More conservative monetary and fiscal policy in 2001 has slowed economic growth in Belarus. The cause: a reduction of subsidies and credits to agriculture and industry. Through August, growth in GDP totaled only 3.0 percent. The Ministry of Statistics estimates that agriculture grew by 5.8 percent. Moreover, retail sales were strong because consumers were willing to spend more of their rising salaries now that inflation has slowed. Growth in retail sales helped to propel a 4.2 percent increase in the production of consumer goods, while overall industrial output grew by 4.3 percent through August. Nonetheless, a few segments of the economy are holding back overall growth. Investment remains flat, and declines in construction output continue to be a drag on the economy.
Rising industrial output continues to be fueled by demand for Belarusan goods in Russia, Belarus’ key export market. The slowdown in Russian demand, however, will put the brakes on the very rapid growth in industrial output recorded over the past several years. The rate of industrial production has already slowed significantly since last year, when gross output of industry was up by 8.0 percent. Another factor in the rise in industrial production is that a number of the large, inefficient state-owned industries that dominate Belarusan production continue to produce significant numbers of goods for which there are no markets. As a result, inventories continue to grow in Belarusian warehouses.
Belarus’ external balances have fared well this year. In the first seven months of 2001, the country posted a small customs-based trade deficit of US$7.9 million, compared with a much more substantial US$723.5 million deficit for the same period last year. Exports grew by 3.9 percent to US$4,299.4 million while imports fell by 11.4 percent to US$4,307.3 million. In the first quarter of 2001, Belarus recorded a surplus on the current account of US$227.6 million. In the past, Belarusan current-account deficits have been financed by Russian enterprises that have provided goods to Belarus without demanding cash prepayment, allowing Belarus to import beyond its means. However, it now appears that Russian oil companies and the gas monopoly Gazprom are beginning to force Belarus to pay for oil and gas shipments. If Russian firms continue to apply market principles in relations with their Belarusan counterparts, that could signal that trouble is ahead for the Belarusan economy (Ministry of Statistics, National Bank of Belarus).
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