Executive Summary.. 5
Core Views ..5
Major Forecast Changes ....5
Key Risks To Outlook ....5
Chapter 1:Political Outlook.. 7
SWOT Analysis... 7
BMI Political Risk Ratings..... 7
Domestic Politics .. 8
Significant Dangers In 2012 And Beyond.....8
As the Belarusian economy remains mired in a severe financial crisis, the political administration faces severe political headwinds over
the medium term. Not only does the prospect of political dissent remain high in light of the deteriorating macroeconomic outlook, but the
risk of becoming overdepenedent on financial aid from Moscow has similarly risen. Similarly, while efforts have been made to improve
the countrys business environment in the past year, corruption remains a major impediment for the investment climate.
TABLE: Political Overview.. 8
Long-Term Political Outlook... 10
The Balancing Act Will Continue.....10
Belaruss long-term political stability is in jeopardy due to the countrys lack of institutional development beyond the executive branch.
Consequently, while our core scenario is for President Alexander Lukashenkos regime to maintain its grip on power over the long term,
we do not rule out the possibility of growing public dissatisfaction resulting in a sudden change of leadership or direction, particularly
in light of the countrys recent economic crisis. We believe the countrys greatest challenge over the coming decade will stem from the
regimes efforts to diversify its foreign policy agenda while maintaining strong links with Russia.
Chapter 2: Economic Outlook.... 15
SWOT Analysis..... 15
BMI Economic Risk Ratings.... 15
Economic Activity.... 16
Slowdown Due In 2012..16
While Belarus strong economic performance in the first half of 2011 will ensure full-year growth of 4.5%, economic activity is
nonetheless slowing sharply. Owing to the negative effects of the massive depreciation of the ruble in 2011, household demand and
business activity will remain weak in 2012, supporting our real GDP growth forecast of 2.2%. Moreover, while Russian financial support
has helped alleviate near-term external financing pressures, this has the potential to weaken political appetite for a rebalancing of the
economy.
TABLE: ECONOMIC ACTIVITY.. 16
TABLE: CURRENT ACCOUNT ... 17
Balance Of Payments.. 18
Near-Term Financing Pressures Easing.....18
In light of the massive depreciation of the ruble in 2011, Belaruss current account deficit is expected to correct sharply over the medium
term. Moreover, Moscows commitment to support Minsk via lower gas import payments and soft loans has helped alleviate near-term
pressures on Belaruss external financing needs. However, at the same time, this development serves to heighten Belarus economic
dependence on Russia as well as limiting scope for economic reform.
TABLE: MONETARY POLICY.... 19
Monetary Policy.... 20
Tighter Policy Urgently Needed...20
Owing to the massive sell-off in the Belarusian ruble witnessed in 2011, consumer price inflation in the country will remain close to tripledigit
territory over the next few months. In order to stabilise the economic situation and begin to bring inflation lower in 2012, authorities
will need to tighten monetary and fiscal policy considerably from current levels, which in turn will exact a heavy economic toll on the
domestic economy.
Regional Banking Sector .... 22
CEE Risks Rising..22
Higher capital adequacy ratio requirements and sovereign mandates for banks to retrench in Western Europe are likely to feed through
to weaker funding to the Central and Eastern Europe (CEE ) region. We caution that there is a high risk of a credit crunch in CEE .
Chapter 3:10-Year Forecast... 25
The Polish Economy To 2021.. 25
Economic Liberalisation To Raise Growth Potential.25
While Belarus short-term macroeconomic environment has worsened dramatically in light of the recent devaluation of the ruble, we
remain relatively upbeat about Belarus long-term growth potential on the back of rising FDI inflows and increasing exports. We also
expect the country to pursue a modest degree of political liberalisation, although we caution that meaningful democratisation is unlikely
and that Moscow will remain Minsks principal trading partner.
TABLE: LONG-TERM MACROECONOMIC FORECASTS ... 25
Chapter 4: Business Environment. 27
SWOT Analysis..... 27
BMI Business Environment Risk Ratings.. 27
Business Environment Outlook.. 28
Introduction ..28
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS... 28
TABLE: BMI LEGAL FRAMEWORK RATING... 29
Infrastructure ....30
Market Orientation ....31
TABLE: LABOUR FORCE QUA LIT Y..... 31
TABLE: EMERGING EUROPE – ANNUA L FDI INFLOWS.... 32
TABLE: TRADE AND INVESTMENT RATINGS..... 33
TABLE: TOP EXPORT DESTINATIONS , 2002-2009..... 33
Operational Risk ...34
Chapter 5: Business Environment. 35
Global Outlook.. 35
Eurozone Break-Up Risks Rising ...35
TABLE: GLOBAL ASSUMPTIONS ..... 35
TABLE: DEVELOPE D STATES REAL GDP GROWTH FORECAST .... 36
TABLE: REAL GDP GROWTH CONSENSUS FORECASTS .... 36
TABLE: EMERGING MARKETS REAL GDP GROWTH FORECAST ... 37