On November 13, 2020, the weekly analytical digest Belarus in Focus in partnership with Press Club Belarus, the Belarusian expert community «Nashe mnenie» («Our Opinion») and the Belarusian Institute for Strategic Studies (BISS) held an international Expert-Analytical Club meeting to discuss the impact of political turmoil on the Belarusian economy.

Keynote speakers

Lev Lvovskiy, senior researcher at BEROC Economic Research Center

Vadim Iossub, senior analyst at Alpari Eurasia

Irina Yuzvak, director of InComeIn research company, director and co-founder of the information and analytical agency Business News

Tatsiana Marynich, founder and director of the BELBIZ

Experts and analysts from various think-tanks, international journalists, foreign ministry officials, civic activists and other specialists participated in the discussion regarding recent developments in Belarus, including Artyom Shraibman (Sense Analytics), Vadim Makarenko(Gazeta Wyborcza), Andrei Lavruhin (BISS) and others.

The discussion was moderated by Vadim Mojeiko (BISS) and Anton Ruliou (Belarus in Focus/Press Club Belarus).

Discussion highlights

How exactly has the political crisis affected the economy?

Failure of confidence

Tatsiana Marynich noted the public’s sharply declining faith in public institutions and the inaction of the incumbent authorities regarding this. This crisis in confidence manifests itself through shrinking deposits in the banking system, increasing demand for foreign currency, and the suspension of investment (by the private sector, the EBRD, IFC).

Irina Yuzvak remarked that the international profile of Belarus has also degraded, and specifically that «The country has become toxic: more people inquire about delivery risks and whether payments would go through». In addition, the blocking of accounts receiving funds from #ByHelp (a civic initiative aimed at providing financial aid to victims of repression) further damages the reputation of the banking system leading to an outflow of deposits and rouble depreciation.

Public sector investment

Lev Lvovskiy highlighted the issue of directed loans in the context of state investment in the public sector: «there is a discrepancy between the economic reality and what people do in factories.»Unsold stocks pile up driven by loan finance. Vadim Iossub suggests examining the ‘for official use’ executive orders, which are used to allocate such loans: «the more there are, the more alarming [it is].»

Irina Yuzvak notes that public money used to shore up public enterprises and finance the security apparatus, negatively impacts other sectors, such as construction, infrastructure and social security.

Insecure credit future

Tatsiana Marynich emphasises the significance of the decline in Belarus’ international credit rating. S& P has already lowered Belarus’ «Hight Speculative» investment rating of B from a «stable» to an «negative» outlook. Irina Yuzvak adds that negative GDP dynamics heightens risks even if interest rates remain low, whilst in Belarus such rates are going up. Vadim Iossub anticipates an imminent debt crisis.

Delayed impact

«The presence of riot police in the streets is causing business owners who remain open to consider relocating staff and changing future [investment] plans, ” says Lev Lvovskiy. He refers to the statistics regarding: how many new businesses have opened, the size of investment and transactions concluded. Vadim Iossub agrees: the impact on the economy is delayed, right now the consequences of the political turmoil are barely detectable, however, in H1 2021 they will become obvious.

Tatsiana Marynich observes that the IT sector is highly mobile: thousands of specialists have left for neighbouring states and start-ups are relocating entire offices. Irina Yuzvak summarizes this as: «Business suspends [activity], closes, and relocates». Taken together, these effects will lead to a slump in demand and exports.

The turning point for the Belarusian economy

The speakers agreed that Belarus is unlikely to face a single, fatal economic event, rather experience exacerbation of pre-existing issues, gradual economic decline, and continuous flight of investment. In the coming months, Lev Lvovskiy expects a debt default crisis: loan schemes for SMEs have been suspended for several months, savings are not converted into investments, and banks cannot bridge liquidity gaps — «every enterprise is left on its own.»

According to Irina Yuzvak, as of early 2020, foreign currency reserves from exports were falling, whilst public debt was growing. Nevertheless, Irina thinks that «accelerating the country’s default would harm the building of a new Belarus: the nuances will be forgotten, whilst the word „default“ would hang in the air with negative future consequences».

Vadim Iossub sees no immediate connection between default and the victory over the regime. «Everyone expects a default — some with fear, others with hope, but not everyone understands what it is.» After all, not only external creditors will suffer from it, but also savings of Belarusians: before announcing a default, the state likely to use the last resort — printing money to devalue debt, at the risk of triggering hyperinflation.

Lev Lvovskiy notes that Russia is Belarus’ principal creditor and prior to a possible default, it may be in her interest to bring forward loan arrangements to refinance Belarus’ debts so that the latter would continue to service her debts to Russia.

In any case, default should remain a distant prospect as long as adequate gold and foreign exchange reserves exist. According to Vadim Iossub, Belarus needs $3.5 billion a year to service sovereign debt and currently holds some $7 billion in gold reserves, hence, even without refinancing, she has enough for two years. However, if there is a rapid increase in internal demand for foreign currency, her reserves will dwindle sooner.

What are the effective means of economic pressure?

Pressure on banks and rouble exchange rates

Experts believe that pressure on the banking system is among the major threats to the Belarusian economy. «The economy cannot afford further devaluation of the Belarusian rouble, » Lev Lvovskiy says, adding that many enterprises, including those that are state-owned, have outstanding hard currency loans they would be unable to service. The fear of devaluation may also cause a run on the banks: «When many people rush to a bank [to withdraw] deposits, it makes sense to follow, whether you agree with the authorities or not, as they might bring the bank down before you.»

Vadim Iossub attributes increased demand for foreign exchange to this logic: «people do [this] neither in response to appeals in Telegram, nor just to spite the state, but when they see benefits for themselves: ‘what if foreign exchange rates spike and I have not bought foreign currency’.» He adds that «we are in the same boat with the regime in terms of economic consequences, » we would lose money in the case of devaluation and majority would lose savings if banking system collapses.

Tatsiana Marynich disagrees with this depressing assessment: «The default of the state is not the [same as] default of the country.» She believes that such a default would primarily affect state-owned enterprises, not private ones, paving way to a new economy.

Boycott of products

The speakers are sceptical about the effectiveness of boycotting state producers. Whilst Vadim Iossub «would not advocate against [this], due to the symbolic meaning, and potential psychotherapeutic benefits,» he sees no economic rationale for such black and white lists. Firstly, VAT is a major source of state proceeds and would not be affected unless overall consumption shrinks. Secondly, price controls must be accounted for: the bulk of dairy products are sold in Russia and dairy prices in Belarus are subject to state regulation, consequently producers would benefit from increased sales to Russia.

Lev Lvovskiy notes that there are few historical examples of such protests and that it could work only if majority supported it. In Belarus, «majority [of people] support the protests, but we do not know whether they are ready to abandon „Savushkin Product“ [dairy products].» Irina Yuzvak observes that we know the brands that supported Hitler, but we still use them.


Tatsiana Marynich thinks that, aside from nitrogenous fertilizer manufacture and potash extraction, «It is irrelevant for the economy whether state-owned enterprises are on strike or continue operations». Irina Yuzvak agrees that strikes are «a diversification of protest form, rather than a monetary instrument.» State-owned enterprises are overstaffed anyway, and strike-breakers can be brought in from Russia, but even without this, «the size of stocks at warehouses would allow some enterprises to continue operations due to costs optimization and employing only the director, a warehouse manager and a sales deputy.»

Impact on international players

Tatsiana Marynich notes that foreign trade partners are often not aware of what is happening in Belarus, and not everyone understands that through cooperating with state-owned enterprises they support the regime. Accordingly, there is a need for a major international awareness raising campaign in this regard.

Lev Lvovskiy agrees that this is an underutilised tool and recalls a case where Norwegian fertilizer manufacturer Yara International ASA expressed concerns about Belaruskali`s attitude towards workers and the resulting reputational risks for themselves. So far, this has not led to any material changes, but such pressure could be a ‘golden solution’, prompting strong international players to persuade state managers to start dialogue with their employees without drastic negative consequences for the economy.

Vadim Iossub is more sceptical: China and India are the primary consumers of Belarusian potash and they will not join an embargo. Buyers of oil products in Europe are often Belarusian or Russian front companies. Ukraine also buys Belarusian oil products, but she has little choice, so she is unlikely to join an embargo either.

Meanwhile, Iossub believes, the IMF, WB and EBRD could suspend cooperation with Belarus. He finds announcements about further cooperation with Belarus and allocation of aid to state universities which expel students for political reasons, surprising.

The negative consequences of the economic resistance

Irina Yuzvak notes that measures negatively impacting the state economy primarily affect vulnerable social groups, although the middle class, which makes up the core of the protests, will suffer too. Lev Lvovskiy clarifies that the lower middle class will suffer the most, because the poorest consume a lower share of imports and do not go on vacation abroad.

Irina Yuzvak has no doubt that any forced budget cuts would primarily affect the social sector, not the security forces. Vadim Iossub recalls a joke: «Dad, will you drink less? „No, son, you will eat less“: security officials would be given a priority. Lev Lvovskiy gloomily predicts that if there is a funding shortage, Oprichniki, Tonton Macoutes, and protection racketeering would spread: „If the security forces do this to the protesters, they may extend this practice to private business.“

Shooting yourself in the foot as a power strategy

Vadim Iossub believes that the incumbent authorities now have only one focus — to save themselves, not business or the economy. The only remaining trade-off is sovereignty, and the only potential creditor is Russia.

According to Lev Lvovskiy, nothing the authorities can do — close the border or decimate IT specialists — can achieve much, it is like succeeding in shooting your own foot. For example, if a private business does not close of its own accord, Lukashenka might force it to do so if it fails to create a trade union branch by the year-end.

«The authorities themselves create many [of the] prerequisites for further problems for themselves, » agrees Tatiana Marynich. «Everything that seemed impossible has already happened», she says, so anything can happen with business.