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The Resolution of the Nagorno Karabakh Issue: what societies say

 
July 2010 1 
BELARUSIAN MONTHLY 
ECONOMIC REVIEW 
• Belarus joined Customs union. 
• Industrial growth strengthened. 
• Belarus looks for new mechanisms of energy supply. 
• Reduction of interest rates 
Politics: Belarus joined Customs union 
In July, Belarus ratified Customs Code of the Customs union 
between Belarus, Kazakhstan and Russia, which happened after 
the long period of uncertainty. De-facto Belarus joined the un-
ion on the terms and conditions set by Russia, having climbing 
down from its position that Customs union is possible only with-
out any exemptions and restrictions. This decision is likely to 
have been made under a strong pressure from Russia, which 
informally threatened to put an export duty on gas supplied to 
Belarus and make non-tariff restrictions on Belarusian exports 
of meat products to this country. In the sphere of trade with 
energy resource, Russia and Kazakhstan met Belarusian de-
mand just slightly: they agreed that exports duties for Belarus 
will be call off when Belarus has ratified the documents on the 
Single economic space – a planned further step. However, de-
spite there is a tentative date for elaboration of these docu-
ments – January 1st, 2011 – the perspectives of its rapid coor-
dination and ratification are ambiguous and may again become 
an instrument of political pressure by Russia. Hence, political 
relations with Russia are going to make more impact on the 
short-term performance of the national economy. 
Real sector: Industrial growth strengthened 
In Jan-May, real GDP grew by 6.4% yoy (6.1% yoy in Jan-
Apr). Industry grew by 7.7% yoy (6.1% yoy in Jan-Apr) and 
made a major contribution among other branches into 
strengthening GDP growth. Among industrial branches the per-
formance of the ferrous metallurgy improved considerably: in 
Jan-May its production grew by 7.3% yoy, while there was a 
drop of 4.8% yoy in Jan-Apr. In machinery the growth 
amounted to 5.0% yoy in Jan-May (3.4% yoy in Jan-Apr). 
However, the latter was due just to tractor machinery, while 
there was still a drop of 3.8% yoy in car machinery. A slight 
acceleration of growth took place in agriculture (5.5% yoy in 
Jan-May vs. 5.4% yoy in Jan-Apr). 
The dynamics of capital investments in May (growth by 
0.4% yoy) was not so prosperous in comparison to April 
(7.1% yoy). Hence, in Jan-May, the growth rate of capital in-
vestments amounted to 0.3% yoy. Later on, the government is 
likely to stimulate the growth of investments more actively in 
order to provide the needed rate of GDP growth by the end of 
the year. In this situation search of the new sources of invest-
ments financing is still the core issue for the government. 
Structural trends Belarus looks for new mechanisms of 
energy supply 
In June, Belarusian President met with Lithuanian Prime-
minister A. Kubilius. The discussion about the perspectives of 
the joint construction of a liquefied gas terminal in Lithuania 
became the core point of the meeting. Maritime supply lines of 
the liquefied natural gas (LNG) have become a serious alterna-
tive to the traditional pipeline gas supply at the world markets. 
For instance, a spot price for LNG in Europe is hesitating within 
USD 170-180 for 1 tcm, which is less than the price of the Rus-
sian gas supply to Europe. Belarus claimed about its interest to 
purchase about 8 bn m3 of LNG annually, which is substantially 
more than the planned volume of LNG imports by Lithuania 
 
 
 
No. 07 (94) 
July 2010 
 
 
 
 
 
 
 
 
Population: 9.67 m 
Industry / GDP: 28.1% 
Agriculture / GDP: 8.4% 
Investment / GDP: 27.9% 
Export destination: Russia 32%, EU 44% 
Import origin: Russia 60%, EU 22% 
 
 
 
 
 
 
 
 
 
 
Real GDP growth 
4.7 5.0
6.8
11.4
9.2
9.9
8.2
10.1
0.2
5.8
0
1
2
3
4
5
6
7
8
9
10
11
12
00 01 02 03 04 05 06 07 08 09
% yoy
Source: National Statistical Committee. 
 
 
 
 
 
 
 
 
 
 
 
IPM Research Center 
 
German Economic Team 
in Belarus  
 
50Б Zakharova St., Minsk 220088, Belarus 
Tel./fax (+375 17) 210 0105 
E-mail: bmer@research.by 
Internet http://research.by/ 
 
 
© IPM Research Center, 2010 
 
Belarusian Monthly Economic Review №07 (94) 
 
 
 
July 2010 2 
(about 2 bn m3). Hence, the value of the construction of the 
terminal that is valid to operate with the total volume for both 
countries will be much more than those just for Lithuania. 
According to the experts’ estimates, the latter will be about 
EUR 650 m. Besides, the supply of LNG to Belarus will require 
additional costs for laying new pipelines. Despite considerable 
costs, this way of the energy supply diversification may be-
come fully acceptable for Belarus, while the price for Russian 
gas for the country is going to reach the market level in 2011. 
Furthermore, it is vital from the view that Russia uses the gas 
supply as a factor of the political pressure.  
Foreign trade: Growth of imports from non-CIS  
countries 
In Jan-Apr merchandize trade deficit amounted to USD 2.1 bn, 
having declined by 21.5 yoy. However, the reduction of the 
deficit was due to the 1st quarter, while in April it grew both in 
annual (12.6% yoy) and monthly terms (by 7.9% mom) up to 
USD 825 m. The growth of the deficit was consequent to a 
sharp increase of imports from 15.7% yoy in March up to 
24.4% yoy in April, while the growth of exports strengthened 
not so considerably (from 24.1% up to 30.1% yoy). 
In April, the growth of imports from non-CIS countries 
(26.6% yoy) was substantially more than those of exports 
(5.3% yoy), which resulted in trade deficit of USD 185 m. Im-
ports from non-CIS countries grew mainly because of the 
physical volume (by 25.1 % yoy), while the prices of imports 
grew only by 1.3% yoy. At the same time, the physical volume 
of exports reduced by 18.9% yoy. It was consequent to a 
sharp reduction of oil products and potash fertilizers supply. 
In trade with Russia imports growth rate increased from 
1.6% yoy in March up to 20.8% yoy in April, while in monthly 
terms it grew by 19.2% mom. This was due to the increase of 
the physical volume of crude oil imports from Russia (by 
21.5% mom), and its price (by 22.9% mom), which witnesses 
about the increasing share of the oil imported with the imposed 
duty. In April, the growth rate of exports to Russia increased up 
to 57.4% yoy (53.0% yoy in March), though it is mainly ex-
plained by the low base effect. In comparison to March the ex-
ports in value terms was almost unchanged, though the exports 
of some investment goods reduced. Moreover, because of the 
restrictions introduced by Russian supervision bodies, the physi-
cal volume of the diary and meat products reduced. In overall, 
the situation at the Russian market for Belarusian producers is 
rather uncertain, because of the instable demand and the range 
of the protective measures by Russian authorities. 
Public finance: Fiscal deficit is growing 
In Jan-Apr, consolidated deficit amounted to 3.3% of GDP 
(1.0% of GDP in Jan-Apr 2009). Consolidated revenues 
amounted to 34.0% of GDP, including tax revenues of 31.2% of 
GDP. The latter was at the level of the 1st quarter of 2009, de-
spite considerable changes in its structure. Revenues from the 
taxes on goods and services reduced by 1.6% of GDP, which 
was compensated by the increased revenues from corporate 
profit tax by 0.7% of GDP and VAT by 0.9% of GDP. Revenues 
from external economic activity were unchanged and stayed at 
the level of 4.9% of GDP, while non-tax revenues contracted. 
Consolidated expenditures amounted to 37.3% of GDP in Jan-
Apr. The main budget item – expenditures on economy – grew 
by 0.5% of GDP in comparison to Jan-Apr 2009 and amounted 
to 11.0% of GDP. Nevertheless, in comparison to the 1st quarter 
the growth of these expenditures was restricted (in the 1st 
quarter they were at the level of 11.1%, which 1.4% of GDP 
 
GDP and Industrial Output 
-6
-4
-2
0
2
4
6
8
Ja
n.
0
9
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
ay
.0
9
Ju
n
.0
9
A
ug
.0
9
S
e
p.
0
9
O
ct
.0
9
N
ov
.0
9
D
ec
.0
9
Ja
n
.1
0
Fe
b.
1
0
M
ar
.1
0
A
p
r.
1
0
M
a
y.
1
0
real GDP growth
real industrial output growth
% yoy cum.
Source: National Statistical Committee. 
 
 
 
 
 
 
 
 
 
Contribution of Aggregate Demand 
 Components to GDP Growth 
Percentage points 
4Q 
2009 
1Q 
2010 
GDP, % yoy 1.7 4.0 
Household consumption 0.1 2.7 
Gross fixed capital formation -3.7 -1.1 
Net exports 7.6 3.2 
Other components + statistical 
discrepancy -2.3 -0.9 
Domestic demand -4.2 1.0 
Source: Calculations based on the National Statistical 
Committee data. 
 
 
 
 
 
 
 
 
Merchandise Trade 
500
1000
1500
2000
2500
3000
3500
Ja
n.
0
9
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
ay
0
9
Ju
n.
0
9
Ju
l.0
9
A
ug
.0
9
S
ep
.0
9
O
ct
.0
9
N
ov
.0
9
D
ec
.0
9
Ja
n
.1
0
Fe
b
.1
0
M
ar
.1
0
A
p
r.
1
0
-1000
-800
-600
-400
-200
0
200
balance (right axis)
exports
imports
USD m
Source: National Statistical Committee. 
Belarusian Monthly Economic Review №07 (94) 
 
 
 
July 2010 3 
more than in the 1st quarter of 2009). Limitation of this kind of 
expenditures is likely to be the one of the reasons of the poor 
growth of capital investments financed at the expense of the 
consolidated budget. The item of national expenditures, which 
includes the funds directed at the housing construction, grew 
due to the latter by 0.3% of GDP in comparison to Jan-Apr 
2009. Thus, in the fiscal sphere the government is still dealing 
with the tradeoff between the desire of GDP growth stimulation 
and the challenge of the growing fiscal deficit. 
Monetary policy: Further reduction of interest rates 
In May, net foreign assets of the monetary authorities grew by 
2.7% mom (by USD 148 m). In a great extent it was due to a 
sharp increase in banks’ excess reserves in foreign currency (by 
USD 654 m). NBB kept on active increase of money supply 
through refinancing of banks (claims on them grew by 
20.4% mom) in order to stimulate economic activity. In May, 
base money grew by 20.1% mom, while in annual terms its 
growth rate jumped up to 78.8% yoy (39.1% yoy in April). 
New monetary stimulus provided by the NBB – increase of 
money supply was accompanied by the reduction of the refi-
nancing rate by 0.5 percentage points down to 12% - facilitated 
to high growth rates of the credit supply in the economy and 
further reduction of interest rates on all the segments of the 
financial market. Banks’ claims on real sector grew by 
2.5% mom, though in annual terms the growth rate of the out-
standing loans reduced by 0.5 percentage points down to 
32.2% yoy. NBB’s refinancing played a huge role for the credit 
activity: in banks’ liabilities the share of NBB’s funds exceeded 
15% (about 10% at the beginning of 2010 and 5% of 2009). 
Deposits in national currency were still growing more rapidly 
rather than those in national currency, because an interest rate 
spread between the correspondent instruments maintained. 
Cash money grew by 3.0% mom and 20.9% yoy in May 
(17.3% yoy in April). Ruble money and broad money grew by 
3.7 and 2.4% mom, while in annual terms by 27.9% and 
25.5% yoy correspondingly (24.2 and 23.1% yoy in April). 
In May, consumer prices grew by 0.8% mom, while in annual 
terms the inflation amounted to 7.1% (6.6% in April). During 
May-June Belarusian ruble appreciated versus NBB’s currency 
basket by 2.7%. Its exchange rate versus US dollar amounted 
to 3018 USD/BYR by the end of June, having devaluated in 
May-June by 1.9%. 
Banking sector: New investments to the baking system 
are feasible 
According to the number of mass media, the negotiations deal-
ing with the attraction of the foreign capital to the Belarusian 
banking system are being held. German, Chinese, Iranian 
banks and European bank of Reconstructions and Development 
were mentioned as potential investors. The necessity of banks’ 
capitalization deepening is one of the prior issues for Belarus. 
Attraction of foreign investments diversified by the origin may 
lead to beneficial effect on strategic and operative indicators of 
the banking activity. Among the potential investors listed, 
EBRD is likely to be the one, who may cause a positive effect 
for the whole banking system. If EBRD closes a bargain on 
Belinvestbank, it may provide a rather huge amount of invest-
ments that may not be affordable by private investors after the 
peak of the crisis. Furthermore, the experience of EBRD of hav-
ing a stake in the equity of Priorbank has shown that such in-
vestments may promote the development of a bank and its 
higher integration to the world banking system. 
 
Consolidated Budget 
10
15
20
25
30
35
40
45
50
Ja
n
.0
9
Fe
b
.0
9
M
ar
.0
9
A
pr
.0
9
M
ay
.0
9
Ju
n.
09
Ju
l.
09
A
ug
.0
9
S
ep
.0
9
O
ct
.0
9
N
o
v.
0
9
D
ec
.0
9
Ja
n
.1
0
F
eb
.1
0
M
a
r.
1
0
A
p
r.
1
0
-20
-15
-10
-5
0
5
10
15
20
balance (right axis)
revenues
expenditures
% of GDP
 
Note. Since 2010 Social Security Fund is not included 
into the consolidated budget. 
Source: Calculations based on the National Statistical 
Committee data. 
 
 
 
 
 
 
 
Monetary Base and СPI 
-30
-20
-10
0
10
20
30
40
50
60
70
Ja
n
.0
9
Fe
b
.0
9
M
a
r.
0
9
A
p
r.
0
9
M
a
y
.0
9
Ju
n
.0
9
Ju
l.
0
9
A
u
g
.0
9
S
e
p
.0
9
O
ct
.0
9
N
o
v
.0
9
D
e
c.
0
9
Ja
n
.1
0
Fe
b
.1
0
M
a
r.
1
0
A
p
r.
1
0
M
a
y
.1
0
4
6
8
10
12
14
16
18
CPI (right axis) monetary base
% yoy eop % yoy
 
Source: calculations based on the National Statistical 
Committee and the NBB data. 
 
 
 
 
 
 
 
Refinancing rate 
10
11
12
13
14
15
Ja
n
.0
9
Fe
b
.0
9
M
ar
.0
9
A
p
r.
0
9
M
ay
.0
9
Ju
n
.0
9
Ju
l.
0
9
A
u
g
.0
9
S
ep
.0
9
O
ct
.0
9
N
o
v.
0
9
D
ec
.0
9
Ja
n
.1
0
Fe
b
.1
0
M
ar
.1
0
A
p
r.
1
0
M
ay
.1
0
-2
0
2
4
6
8
real (right axis) nominal
% per annum
Source: calculations based on National Statistical 
Committee and the NBB data. 
 
Belarusian Monthly Economic Review №07 (94) 
 
 
 
July 2010 4 
Economic Trends  Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 
Mar. 
10 
Apr. 
10 
May 
10 
GDP growth % yoy 10.1 11.2 7.5 1.1 -0.4 -1.1 1.8 4.0 -- -- --
GDP growth % yoy cum. 10.4 10.7 10.0 1.1 0.3 -0.3 0.2 4.0 4.0 6.1 6.4 
Industrial Production % yoy cum. 13.0 13.1 10.8 -4.5 -3.6 -4.5 -2.8 5.9 5.9 6.1 7.7 
Agricultural Production % yoy cum. 5.4 6.9 8.9 6.3 6.6 2.4 1.3 5.3 5.3 5.4 5.5 
CPI % yoy eop 16.0 16.3 13.3 15.5 13.4 11.7 10.1 6.4 6.4 6.6 7.1 
PPI % yoy eop 16.2 18.5 14.2 21.4 15.4 10.0 11.3 9.4 9.4 10.7 12.2 
Merchandise export (USD)* % yoy 56.0 44.9 -11.6 -48.9 -47.7 -35.4 2.9 29.2 24.5 30.3 17.4 
Merchandise import (USD)* % yoy 55.3 53.1 -1.5 -31.7 -33.4 -37.2 -1.7 8.9 14.7 24.4 18.5 
Merchandise trade balance 
(NBB data) 
USD m cum. -2049 -3835 -6104 -1779 -3799 -4797 -6971 -1165 -1166 -1919 -2579 
Current account USD m cum. -1382 -3006 -5263 -1925 -3597 -4408 -6402 -1127 -1127 -- -- 
Current account % GDP cum -5.5 -6.6 -8.7 -18.7 -17.1 -12.4 -13.1 9.8 9.8 -- -- 
International reserves USD m eop 4618 4120 3061 3955 2650 3879 5653 6074 6074 6046 5778 
Monetary base % yoy eop 54 48 12 -14.2 -21.5 -15.0 -11.3 14.0 14.0 39.0 79 
Lending rate** % p.a. aop 10 11 14 17 17 17 17 17 15 14 14 
Exchange rate 
(official) 
USD aop 2136 2114 2147 2772 2809 2821 2768 2907 2962 2970 2988 
Exchange rate 
(official) 
EUR aop 3339 3183 2827 3614 3822 4032 4093 4028 4022 3986 3766 
* Growth rates in value terms (source: Ministry of Statistics and Analysis). 
** Nominal rate of commercial banks for new loans for legal entities in national currency. 
Sources: Ministry of Statistics and Analysis, NBB. 
 
Key Economic Indicators 2003 2004 2005 2006 2007 2008 2009 
Nominal GDP* BYR trn 36.565 49.991 65.067 79.231 97.165 128.828 136.789 
Nominal GDP** USD bn 17.7 23.1 30.2 36.9 45.2 60.3 49.0 
GDP Growth % yoy 7.0 11.4 9.4 9.9 8.6 10.0 0.2 
Industrial production % yoy 7.1 15.9 10.5 11.3 8.5 10.8 -2.8 
Agricultural production % yoy 6.6 12.6 1.7 6.1 4.1 8.9 1.3 
CPI % yoy aop 28.4 18.1 10.3 7.0 8.4 14.8 13.0 
CPI % yoy eop 25.4 14.4 8.0 6.6 12.1 13.3 10.1 
PPI % yoy aop 37.5 24.1 12.1 8.3 16.2 14.7 14.5 
PPI % yoy eop 28.1 18.8 10.0 8.5 17.1 16.4 11.3 
Exports (gs, USD) % yoy 24.4 35.7 15.8 21.8 24.3 35.5 -33.0 
Imports (gs, USD) % yoy 25.1 40.3 3.0 33.0 27.9 37.6 -27.1 
Current account USD m –424 –1206 510 –1512 -2944 -5263 -6402 
Current account % GDP –2.4 –5.2 1.7 –4.1 -6.6 -8.7 -13.1 
FDI (net) USD m 170 163 303 351 1770 2143 2149 
International reserves USD m 474 770 1297 1383 4182 3467 5653 
Fiscal balance % GDP –1.6 0.0 –0.6 2.2 0.6 0.9 -0.7 
Domestic public debt % GDP eop 5.5 5.7 5.8 6.5 6.4 6.7 5.8 
External debt (total) % GDP eop 23.7 21.4 17.9 18.6 28.4 24.6 45.0 
Monetary base % yoy eop 50 42 74 20 38 12 -11 
Exchange rate (official)* USD aop 2075 2160 2154 2145 2146 2136 2793 
Exchange rate (official)* USD eop 2156 2170 2152 2140 2150 2200 2863 
Exchange rate (official)* EUR aop 2353 2684 2681 2692 2937 3135 3885 
Exchange rate (official)* EUR eop 2695 2956 2550 2817 3167 3077 4106 
Sources: National Statistical Committee, Ministry of Finance, NBB, IPM Research Center. 
 
Notes: 
aop average of period gs goods and services 
avg average trn trillion 
bn Billion NBB National Bank of Belarus 
cum. cumulative p.a. per annum 
eop end of period yoy year-on-year 
m million ytd year-to-date 
 


Belarusian Monthly Economic Review No. 07 (94) July 2010