The World Bank has downgraded its forecast for Belarus’ economic growth. The ambiguity about the Belarusian-Russian integration negotiations is among the reasons, the bank representatives said at a press conference in Minsk.
According to the World Bank, the country’s conomic growth for 2020-2021 is projected to remain below 1 percent due to continued weaknesses in the terms of trade, limited space for demand stimulus measures, and longstanding structural bottlenecks. This projection is based on the assumptions of no immediate compensation for Russia’s tax maneuver and limited progress on structural reforms.
“The outlook is clouded by the lack of agreement on possible compensation for Russia’s new energy taxation system and uncertainties related to broader discussions on integration with Russia. Going forward, Russia’s tax maneuver is projected to subdue economic growth through both fiscal and export channels. First, the gradual phasing out of export duties will reduce revenues and call for additional fiscal tightening. Second, higher input prices for Belarusian oil refineries will negatively affect price competitiveness of their exports, and thus production in the petrochemical sector.” the document reads.
The previous (more positive) outlook was based on the expectation that Moscow would compensate for at least 50% loss of Belarus from the tax maneuver, WB economist Kiryl Haiduk said. The update was made with account of the lack of such compensation, he added.
“We do not know whether Belarus will receive the aompensation. This is rather an assumption, not a forecast,” World Bank head Alex Kremer stressed.
Russia counts on completing the tax maneuver by 2025. It provided for a gradual zeroing of export duties on oil and an increase in the tax on the extraction of natural resources. The tax maneuver is not in the interests of the Belarusian budget, since it entails an increase in the price of oil for Belarus. This will result in the Belarusian refineries receiving raw materials at world prices and losing their advantages over competitors outside the Eurasian Economic Union. According to Belarusian Finance minister Maksim Yermalovich, Russia’s tax maneuver is likely to result in Belarus’ losing BYN 630 mln in 2019 and $8-12 bn by 2024 unless the problem is resolved through negotiations and compensations are awarded.