Page 4 - BELRptOct18

1.0 Executive summary
Belarus’s economy is one of the best performing in eastern Europe at the moment as it benefits disproportionately from Russia’s recovery. Most of the macro indicators are going in the right direction and rising incomes are driving growth.
However, the republic’s perennial sniping at Russia broke out again in a new row over oil and gas trade. Russia is changing the way it will tax oil and gas busiensses and that is having a spill over effect in Minsk where Russia is effectively reducing the subsides it gives Belarus in the form of low prices.
Belarus' GDP grew by 3.7% year-on-year in January-August following a 4.4% y/y growth in January-July, according to the national statistics agency Belstat. Growth is decent if not stellar and up from 2.4% growth last year when the economy emerged from recession. However, to really flourish Minsk needs Russia to do better. Russia revised its own growth estimates down twice this year and is currently expecting to grow by a modest 1.8% this year. At the same time the EU’s economy is also slowing both which drag on Belarus’s growth.
Belarus' industrial output increased by 7.8% year-on-year in January-June, according to the national statistics agency Belstat.
The result was mainly attributed to a growth in the nation's processing industry (a 10.2% y/y jump) and mining industry (a 3.7% y/y growth), while production of electricity, natural gas, steam, hot water, and conditioned air went up by 5.8% y/y in the first half of 2018.
As a result, the Belarusian government was forced to revise downward its forecast for the country’s GDP growth in 2019 (from 4.5% year-on-year to 2.1% y/y), according to the nation's new Economy Minister Dmitry Krutoy.
According to Belarusian officials, the new forecast take into account recent changes in the external economic environment, including changes in oil prices and the economic situations of the country's major trading partners, specifically, in Russia, and the values of their currencies.
According to Krutoy, the target scenario was initially based on an oil price assumption of $70 per barrel , but the assumption was eventually reduced to $65 per barrel. However, here there is room for an upside surprise as oil prices were climbing again at the end of September and topped the $80 per barrel mark.
But the bigger issue is going to be the changes to the way Russia taxes oil that are due to come online next year. Krutoy said the new growth forecasts "fully take into account" the negative consequences of Russia’s so-called tax manoeuvre for Belarus, even though it has been agreed with Russian authorities that mechanisms of compensating Belarus for its losses from the tax manoeuvre will be negotiated before the end of this year.
The tax manoeuvre shifts the tax burden from export duty on oil and petroleum products to mineral extraction tax (MET) on oil production. It envisages a
4 BELARUS Country Report October 2018 www.intellinews.com