Page 50 - Buy Russia - bne IntelliNews monthly magazine April 2017

50 I Eastern Europe bne April 2017
Is Belarus on the cusp
of an economic crisis?
Ben Aris in Berlin
Things are not going well for Belaru- sian President Alexander Lukash- enko. In late February, he flew down to the Russian Black Sea resort town of Sochi to participate in the annual investment forum, but was snubbed by Russian President Vladimir Putin, who refused to meet with him.
Russia is supposed to be Belarus’ close ally, with a shared Soviet past and – until recently at least – a unified front against unwelcome Western influences. But the two countries are currently locked in a very nasty row. Nominally
a disagreement about the cost of Rus- sian gas imports, the rift runs much deeper as Lukashenko now flirts with the West and plays his perennial game of trying to squeeze more subsidies
out of Russia by attempting to play Brussels off against Moscow, while his country's economy continues to deterio- rate, helping to spark the protests that rattled the regime at the end of March.
The problem with Lukashenko's gambit is that Russia’s economy is stagnating and has no money to spare. But more impor- tantly, Putin is galled at Belarus breaking ranks just as he is embroiled in the worst
stand-off with the West since the end of the Cold War. Has Lukashenko miscalcu- lated? Without more Russian support his small landlocked republic is facing yet another financial crisis.
Belarus is mired in its own recession and will probably be the only Commonwealth of Independent States (CIS) country this year to show no growth – despite some relatively upbeat forecasts earlier this year.
The gas imports are key as cheap energy is the only thing that keeps Belarus competi- tive. When Ukraine was paying over $400 per thousand cubic metres for gas a couple of years ago, Belarus was paying less than half that. Gazprom in February reported that its average export price to Europe
is $167 per thousand cubic metres and was expecting the price to rise to about $180 this year. In December, Minsk unilaterally cut the price it pays for Russian natural gas to around $80 from the $132 set in the current contract with Gazprom. Since then Moscow says Minsk has run up a $600mn bill, according to Russia’s First Deputy Prime Minister Arkady Dvorkovich.
In October, Minsk and Moscow agreed that the Belarusian government will
repay at least $270mn of the debt for previously supplied gas, while state-con- trolled Gazprom will cut the gas price for Belarus in 2016-2017 with support from the Russian government. However, there is no confirmation that this agreement was fulfilled and the debt is still rising.
In a series of mutual gut punches, Belar- us unilaterally put up transit tariffs for oil transiting its territory, while Moscow reduced oil deliveries to its neighbour by 40%, which has done real economic damage.
The Belarusian economy declined in January by 0.5% year-on-year instead of a forecasted growth of 1% due to the
cut in crude oil supplies from Russia, Prime Minister Andrei Kobyakov told the cabinet on February 21. "A year ago we refined 0.8mn tonnes of oil more [than in January 2017]. This resulted in a 3.3-percentage-point decline in indus- try and 4.5-percentage-point decline in wholesale trade," Interfax news agency quoted Kobyakov as saying. "As a result, 1.5% of GDP was lost. That is, if oil sup- plies were the same as last year, GDP would have grown 1% in January."
On top of the hydrocarbon problems Russia has recently slapped bans on Belarusian agricultural imports, accusing Minsk of sanction busting; Russia has banned agri- cultural imports from the EU in a tit-for-tat retaliation to Western sanctions imposed after its annexation of the Crimea in 2014. Belarus is a major source of food products, but many were clearly just rerouted (and relabelled) European products, taking advantage of the free trade zone between Russia and Belarus as part of Putin’s Eur- asian Economic Union (EEU).
In short, all of Belarus’ best money-mak- ers have been hit hard by the deteriora- tion in relations. To put these sums into context, the economy of Belarus was worth $82bn in 2015 and currently has
Belarus gross external debt EUR mn vs % GDP
Gross external debt EUR m
Gross external debt YTD EUR
40000 30000 20000 10000
80.0 60.0 40.0 20.0 0.0
0
www.bne.eu
debt EUR mn
debt % GDP
2000 2001
2002 2003
2004 2005
2006 2007
2008 2009
2010 2011
2012 2013
2014 2015
2016