BOFIT Viikkokatsaus / BOFIT Weekly 2021/33

Last week marked the first anniversary of the disputed Belarus presidential election. In the interim, the Belarus government has committed extensive human rights violations, as well as interfered with international air travel and organized irregular migrant flows into the EU. In response to these, the EU, US, UK and several other countries have incrementally implemented tightening sanctions on the Belarusian government. The EU’s fourth sanctions package implemented in June, among other things, restricts exports of dual-use products, as well as trade involving fertilisers, petroleum products and products used in the manufacture of tobacco products. In addition, restrictive measures have been gradually imposed in Belarus’ financial sector.

Last April, the US placed nine of Belarus’ large state-controlled companies on its sanctions list. The US sanctions were extended last week to include a number of private firms and corporate clusters important to the government, as well as state-owned potash (potassium chloride) producer Belaruskali. Belaruskali produces about 20 % of the world’s potash, mainly used in fertilizers. Potash is Belarus’ second most important export product and second largest source of foreign currency income.

The US sanctions significantly complicate the payment traffic of the country’s main export enterprises and force all participants in Belarus trade to take great care in the specifics of each transaction. The possibility of further expansion of the sanctions regime poses a risk to the many Russian firms that work with Belarussian companies on the sanctions list. The loss of access to dollar-based financing poses a particular threat to the Belarus economy as the country’s financial system is extensively dollarised. Belarus government debt at the end of 2020 was almost entirely denominated in foreign currencies, and 47 % of the banks’ credit stock was in forex. About 60 % of the general public’s bank deposits are denominated in foreign currency. Loans granted to Belarus by Russia and the Eurasian Development Bank are also denominated in US dollars.

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