Belarusian Economy: Crisis behind, Crisis ahead?

Alexander Chubrik focused his presentation „Belarusian Economy: Crisis behind, Crisis ahead?” on the determinants of the crisis-2011, the main economic trends in 2011 and the policy options and possible scenarios for 2012, as well as a brief short-term outlook for Belarus.

CASE hosted on 22nd of February 2012 the Policy Research Seminar – „Belarusian Economy: Crisis behind, Crisis ahead?” presented by Alexander Chubrik - CASE Fellow, Director of the IPM Research Center in Minsk and since 2007 Deputy Executive Director of CASE Belarus. The Seminar was moderated by Piotr Kozarzewski, Member of CASE Belarus Supervisory Council.

Alexander Chubrik described the Belarusian economy as the Belarusian Puzzle: Belarus is a country with no reforms but at the same time one of the fastest growing economies in the region since 1996. The main reason for Belarus reaching this growth is its policy of boosting the domestic demands. This policy led since 2007 to an accumulation of external imbalances by suppressing exports and enhancing imports. By 2010 this in turn resulted in a growing current account deficit, which made this growth unstable.

In his opinion, these determinants of the 2011 crisis had an additional fiscal stimulus: the economic heating before the 2010 elections that aggravated structural imbalances, while new sources of their financing had become limited.

According to Mr. Chubrik the main consequences of the crisis were depreciation and then devaluation of costs. The outcomes were corrections of labour market imbalances and changes in the structure of domestic and external demand.

However, the imbalances persist due to the lack of major reforms: problems of inefficient sectors were “solved” with additional external borrowing from Russia and lower gas prices for 2011. The consequences of boosting the domestic demand are rather short term “success stories” comparable with the sudden increase of the current account deficit of 5% of GDP in 2009Q3 to 20% of GDP in 2010Q4 in Belarus. These figures show that “success can easily change into failure”.  Therefore the time bought with the correction of the labor market and lower of external imbalances should be used to formulate reforms.

For the year 2012 Mr. Chubrik describes three possible scenarios:

scenario 1: short-term growth that costs (at least) medium-term stability;
scenario 2: one more overheating with the same inflation/devaluation story as in 2011;
scenario 3: common sense wins, reform starts.

In 2012 serious reforms are needed, otherwise according to Mr. Chubrik another crisis will occur in 2013. Still he points out that the latter is the least probable to happen as a short term scenario.

For more details and figures please see Alexander Chubrik’s presentation.

The video of Mr. Chubrik’s presentation is available here.