Deepest economic crisis in history, expert says

Belarusian economist Dzmitry Kruk has presented his new work “Belarusian Economy in New Conditions: What is Happening and What to Expect.” It analyzes the prospects of the economy in light of the war in Ukraine and the imposition of sanctions on the authorities of Russia and Belarus.

Dzmitry Kruk is an economist and senior researcher at the Belarusian Economic Research and Outreach Center (BEROC). Kyiv, Ukraine. October 16, 2021. Photo: Belsat

According to economists, Belarus faces the worst possible combination of adverse shocks and their unprecedented scale. At the same time, according to Kruk, the country’s authorities have a “scarce arsenal of economic policy measures.” In particular, they can hardly influence the actual dynamics in the economy.

The economist expects a massive contraction of GDP, accompanied by high inflation, devaluation of the exchange rate, financial destabilization, which is growing into a full-blown economic crisis. According to him, the exchange rate has already “lost its grip,” and prices are moving to 25% of the equivalent of annual inflation. The expert thinks that the banks’ liquidity will worsen, and default will become very likely.

According to his estimates, in case of export shock, about 40% of the GDP of Belarus may decrease by 19.6% in 2022, while exports – by a third.

At the same time, the prospects of the Belarusian economy can be further worsened by the expansion of restrictions on the use of fx reserves, additional sanctions against banks (SDN, SWIFT, etc.), blocking transport corridors, and strengthening of sanctions against the national debt.

Dzmitry Kruk also does not rule out the possibilities of new countries joining the export sanctions.

“For now, there is only a vague hope to avoid such developments. It looks like the only way out of this is to neutralize sanctions at the expense of political change,” says the economist.

Overall, the expert believes that “the combination of economic and financial crisis threatens to become the most severe in recent history,” and “there are virtually no powerful stabilizers to stop the development of the crisis.” In his opinion, “it will take a long time to reach the bottom.”