Previous Quarterly Editions
Expropriation Risk: 61 61 62 72 ▲ Political Violence Risk: 66 66 66 66 ► Terrorism Risk: 25 25 25 26 ► Exchange Transfer and Trade Sanction Risk: 64 64 73 64 ▼ Sovereign Default Risk: 47 47 57 66 ▲
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Belarus is a not a major emitter of greenhouse gases (GHG), ranking outside of the top 60 countries worldwide. According to the World Research Institute’s Climate Watch database, Belarus’s annual emissions declined by 30% from 1990 to 2014 while its gross domestic product (GDP) doubled in the same period. Still, Belarus has had higher levels of emissions both relative to GDP and per capita than the world average, with most of them originating in the energy sector.
The country is moderately exposed to the negative effects of climate change, principally through a projected higher occurrence of droughts and forest fires, especially given that 43% of the national territory is covered with forests. Over time, densely populated urban areas might experience recurrent difficulties with water and power supply. At the same time, there are opportunities for expanding the surface of arable land as a result of rising temperatures, making the net risk assessment for Belarus subject to some uncertainty.
In 2016, Belarus was one of the first countries to ratify the Paris Climate Accords. In their original Nationally Determined Contribution, the Belarusian authorities pledged to cut GHG emissions by 28% by 2030, compared with 1990. In September 2021, the reduction target was upgraded to 35% and the target could be ramped up to 40% in the event Belarus manages to attract international financing to fight climate change. In December 2021, the government adopted a national plan of action for a green economy until 2025, which draws inspiration from an earlier state programme approved in 2016. The following year, in 2017, Belarus adopted a national strategy for sustainable socio-economic development until 2030.
However, combating climate change is not seen as a priority in Belarus, especially in the context of renewed Western sanctions post-2020. The Green Party of Belarus has no representation in parliament and is officially opposed to the regime of President Alexander Lukashenko. As another indication of inadequate pro-climate policies, renewables are approximately 7.8% of Belarus’s total primary energy supply -- well below its overall potential for replacing fossil fuels. The government focuses its efforts and spending mostly on energy efficiency rather than on strategic R&D.
Unlike neighbouring Russia, Belarus did not go through a painful privatisations process in the 1990s and has no standalone class of oligarchs. All major enterprises are state-owned, and Belarus’s richest people owe their wealth and position to Lukashenko’s good graces.
In June 2020, the government put Belgazprombank (almost wholly owned by Russia’s Gazprom and Gazprombank) into temporary administration after opening a criminal probe into chief executive officer Viktar Babaryka for alleged financial malfeasance. In May, Babaryka (sentenced in July 2021 to 14 years in prison) had announced his intention to run for president against Lukashenko. The authorities stopped short of nationalising the bank, and in January 2021 the bank’s board of directors appointed new permanent management.
The authorities reserve harsher treatment for small businesses without political backing which had dared to join their voices to the anti-regime protests sparked by the August 2020 presidential vote. Many business owners and qualified workers, especially in the liberally minded information technology (IT) sector, have had to leave Belarus.
US, UK and EU firms’ operations in Belarus are increasingly at risk amid the regime’s ever-expanding anti-Western rhetoric, especially in the context of Russia’s attack on Ukraine. While a number of Western firms have decided to withdraw from Belarus for its support to Russia, the authorities have so far refrained from any form of retaliation.
Political Violence Risk
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For years, Belarus had been seen as an island of stability in the former Soviet Union, even at the price of disparagingly being called Europe’s ‘last dictatorship’. This had been achieved through a combination of patrimonialism, a strong security apparatus, pinpoint reforms that opened growth and employment opportunities in high-potential sectors (such as IT) and continuous financial support from Russia, which is largely the result of Lukashenko’s personal diplomacy with Russia’s leaders including President Vladimir Putin.
All that changed in August 2020 when the Belarus Election Commission certified Lukashenko’s victory, despite allegations of electoral rigging. The election sparked unprecedented nationwide protests which shook the Lukashenko regime to its core but have nonetheless failed to bring it down.
Shortly after, the executive initiated a constitutional reform, which was approved by voters in a February 27 referendum held under close police surveillance. The poll has been unsurprisingly decried by the exiled opposition as a political trick, because the redistribution of powers hailed by Lukashenko (namely through the elevation of the All-Belarusian People’s Assembly) should lead to greater powers for himself, and an extended stay in office. Amid the continued standoff, the risk of further political violence remains high.
The risk of terrorism in Belarus is low. The last time the country suffered a terrorist incident was in April 2011, when a bomb attack on a metro station in central Minsk left 15 people dead and 203 injured. Nevertheless, Belarus is known to be a transit hub for individuals that participate in hostilities abroad, including Ukraine and Syria. Given the Russian armed forces’ entry into Ukraine, it is possible that Ukraine will fall, and that guerrilla fighting will break out there, though it is not guaranteed that fighters would transit through Belarus.
Following the Western sanctions that came in response to the May 2021 diversion of a Ryanair flight carrying NEXTA co-founder Roman Protasevich, Lukashenko announced in July the dismantlement of a terrorist cell allegedly funded by the United States, Poland, Lithuania, Germany and Ukraine. Terrorist designations have since been routinely used by the Lukashenko regime to crack down on what is left of domestic opposition and to stoke fears of foreign influences to undermine internal stability.
TREND ▼
In March 2022, the central bank hiked its benchmark interest rate to 12%, up from 9.25% since July 2012. This was done in the context of unprecedented economic sanctions against Russia, which remains Belarus’ principal trade partner. The annual realised inflation rate stood at 9.5% in 2021, almost twice as high as the official annual target of less than 5%. Although the benchmark rate continues to be lower than inflation, it is only relevant for the borrowings of state-owned enterprises and for public finances, which are used partially to compensate interest expense to state companies. The central bank’s systematic policy of undershooting only confirms its systematic instrumentalization by the executive.
Starting on February 24, Belarus has been targeted by a new wave of
Western sanctions for its support of Russia in the conflict in Ukraine. In particular, the European Union has disconnected three Belarusian banks from the SWIFT messaging system, restricted transactions with the Belarusian central bank and banned the sale of euros to Belarus. Severe export restrictions follow the first sectoral sanctions imposed by the European Union, United Kingdom, United States and Canada in mid-2021.They targeted the financial services, sovereign debt, insurance and reinsurance, telecommunications, tobacco, petroleum, and fertiliser markets. Restrictions against strategic petroleum and potash exports will only deepen Belarus’s dependence on Russia.
Belarus managed to stabilise its foreign reserves to the pre-pandemic level of about USD8.5 billion between August 2021 and February 2022, mainly due to a combination of domestic and foreign borrowing as well as gold appreciation. While it was reported in the early days of COVID-19 that Belarus would ask for a USD900 million emergency International Monetary Fund loan, Lukashenko in June 2020 called the offered terms unacceptable. Thus, in 2020 the central bank burned 20.5% of its gold and foreign exchange reserves on stabilisation measures. However, it has since been receiving steadily growing financial support from Russia.
Amid the crippling sanctions on Russia and a growing list of restrictions against Belarus itself, in particular against its central bank, Moody’s, S&P and Fitch have all downgraded Belarus’s sovereign credit rating since March 4: Fitch and S&P estimate that the repayment of Belarus’ sovereign debt is facing ‘substantial risks’, which is only slighter better than in the Russian case following multiple downgrades.
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