The Belarusan parliament has completed the formality of approving the draft budget for 2000 presented by the government of Prime Minister Syarhey Linh and endorsed by President Alyaksandr Lukashenka. This budget is based on highly optimistic assumptions about GDP growth and inflation for this year and sets unachievable targets. Economic growth in the country slowed sharply in 1999 to an officially estimated 3 percent–down from 8 percent reported in 1998 and 11 percent in 1997–due in large part to the drastic downturn in sales to Russia and other CIS countries in the wake of the 1998 financial crisis (Reuters). The CIS still accounts for about three-quarters of Belarusan exports. Moreover, the official Belarusan estimate for real growth in GDP last year is likely to be grossly overstated because the deflators used by Belarusan statisticians fail to account adequately for the impact of inflation. Even according to official statistics, which include developments in controlled prices for many staple consumer items available only at much higher prices in the unofficial economy, the level of consumer prices in December 1999 was three and a half times that of a year earlier.
The 2000 budget is based on assumed GDP growth of 2.5 percent and inflation at a monthly average of only 4.5 percent compared with the 11 percent registered in 1999 as both the ministry of finance and the central bank have pledged to tighten their policies (Reuters). The state budget deficit is targeted at 1.8 percent of projected GDP. This is the same target adopted in the 1999 budget, but the actual deficit last year was actually held to 1 percent of GDP, primarily thanks to higher than anticipated inflation. There is an important difference in the 2000 budget, however. The large-scale payments through the central bank to agriculture, for housing construction and to compensate individuals for savings lost to high inflation that have propped up output and fueled inflation were kept off-budget in 1999 but are to be included in official expenditures this year. The government claims it will rely less on the printing press and more on borrowing domestically and internationally to finance the deficit in 2000, but it is unlikely that many investors, domestic or foreign, will find obligations of the Belarusan government attractive in this environment. Thus if the Lukashenka regime attempts to use fiscal means to keep economic growth from slowing further, the pressure on the central bank will quickly mount to abandon its pledge to slow money creation this year. Very rapid inflation elsewhere in the CIS has resulted in abrupt changes in government in recent years. A further exacerbation of the inflationary spiral in an effort to support output and employment could rapidly erode Lukashenka’s popularity and strengthen the hand of the country’s beleaguered political opposition in the run up to the parliamentary elections slated for 2001.
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