Previous Quarterly Editions
Expropriation Risk: 60 60 61 62 ▲ Political Violence Risk: 73 73 66 66 ► Terrorism Risk: 25 25 25 25 ► Exchange Transfer and Trade Sanction Risk: 64 64 64 73 ▲ Sovereign Default Risk: 57 57 47 57 ▲
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, especially after a Ryanair flight with the co-founder of an opposition Telegram channel onboard was diverted in May 2021 by Belarusian fighter jets. This has led to widespread international condemnation and harsher Western sanctions, including potentially crippling sectoral restrictions by the United States, United Kingdom and European Union.
The president has promised wide-ranging constitutional reform, officially to rebalance the distribution of powers away from the 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 The incumbent reportedly rejected two initial (and unpublished) drafts of the new constitution and was considering a third in February, according to his own statement. He then rejected another (published) draft in July 2021. 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.
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.
In June 2020, the government put Belgazprombank(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, 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 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.
US, UK and EU firms’ operations in Belarus are increasingly at risk as the regime expands its anti-Western rhetoric after the latest sanctions round.
Political Violence Risk
TREND ►
For years, Belarus had been seen as an island of stability in the former Soviet Union, even at the price of 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 that changed in August 2020, when the Belarus Election Commission certified Lukashenko’s victory, despite election rigging allegations. The election sparked unprecedented nationwide protests which shook the Lukashenko’s regime to its core but have nonetheless failed to bring it down. Shortly after, the executive initiated the constitutional reform to be completed provisionally by 2022. Unsurprisingly, this has been decried by the exiled opposition as a façade attempt to improve the regime’s public image. Amid the continued standoff, the risk of further political violence remains elevated.
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 November 2020, three months after unprecedented protests began in Minsk, the KGB, the country’s security service, acting on Lukashenko government orders added the founders of the opposition Telegram channel NEXTA to its wanted terrorist list. New additions of Belarusian citizens were made in February and March 2021, including President Lukashenko’s 2020 presidential election opponent and exiled opposition leader Sviatlana Tsikhanouskaya.
Following the Western sanctions that came in response to the May 2021 diversion of the Ryanair flight, Lukashenko announced in July the dismantling of a terrorist cell allegedly funded by the United States, Poland, Lithuania, Germany and Ukraine. Terrorist designations are increasingly used by the regime to crack down on what is left of domestic opposition and to stir fears of foreign influences to undermine internal stability.
In July 2021, the central bank hiked its benchmark interest rate to 9.25%, up from 8.5% since April and from 7.75% since July 2020. Meanwhile, the realised inflation rate stood at 9.8% in July on an annualised basis, compared with the official annual target of less than 5%. 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 central bank’s continued policy of undershooting only confirms its instrumentalisation by the executive, with the objective to prop up unprofitable state enterprises rather than reforming the poorly performing public sector.
In July and August, the European Union, United Kingdom, United States and Canada rolled out their first sectoral sanctions against the Belarusian economy, targeting its financial services, sovereign debt, insurance and reinsurance, telecoms, tobacco, petroleum and fertiliser markets. Restrictions against petroleum and potash exports will have a markedly adverse impact on the country’s export revenue and will further deepen its dependence on Russia.
Belarus’s foreign reserves declined from USD8.4bn at the beginning of COVID-19 in March 2020 to USD7.4bn in August 2021, although the net change in 2021 has been negligible so far. Still, in 2020 the central bank lost 20.5% of its gold and foreign exchange reserves to stabilisation measures. While it was reported in COVID-19’s early days 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 declined slightly from 37.3% to 36.8% of gross domestic product between January and July 2021, leaving it enough room for manoeuvre with quasi-guaranteed Russian support. The latest sanctions rule out the possibility of tapping Western capital markets, but Belarus has already been denied de facto access to them since the 2020 protests.
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