Previous Quarterly Editions
Expropriation Risk: 60 60 60 61 Political Violence Risk: 73 73 73 66 Terrorism Risk: 25 25 25 25 Exchange Transfer and Trade Sanction Risk: 64 64 64 64 Sovereign Default Risk: 57 57 57 47
TREND ▼
The risk environment has risen since August 2020 and remains elevated, despite the end of mass election-related protests as of mid-February 2021. Sporadic actions are still taking place, in an almost daily reminder of the volatile political environment into which Belarus was plunged by last year’s presidential election, which is widely considered to have been rigged in favour of President Alyaksandr Lukashenko. There are also concerns about crackdowns on opposition figures.
The President has promised wide-ranging constitutional reform, officially to rebalance the distribution of powers away from the all-too-powerful presidency, but most likely to placate his critics and sap the protest movement. The incumbent reportedly rejected two initial (and unpublished) drafts of the new constitution and was considering a third in February, according to his own statement. The government has repeatedly said that the final draft will be submitted to a referendum before 2022.
The Lukashenko regime is unlikely to be entertaining any real changes to Belarus’s current political system, while the opposition has been rejecting government-sponsored constitutional reform initiatives and continues to call for a new presidential election with all eligible candidates’ participation.
Macroeconomic uncertainty due to COVID-19 hangs over and further contributes to Belarus’s uncertain political climate. In 2020, gross domestic product (GDP) contracted by 0.9%. Based on World Bank estimates, having weathered the first pandemic year with relatively limited losses, Belarus will register negative growth in 2021, at -2.7%. This will keep the fiscal and monetary authorities in a tough spot as they try to spur growth, keep rising inflation in check, ensure a stable currency market and manage the diminishing foreign exchange reserves.
TREND ►
Unlike neighbouring Russia, Belarus did not go through a painful privatisation 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. According to the US State Department’s 2016 Investment Climate Statement on Belarus, Belarusian authorities are known for inflicting punishments on businessmen for real or imaginary violations of the law by stripping them of assets.
In June 2020, the government put Belgazprombank, which is almost wholly owned by Gazprom and Gazprombank, into temporary administration after opening a criminal probe into chief executive officer Viktar Babaryka for alleged financial malfeasance. In May 2020, Babaryka had announced his intention to run for president against Lukashenko. The authorities stopped short of nationalising the bank, and in January 2021 its 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 sector (IT), had to leave Belarus.
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.
All of this had changed in August 2020 when the Belarus Election Commission certified Lukashenko’s victory, despite election rigging allegations. The rigged election sparked unprecedented nationwide protests which shook the Lukashenko regime to its core but have nonetheless failed to bring it down. In the initial five days of the protests, law enforcement arrested nearly 7,000 people, most of them in Minsk. Eyewitness reports and recordings of unprecedented police violence circulated online, spurring further outpouring of long-standing dissatisfaction with government authoritarianism and the stifling economic environment.
Street protests were soon followed by strikes at Belarus’s flagship state-owned enterprises, to which the government responded with increasing pressure, including threats of loss of jobs and of criminal cases for sedition. Lukashenko also started (re)imposing sanctions and initiated the constitutional reform to be completed provisionally by 2022.
The opposition rejected this idea and reiterated the need for a new presidential election that must be followed by a profound constitutional shake-up under a democratic government. The protest wave ultimately ran out of steam by mid-February 2021 (no new large-scale protests have taken place since), but the political situation remains highly volatile in the context of the deadlock between the opposition, mostly exiled, and the governing regime.
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.
In July 2020, the Belarusian State Security Committee (KGB) detained 32 alleged mercenaries of Russian nationality near Minsk. They claimed to have missed a flight for Istanbul and to have been heading on a security mission for Latin America. Neighbouring Ukraine accused 28 individuals of illegal participation in the armed conflict in Donbas and filed a request for their extradition. However, all the arrested men were released from custody and handed over to Russia in August 2020 after pressure from Moscow.
In November 2020, acting on Lukashenko government orders, the KGB added the founder of the opposition Telegram channel NEXTA, Stsiapan Putsila, and the channel’s former editor Roman Protasevich, to its wanted terrorist list. New additions of Belarusian citizens were made in February and March 2021, including Lukashenko’s opponent in the 2004 parliamentary elections and political prisoner Mikalay Autukhovich, and Lukashenko’s 2020 presidential election opponent and exiled opposition leader, Sviatlana Tsikhanouskaya.
In March 2021, the central bank kept its benchmark interest rate unchanged at 7.75%. It is the lowest rate in Belarus’s history, which was set in July 2020 amid COVID-19. The decision to keep the rate steady was met with bewilderment because the annualised rate of inflation in February 2021 was 8.7% compared with the annual target of 5%. However, although the benchmark rate is effectively 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 existence of three parallel official interest rates, among which the benchmark rate is of secondary importance, counters the latest narrative about to-be-expected runaway inflation. Though it does reinforce a second narrative about the central bank’s growing instrumentalisation by the executive, with the objective to prop up unprofitable state enterprises rather than reforming the poorly performing public sector.
The impact of existing Western sanctions on Belarus’s economy remains limited, given its relative isolation and heavy dependence on Russia.
Belarus’s foreign reserves declined from USD8.8bn at the beginning of COVID-19 in March 2020 to USD6.9bn in early April 2021. In 2020, the central bank lost 20.5% of its gold and foreign exchange reserves to stabilisation measures. While it was reported in the early days of COVID-19 that Belarus would ask for a USD900mn emergency International Monetary Fund loan, Lukashenko in June 2020 called the offered terms unacceptable.
In September 2020, Belarus secured a USD1bn Russian loan and a further USD500mn from the Russia-dominated Eurasian Development Bank. Belarus’s sovereign debt load increased by 29% in 2020 and amounted in January 2021 to 37.3% of GDP, a level that still offers it enough room for manoeuvre during 2021, especially with quasi-guaranteed Russian support.
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