Moscow and Minsk are going to sign the agreement on profound integration. Prevents this unresolved question of Russian subsidies. What do they mean for Belarus, DW found out the economists.
Russia and Belarus 7 or 8 Dec, probably, will sign an agreement on deeper integration. This did not exclude the President of Belarus Alexander Lukashenko. The preliminary text of the agreements has still not been provided, run only retellings in the publications that claim to be acquainted with the contents of the document.
We are talking about closer economic integration, including the creation of a single tax and civil codes. The two sides also reportedly intends to partially merge banking supervision and establish a common foreign trade regime. In addition, in 2021, allegedly planned to introduce common rules in the customs and energy sectors.
The Russian tax maneuver and its implications for Minsk
The probability of signing the agreement reduces the fact that Minsk put an additional condition: the parties must first agree on compensation for Belarus from Russia. We are talking about the drop-down revenues of the Belarusian budget due to the Russian tax maneuver in the oil industry. “Every year Russia lowers export duties on oil and at the same time increases the tax on mineral extraction (met)”, – explained the essence of DW fiscal changes Alexey Shurubovich, economist of the Institute of Economics.
He pointed to the fact that it is a double loss for Belarus: “Toll in Minsk unified with the Russian one. Thus, the Belarusian budget will receive less revenue from fees, and local refineries will be forced to purchase oil at a higher price.” The total loss to Minsk, according to the calculations of Belarusian economists and the authorities, can draw up to 2024 up to 10.8 billion dollars.
Russia wants to remove the burden of subsidies for Belarus
Tax reform had an impact on the Belarusian economy in the current year, said in an interview with DW head of mission of the International monetary Fund (IMF) assessment of economic situation in Belarus Jacques Minyan: “the Forecast of the Belarusian government for this year’s economic growth won’t come true. It’s impossible. We hope to see 1-1. 5% of economic growth this year.” The authorities in Minsk officially predicted that GDP will increase by 2.5%.
Russia is considering subsidies to Belarus as a “burden” for yourself, says Shurubovich. The problem is that Minsk can not in the short term to start to earn as much as used to spend, economists believe.
The reasons for this situation the expert of the Belarusian research center of the Institute for privatization and management (IPM) Dzmitry Kruk sees in target Minsk since the mid-1990s on Russia to ensure the functioning of the Belarusian economy without the shock and turmoil: “In fact, we put all the eggs in one basket, so any change to the format of Belarusian-Russian relations can have a negative impact on Belarus”. Now this dependence in RB are trying to reduce, however, given that it’s been growing for 20 years, simultaneously it is difficult to do, I’m sure Kruk.
What is the dependence of Minsk on Moscow
Belarusian and Russian economists refer to IMF data, according to which only from 2005 to 2015, the Belarusian economy received grants in excess of $ 100 billion. Jacques Minyan from the IMF, these figures are not confirmed, proposing to use the percentage of GDP to illustrate the scale of assistance.
According to him, in a series of years annual grants Minsk from Moscow made up a quarter of the Belarusian GDP, but now they remain high: “the Volume of oil and gas subsidies in 2018 amounted to 12% of GDP. You have to understand that the actual size depends on the price of oil and gas. Than those above, the more the estimated amount.”
The dependence of Minsk on Moscow comes not only from preferential prices on gas and oil. According to the National statistics Committee of Belarus, 38% of Belarusian exports goes to Russia. Moreover, one third of Belarusian exports is the supply of petroleum products in the EU, and then Minsk is also dependent on imports of Russian crude oil. Russia is the largest borrower from the IMF loans, for example, the Belarusian authorities refused and hasn’t asked me to renew the credit line.
“At the end of 2018, the Russian Federation owned 37.6% of the Belarusian debt (7.9 billion dollars), but need to pace Belarus to give it can not, and forced every year to refinance up to 75% of the debt, and so, again, partly depend on the Russian credit” – explained the Director of the Center for economic research outreach Catherine Bornukovo. “The Belarusian economy without Russia to develop normally can not in any way – it is very tightly tied” – agrees Alexey Shurubovich.
Two scenarios for Belarus economy
Visited in November in Minsk, the IMF representative said that there “there is great uncertainty as to what will be a new integration agreement with Russia. The uncertainty prevents economic growth”. It is not excluded that Russia and Belarus fail to agree on the issue of compensation, and Minsk will remain without them.
“It will be a great shock for the Belarusian economy. But the effect is not sudden, but gradual – describes Jacques Minyan such a scenario. – We have already said, without compensation, for the tax maneuver and without external grants as a whole, without major reforms, the Belarusian economy cannot sustainably exist. Only tax reform worth 4-5% of GDP annually. For any economy, it would be a big shock.”
The second scenario – if the parties agree on the in-depth integration and in the framework of this agreement will be resolved, and the issue of compensation for the tax maneuver. In this case, the growth of the economy of Belarus, according to Minyan, will be higher. “But I would like to dispel the myth that compensation for the tax maneuver will resolve all the problems of Belarus. This is not so. Its economy suffers from low productivity, and compensation, this will not solve the problem. Compensation simply would not let the situation get worse,” adds the Minyan. And stressed that no agreement with Moscow the issue of reform will be to Belarus “issue of economic survival.”
In Minsk there is still time to mitigate the shock from the actions of Moscow
However, the Belarusian authorities still have time, respondents believe DW economists. Nothing catastrophic will happen if the parties did not agree on compensation for the tax maneuver, said Bornukovo: “If earlier the world Bank predicted 2% growth for the Belarusian economy, now without payment of the tax maneuver the forecast is no more than one percent. Drama in this, but stagnation is, of course, will be.”
In the words of Jacques Minyan, 7 and 8 Dec is not a magic date. “Yes, there will be a meeting of the presidents. But even if the Sunday agreement is signed, it will not be a big shock the next day”, predicts the IMF. In his opinion, the parties still have time for negotiations and signing the agreement in the coming months.
A Belarusian economist Dmitry Kruk comes from the fact that even at the worst variant of Belarus has a “time gap” to fix the economic situation. The budget of Belarus for 2020, according to him, compiled with consideration of a negative scenario – the lack of compensation for fiscal maneuver and receipts from the “perenoski oil” (compensation of Belarus for the high price of gas allowing transfer to the budget the customs duty on oil. – Ed.), why Minsk will lose about $ 700 million.
“In the next year to compensate for falling revenues will succeed at the expense of reserves accumulated by the Belarusian Finance Ministry last 2-3 years. But then you have to think how to stabilize the budget and reduce dependence on Russia”, – summed up the crook.