Page 64 - Eastern Europe Outlook 2020

4.0 ​Monetary and fiscal
Monetary policy and credit easing should add to Belarus’ growth in 2020.
Price pressure is modest, with inflation falling in 2019 and headed towards the 5% target set by the government. Analysts are expecting more policy rate cuts from the 9.0% at the end of 2019 to 8.5% in 2020.
As the Russian energy subsidies fade away so will the supporting FX revenue. Rencap estimates that the corresponding deterioration in the terms of trade should result in an additional 1% pa depreciation in the Belarusian ruble in 2020.
The budget will suffer from the changes to the Russian oil tax regime and turn a surplus budget in 2019 into a deficit one in 2020. Based on the projected budget for 2020, the Russia tax manoeuvre could decrease fiscal revenue by BYN1.7bn (circa $820mn or 1.4% of GDP) in 2020.
As a decrease in fiscal revenue from the oil refining business is the main pass-through channel of the tax manoeuvre, the crucial question is what the fiscal response could be. The IMF is presumably assuming the most severe case, leading it to a growth forecast for Belarus at an exceptionally low 0-0.3% y/y for the coming years and recommended at the end of 2018 that Minsk organise a “Plan B” to cope with the end of Russian subsidies. In June 2019 the ​Belarusian minister of finance told ​bne IntelliNews​ that he had a Plan B​, which boils down to paying off external debt more slowly to buy time to restructure the economy to cope with the heavier burden.
All-in-all the end of Russian energy subsidies means a permanent loss of 3% of GDP, but the government has been prudent and run a consistent fiscal surplus.
“Belarus still has a safe margin in terms of its fiscal position, which should allow to smooth if not completely avoid any fiscal consolidation,” Rencap said
64​ EASTERN EUROPE Outlook 2020​ ​ ​www.intellinews.com