-high demand for foreign currency (USD 1.5 billion net demand from individual persons and USD 1.4 billion net demand from legal entities in January-August 2020) as well as an accelerated consumer price growth (5.6% year-to-year in August). As a consequence, the average monthly nominal exchange rate of the Belarusian rouble to euro went down by another 9.9% in September 2020 compared to July 2020, and the one-day interbank credit rate hit 25% on September 7, 2020 (compared to 4% on August 7, 2020). The latter was caused by the reaction of the NBB, which aimed at stabilisation of the Belarusian rouble (the NBB suspended available liquidity regulation operations in the national currency).

Unsurprisingly, the overall climate of uncertainty, compiled with low bank liquidity in August, resulted in a drop in investments by 9.0% in August[2]. Should the political status-quo prevail throughout October, November, and December, the pressure on BYN exchange rate will likely further increase, inflation will accelerate, and liquidity shortages inside the banking system will get worse.

The NBB international reserves shrunk by USD 1.4 billion (15.8%) over the month of August, leaving USD 7.5 billion as of September 1st, out of which foreign currency reserves constitute only USD 3.2 billion. Continuous interventions by NBB might result in further significant depletion of reserves in September.

Keeping in mind the abovementioned trends along with the second wave of COVID-19 pandemic and its impact on global and Belarusian economy, a full-scale economic crisis by the end of 2020 is inevitable without foreign lending. But there is a big question mark over Belarus’ ability to secure any kind of lending under current political circumstances and even if it does succeed in doing so, it is likely to be at prohibitive interest rates.

Scenario 2: Economic stagnation if Lukashenka fakes dialogue and the society is divided

Most recently, Lukashenka announced a constitutional reform will be carried out by 2022. For his opponents, this is, however, not enough. What is crucial, is conducting fair elections. According to Lukashenka’s key political rival, Sviatlana Cichanoūskaja, and the Coordination Council in Minsk, any kind of constitutional change will be possible only if there is a fully legitimate president of Belarus in place. Otherwise, any constitutional reform will be just as illegitimate as the 2020 presidential elections themselves.

Nevertheless, a constitutional reform might become one of the main subjects of a dialogue between the two sides of the political conflict. If this is the case, the line between anti- and pro-Lukashenka groups in the Belarusian society will become more pronounced and thicker. Unfortunately, such a division might cause the political tensions last much longer, maybe even years to come — to the detriment of the economy.

Even if the National Bank of Belarus together with the government will somehow manage to find macroeconomic balance in the short-run (coming 5–6 months), there will still be little reason for the investment — and, consequently, GDP — growth. No rational business will invest or reinvest in a country with such high political risks, a most recent issue on a long list that includes lack of transparency in decision-making, Internet blockage, administrative control over the third largest private bank, little-to-no tourism, overcrowded prisons, and talented youth leaving the country.

What would be expected in the country in the coming years instead is a rise in the shadow economy, oligarch-driven investment, brain drain, high pension burden, and macroeconomic instability. The situation might be further deteriorated by the general uncertainty regarding global economic growth due to the Covid-19 pandemic and unstable commodities markets (oil products and potassium are key export goods for Belarus).

To put it briefly, without a comprehensive political dialogue between Lukashenka and the civil society, the economic outlook for the country is rather bleak.

Scenario 3: Economic recovery if new presidential elections are held

In our opinion, the only scenario in which the economy experiences recovery in 2020–2021 is the commencement of a true dialogue between the two sides of the political conflict and, crucially, organisation of new, free and fair presidential elections as soon as possible.

In economic terms, in order for the Belarus’ economy to return on the path of growth, three key goals would need to be achieved:

  • Macroeconomic stability with 1-digit inflation, exchange rate under control, and normal operational bank liquidity.
  • Preparation of a detailed plan of economic recovery for the coming years that includes some urgent economic reforms (for instance, social protection system reform, decriminalisation of minor economic offences, equal treatment for private and state-owned enterprises, state-owned enterprises restructuring, simplification of the trade regime with the EU, USA, China and other countries, and financial sector liberalisation).
  • Creation of an international financial anti-crisis fund of USD 10–12 billion[3] to support both the macroeconomic stability measures and recovery plan.

All these can be achieved concurrently only if Lukashenka and the Coordination Council sit at the negotiating table. Many experts agree that the team currently running the National Bank of Belarus and the Ministry of Finance is highly professional and well equipped to resume macroeconomic stability. The negotiations would enable a joint team of professional economists representing both sides of the conflict to put together a comprehensive plan of economic recovery, which would also appeal to the Belarusian and foreign investors, and international financial organisations. Financial support may come from the European Union or a troika (EU-Russia-China) under the condition that the negotiations result in a clear political consensus. Financial support would also surely pour in from the Belarusian diaspora from all around the world.

In the period of political crisis, the government could only think of short-term stability and can hardly implement reforms. This is why so far Belarusian economic authorities are trying to achieve only the first goal (macroeconomic stabilisation). What about the rest?

Now is the best time to start a dialogue and work towards achieving a solution acceptable and beneficial to all the Belarusian people. The longer Lukashenka waits, the more difficult –and expensive (financially and otherwise) — it will become.

[1] According to preliminary results of the public opinion poll conducted by the Chatham House at the end of September 2020 using computer assisted web interview method, his main rival Sviatlana Cichanoūskaja (Sviatlana Tsikhanouskaya) in fact won, gathering 52.2% of the votes (to be published later in October).

[2] Own calculations based on the official data.

[3] Own calculations based on estimated costs of foreign debt servicing, exchange rate support, fiscal balancing, and key reforms for the rest of 2020 and 2021.




CASE — Center for Social and Economic Research is an independent, non-profit economic and public policy research institution, established in 1991 in Warsaw.