Belarus's Economic Dependence On Russia: How Much?

Belarus's economy is heavily reliant on Russia. Russia accounts for almost half of Belarus's trade, and no country is as dependent on the Russian market as Belarus. Belarus imports most of its oil and gas from Russia and has only small reserves of petroleum and natural gas. The country's chief trading partners are Russia, Ukraine, Poland, and Germany.

In recent years, Russian total subsidies to Belarus have been assessed at $2 billion a year. If Western sanctions imposed during the 2022 Russia-Ukraine conflict are fully implemented, they might deprive Belarus of $4 billion in export revenues and external financing.

In 2022, Russia agreed to Minsk deferring its debt repayments for five to six years. Belarus is also seeking access to the Russian railway infrastructure to enable the transit of potash fertilisers, and genuine facilitation regarding its exports to Russia, particularly in sectors affected by Western restrictions.

The Belarusian government forecasts a reduction in the budget deficit in 2024, continuing into 2025. However, these tax increases will not be enough to turn the deficit into a budget surplus. Expenditure will be boosted by an increase of almost 14% in social spending, and defence spending will also increase.

The stability of the Belarusian economy has come under threat from new Western sanctions imposed in 2022 for its complicity in the Russian invasion of Ukraine, and the loss of the Ukrainian market. According to the most pessimistic forecasts, the country will probably face a deep economic recession, involving a decline in its GDP of more than 10%.

Belarus's exports to Russia

Belarus's economy is heavily reliant on Russia, with Russia accounting for almost half of Belarusian trade. No other country is as dependent on the Russian market as Belarus.

Russia provides Belarus with beneficial terms for oil and gas deliveries, which underpins a degree of economic dependence on its neighbour. Belarus imports most of its oil and gas from Russia, and the price of these imports has remained relatively stable and low. The faster the pace of oil and gas price rises on the world market, the larger the implicit subsidies Russia gives Belarus.

In addition, the main export market for Belarusian agricultural and industrial produce is Russia.

In 2021, the EU was also a significant market for Belarusian exports, with sales to the EU generating a 74% increase in export revenue (up to $9.5 billion) and accounting for a quarter of Belarus's total exports. However, sanctions imposed by the EU in March 2022 have had a devastating effect on Belarusian exports, with the estimated value of the affected commodities being at least $5.6 billion (around 9% of Belarus's GDP).

In terms of specific exports to Russia, Belarus manufactures Soviet products for the Russian market, including everything from stoves to bras. The quality is high by Soviet standards, but it is still Soviet.

Belarus is a major producer of potash, and this is one of its key exports. In 2022, Lithuania introduced a transit blockade of Belarusian-made potash fertilisers, closing the main export route for one of Belarus's key commodities. However, it is seeking other export routes, including the possibility of using Russian harbours and railways to transport fertilisers to China and India.

The Belarusian oil refining industry is also of crucial importance to the country's export revenue. Belarus has two refineries, located in Novopolotsk and Mozyr, which have been affected by problems. In Q1 2022, these refineries halved their daily throughput and their production is being sold exclusively on the much less profitable domestic market.

Another important export to Russia is tractors. In 1996, Belarus had 20,000 unsold Belarus-brand tractors, but it is unclear how many of these were destined for the Russian market.

Overall, it is clear that Belarus's exports to Russia are a significant component of its economy, and the stability of this trade relationship is vital to Belarus's economic health.

The impact of sanctions on Belarus's economy

Belarus has a highly centralised, upper-middle-income mixed economy. It is heavily reliant on Russia, which accounts for almost half of its trade. Belarus's exports to the West are dominated by four major state-owned companies, while another group of state-owned enterprises manufacture products for the Russian market.

In 2021, the EU, UK, US, and Canada imposed severe financial and trade sanctions on Belarus due to its involvement in Russia's invasion of Ukraine. These sanctions targeted individuals, trade, banks, and transactions with the Central Bank of Belarus. They have had a significant impact on the Belarusian economy, causing a decline in exports and foreign investment, and exacerbating solvency problems.

The sanctions have resulted in the loss of almost all profitable export categories to EU member states and Ukraine, and Belarus is struggling to refinance its foreign debt. The Belarusian authorities have implemented temporary export restrictions and raised taxes in some sectors to mitigate the impact. However, the country's economic situation continues to deteriorate, with a projected GDP contraction of up to 15% in 2022.

The sanctions have also accelerated the exodus of IT specialists from Belarus, with up to 60,000 citizens with IT degrees expected to leave the country. Additionally, foreign companies operating in Belarus have suspended their activities or withdrawn from the market due to the sanctions.

The Belarusian government has turned to Russia for economic support, but it is unclear if Russia is willing or able to provide the level of assistance needed. Overall, the sanctions have severely impacted the Belarusian economy, and the country faces a profound recession.

Belarus's economic dependence on Russia

Belarus's economy is heavily dependent on Russia. Russia accounts for almost half of Belarusian trade, and no country is as dependent on the Russian market as Belarus.

The Belarusian economy is dominated by a few dozen large state-owned enterprises, which fall into two groups. The first group includes the four most valuable state-owned companies: Belaruskali, which produces one-fifth of all potash in the world; the two oil refineries, Naftan and Mozyr; and the nitrate fertiliser company, Grodno Azot. These four companies account for about two-thirds of Belarus's exports to the West.

The second group of major state enterprises manufacture Soviet products for the Russian market, including everything from stoves to bras. The quality is high by Soviet standards, but it is still Soviet.

Belarus also has a modern hi-tech sector, led by EPAM, a New York-listed company with 41,000 employees and a market capitalisation of USD 32 billion. The hi-tech component of the Belarusian economy accounted for about five per cent of GDP before the start of the current crisis last year, but much of it has since evacuated to friendlier lands.

The Belarusian economy has not grown since 2012. In 2013, Belarusian GDP per capita was USD 8,000, but this year the IMF expects it to be merely USD 7,000.

The Belarusian economy is highly vulnerable to fluctuations in the price of oil and gas imports from Russia. The faster the pace of oil and gas price rises on the world market, the larger the implicit subsidies Russia gives Belarus.

In recent years, Russian total subsidies to Belarus have been assessed at USD 2 billion a year. If Western sanctions imposed this summer are fully implemented, they might deprive Belarus of USD 4 billion in export revenues and external financing.

Russia can certainly boost its subsidies to Belarus if necessary. Given the sharp price rises for Belarusian exports, that will hardly be necessary.

The public debt of Belarus is also relatively low. At the end of 2020, this stood at 37 per cent, with the annual debt service amounting to about USD 3 billion a year.

However, the Belarusian economy is facing significant challenges due to Western sanctions imposed in response to the country's complicity in Russia's invasion of Ukraine. The sanctions have targeted key sectors of the Belarusian economy, including timber, metal, steel, transport, fuel, and potassium. As a result, Belarus has lost almost all of its most profitable export categories to EU member states and Ukraine, and the country is unable to refinance its foreign debt.

The Belarusian government has turned to Russia for economic support, and the two countries have agreed to abandon the US dollar and switch to the Russian rouble in settlements for fuel supplies. Russia has also agreed to defer debt repayments and provide preferential conditions for Belarusian exports to the Russian market.

Despite Russia's support, the Belarusian economy is expected to face a profound recession in 2022, with a projected GDP decline of up to 15%. The dynamic increase in exports recorded last year was a short-term phenomenon, and the Belarusian authorities will be unable to balance the huge financial losses resulting from the collapse of exports to the EU and the loss of the Ukrainian market.

The Belarusian regime has resorted to instruments typical of an authoritarian state with a centrally planned economy, including temporary export restrictions and administrative price controls. The government has also introduced additional fees for foreign investors intending to withdraw from the Belarusian market and has restricted companies with foreign capital from relocating or closing their businesses.

The stability of the Belarusian economy is directly linked to Russia's macroeconomic standing, and Russia's ability to provide support may be limited by its own economic challenges and the cost of its war against Ukraine.

The role of the state in Belarus's economy

Belarus has a mixed economy, with a large public sector and a focus on full employment. The state plays a massive role in the economy, accounting for half of the total value-added and two-thirds of total employment. The Belarusian economy is dominated by a few dozen large state-owned enterprises, with the four most valuable being Belaruskali, Naftan, Mozyr, and Hrodno Azot, which together account for about two-thirds of Belarus's exports to the West. The state has maintained control over key industries and eschewed privatisation efforts, instead opting for centralised political and economic controls.

The Belarusian economy has been described as a welfare state or market socialist. The country has a highly regulated labour market, with important elements of the central planning system still in place. The government can affect the structure of wages through a centrally determined wage grid, and the private sector has little autonomy. The state also controls exchange rates, which are centralised by the government-controlled National Bank of Belarus.

The Belarusian economy is heavily reliant on Russia, with Russia accounting for almost half of Belarusian trade. Belarus imports most of its oil and gas from Russia, and the main export market for Belarusian agricultural and industrial produce is Russia. Belarus has benefited from low prices for Russian gas and oil, which has occasionally accounted for up to 10% of national GDP. The faster the pace of oil and gas price rises on the world market, the larger the implicit subsidies Russia gives Belarus.

The Belarusian government has also introduced financial support for citizens, such as increasing average salaries to $500 per month before the 2010 presidential election. However, strong government control over the economy, a discount rate lower than inflation, and the budget deficit have also contributed to economic crises in the country.

The impact of Russia's war in Ukraine on Belarus's economy

Belarus's economy has been heavily impacted by Russia's war in Ukraine. The country has lost nearly all its exports to Ukraine, its third-largest trading partner, and trade volumes with the EU, its second-largest trading partner, have more than halved. The war has also led to Western sanctions on Belarus, causing a severe economic downturn and an unprecedented economic shock. The sanctions have targeted exports of timber, wood, metal, steel, fertilisers, and fuel, which were among Belarus's most profitable export categories.

The loss of Ukraine as a major trading partner has significantly impacted Belarus, with exports to Ukraine constituting 5.5% of its GDP and imports making up to 2.5%. Most trade with Ukraine halted on the first day of the invasion, and it is unlikely to return to previous levels anytime soon. This is particularly challenging as 70% of exports to Ukraine were oil products, which cannot be easily redirected to other markets.

The Belarusian economy has also been affected by the EU's ban on Belarusian cargo trucks entering its territory and Belarus's subsequent ban on European carriers entering the country. The IT sector, which used to generate 0.5% of GDP growth annually, has shrunk due to the mass exodus of IT companies from the country. The sanctions have also disrupted the transport and fuel sectors, with Belarusian refineries halving their daily throughput and selling exclusively in the domestic market.

To cope with the crisis, the Belarusian government has intensified its economic relations with Russia, hiding data to disguise the true state of the economy, and increasing economic interventionism. Russia has provided support by making its transport and port infrastructure available for the transit of Belarusian goods and introducing preferential conditions for Belarusian exports. However, neither the assistance from Russia nor the Belarusian government's "manual control" of the economy has been sufficient to guarantee the country's economic stability.

The impact of the war and sanctions has resulted in a profound recession in the Belarusian economy, with a decline in GDP, industrial production, and foreign trade. Belarus's economic stability is closely linked to Russia's macroeconomic standing, and the country is highly vulnerable to sanctions due to its economic dependence on Russia.

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