Index Trend Previous Quarterly Editions
*Note: Protest inensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Expropriation Risk: 67 ▼ Political Violence Risk: 66 66 ► Terrorism Risk: 27 ► Exchange Transfer and Trade Sanction Risk: 73 ► Sovereign Default Risk: 74 ►
Overall Risk Temperature TREND ▼
Belarus weathered the first COVID-19 pandemic year of 2020 with fewer casualties than in many neighbouring economies, with its GDP contracting by only 0.9%, mostly thanks to the Lukashenko administration’s efforts to avoid socioeconomic lockdowns and to stimulate domestic demand for services. Growth resumed in 2021, reaching 2.3%.
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Low Low Low Low
Cost-of-living protest risk in 2023* Medium High
However, Belarus’s overt support for the Russian invasion of Ukraine in February 2022 brought along a raft of unprecedented Western sanctions. The European Union’s embargoes on Belarusian potash and oil products, key sources of income, proved particularly painful. Belarusian GDP contracted by 4.7% in 2022, compared with a 2.1% reduction in Russia, which booked record profits on the sale of its unsanctioned oil and gas (for instance, to new export markets in Asia).
A considerable expansion of money supply over 2020, especially of cash-on-hand, which expanded by 46%, poses a serious challenge in terms of keeping inflation in check. Officially, the 2022 rate of inflation stood at 12.8%, up from 7.4% in 2020 and 10% in 2021. This is more than double the target rate of 6%. In reality, many products appear to be increasingly sold on the black market at prices substantially higher than those accounted for in official statistics.
In early October 2022, President Alexander Lukashenko demanded that the government freeze price increases for a majority of goods. The executive partially obliged later by enacting on October 19 price controls for 370 product groups including all consumer goods, whether domestically produced or imported. Communications, utilities, and transport were excluded, although they were already subject to price regulation.
The Lukashenko regime keeps a tight lid on the protest sentiment in the country, which – amid draconian measures to rein in inflation as well as to keep the Belarusian ruble stable, and thanks to still-generous financial support from Russia – has so far resulted in a creeping deterioration of living conditions nationwide.
Expropriation Risk 67 (Medium-High) TREND ▼
Unlike neighbouring Russia, Belarus did not go through a painful privatizations 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.
In 2020, the authorities stopped short of nationalising Belgazprombank whose chief executive officer, Viktar Babaryka, had earlier announced his intention to challenge Lukashenko for the presidency. In January 2021, the bank’s board of directors appointed new permanent management. Five months later, Babaryka was sentenced to 14 years in prison.
The authorities reserve harsher treatment for small businesses without political backing and which had dared to add 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 IT sector, have had to leave Belarus. According to the U.S. State Department, one-third of remaining IT workers have further emigrated since Russia’s attack on Ukraine in February 2022.
In January 2023, a law was quietly introduced to enable Belarus’s Council of Ministers to confiscate property and assets from individuals or businesses that have engaged in ‘hostile actions’ towards the Belarusian state. The law does not explain what such actions could look like. This effectively puts the local assets of any Western business at risk of expropriation. Earlier, in-mid December, Lukashenko publicly threatened withdrawing Western companies with nationalization, without elaborating on the details.
Political Violence Risk
66 (Medium-High) TREND ►
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’, thanks to a combination of patrimonialism, a strong security apparatus, pinpoint reforms, and continuous financial support from Russia.
All that changed in August 2020 when the Belarus electoral 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 2022 referendum held under close police surveillance. The poll was unsurprisingly decried by the exiled opposition as a political trick because the redistribution of powers hailed by Lukashenko resulted in greater powers for himself and an extended stay in office.
Amid the continued standoff and Belarus’s support for Russia’s invasion of Ukraine, the risk of further political violence remains high, especially if Russia suffers a decisive defeat on the battlefield or experiences political instability.
Terrorism Risk 27 (Low) TREND ►
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, for instance in Syria.
In February 2022, Belarus provided its territory to Russia for the attack on Ukraine from the north, but it did not send troops there. Still, cases of sabotage of Belarusian military and industrial infrastructure have been regularly reported. Most recently, on February 26, a group of guerrilla fighters used drones to attack a Russian early warning and control aircraft stationed at the Machulishchy airbase near the capital Minsk. The aircraft was damaged and later flown back to Russia for repairs.
Following the mass protests against the presidential election of 2020, terrorist designations (numbering over 1,000 as of March 2023) have 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.
Exchange Transfer and Trade Sanctions Risk 73 (Medium-High) TREND ►
Starting on February 24, Belarus has been targeted by unprecedented Western sanctions for its support of Russia in its aggression against Ukraine. In particular, the European Union has disconnected five 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 followed 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 have further deepened Belarus’s dependence on Russia.
In March 2022, the Belarusian central bank hiked its benchmark interest rate to 12%, up from 9.25% since July 2012, in response to Western sanctions against both Belarus and Russia. The rate was lowered only slightly to 11.5% the following January. Meanwhile, the official annualised rate of inflation reached almost 13% in 2022, more than double the target rate of 6%.
Sovereign Default Risk 74 ( Medium) TREND ►
Amid the sanctions on Russia and a growing list of restrictions against Belarus itself, the Belarusian authorities failed to make a dollar-denominated coupon payment on the 2027 sovereign Eurobond in June 2022. As a result, Fitch and later Standard and Poor’s declared the country to be in selective/restricted default. Moody’s has yet to update its non-default rating since March 2022.
Belarus’s foreign currency and gold reserves have declined from over USD8.5 billion in early February 2022 to less than USD7.8 billion by March 2023. In November 2022, the Belarusian government said it had received a USD1.6 billion loan from Russia, which in April of that year had already extended the repayment of an earlier USD1 billion loan by more than a year. As of March 2023, Belarus’s total outstanding debt to Russia exceeds USD10 billion.
