A complete reorientation to the Russian market strategically poses a great threat to the Belarusian economy, – Luzhina

2023-06-14 15:59:23

Briefly:

• Price growth is expected to accelerate by the end of the year.
• Cheap loans will lead to inflation and devaluation.
• It’s always bad when one country has so much economic influence over another.

— For most Belarusians, it was rather unexpected to learn from economic statistical indicators that the price growth has allegedly stopped in recent months.

– Based on statistical data, it can be noted that deflation took place in the economy in May, prices decreased. This, however, is the expected result, because it was caused by seasonal factors (fruits and vegetables have become cheaper), plus the state lowers gasoline prices.

Researcher Anastasia Luzhina

But this does not mean that such a trend will continue in the short term. By the end of the year, price growth is expected to accelerate due to the fact that the National Bank is now implementing a soft monetary policy. Rates on the credit market are lower, the availability of loans allows businesses and the population to borrow more. This will stimulate domestic demand and contribute to inflation. Plus, the recovery of economic growth observed this year will also contribute to the growth of prices until the end of the year.

– For the first time in many years, a positive balance appeared in the trade between Belarus and Russia this year. What explains this and how long-lasting is this effect?

– Belarusian trade with Russia traditionally had a negative balance, because Belarus bought energy, processed Russian oil and sold oil products to the West. Now the situation has changed: exports to the West have decreased significantly, the Ukrainian market has also been lost after the war. They tried to reorient all these volumes of power to the Russian market, which became even more accessible for Belarusian goods. Belarus is more active in supplying equipment, electronics, light industrial goods, and food products to Russia. The reversal of supplies from the West to Russia determined the change in the trade balance with Russia from negative to positive.

— Is the growth of exports to Russia achieved by increasing prices or due to an increase in product volumes?

– There are no detailed statistics, but it is clear that it would be impossible to achieve such an increase in exports only due to the increase in prices. By the way, the official data of Minsk and Moscow differ. The Belarusian side is talking about 50 billion dollars, the Russian side is talking about 43 billion dollars. But it is clear that the volume of goods has increased. Russia’s supplies of Western goods were cut off, and Belarus used this opportunity to increase the volume of its exports to the Russian market.

But now the situation is changing. First of all, the Russian industry is beginning to reorganize itself, to produce those goods that are currently supplied from Belarus. Secondly, imports from the East, from the same China, are increasing. Thirdly, there is “parallel” gray import from Western countries. That is why Belarusian exports are experiencing increased competition, and the Belarusian authorities insist on continuing to equalize the rights of Russian and Belarusian producers.

— Belarusians have become more active in taking out consumer loans, as you have already mentioned. What can this lead to?

– It is clear why this is being done – to increase the GDP. The official goal is to increase investments by 20 percent this year. Foreign investments are severely limited, so only domestic ones remain. The National Bank has set such favorable rates that the population more actively takes long-term loans, for example, for housing construction. But this will lead not only to an increase in inflation, but also to an increase in imports. Taking into account the limited opportunities for foreign trade, the limited inflow of foreign currency, this may also lead to fluctuations in the currency market, to a certain devaluation of the Belarusian ruble.

– Can we say that the government has learned to live under the conditions of European sanctions and the economy has largely adapted to these new realities?

– On the one hand, indeed, the authorities managed to reorient exports to Russia. But it must be understood that the small growth that we may see in this year’s results is primarily due to last year’s low base. That’s an increase from last year’s drop, and it doesn’t offset the 4.7 percent drop.

Yes, the economy is adapting, looking for ways. But it should be understood that this reorientation to the Russian market strategically poses great threats to the Belarusian economy. The Belarusian economy has traditionally been very open to the world, but now the influence on it is disproportionately increasing from the side of only one country – Russia.

It’s basically always a bad thing when one country has so much economic influence over another. Taking into account possible fluctuations and imbalances, a small country is always more vulnerable. And if we take into account the current economic and political situation of Russia itself, these risks increase many times.

Therefore, this silencing of current problems in the economy by refocusing on Russia only increases strategic risks.

– Recently, there have been reports that the incomes of the population in Belarus are growing a little. At the expense of what is this achieved?

– We see that incomes are recovering, but budget possibilities are limited, and a significant increase in incomes can lead to an increase in inflation. According to the official forecast, the growth of the population’s income will be about 4 percent in real terms. Let me repeat that the growth of incomes means the growth of consumer imports.

– Can’t the authorities try to administratively limit imports so that Belarusians buy Belarusian goods?

– It is quite difficult to do, especially considering that there is an open border with Russia. Limiting imports in order to harm trade structures is not necessary for anyone. In addition, it may affect the ruble exchange rate — and the National Bank still adheres to relatively free exchange rate formation.