Economic Transformation for Grow th
•• Belarus has higher export market concentration than any of its neighbors (figure 1.8). The export destination concentration index shows that Belarus sells its exports on fewer markets than comparator middle-income countries. High export market concentration is an indication of external vulnerability. These two trends—the increase in export product and export market concentration—reveal a declining role of nonenergy trade for Belarus (figure 1.9). While the energy trade deficit is subject to large swings in volatility and uncertainty about imported oil and gas prices and, in effect, is an exogenous product of trade negotiations with Russia, the nonenergy trade balance could be influenced by appropriate economic policies.
Figure 1.9. Energy and Nonenergy Balance
Figure 1.10. Indexes of Real Wage, Real Incomes, and Labor Productivity Growth
in percent of GDP
2000=100
2 0 -2 -4 -6 -8 -10
2001
2005
Energy trade balance/GDP
2006
2007
2008
2009
Non-energy trade balance/GDP
Source: World Bank calculations based on Belstat data.
2010
400 350 300 250 200 150 100 50 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Real incomes growth
Real wages growth
Labor productivity growth
Source: World Bank calculations based on Belstat data.
The opportunity presented by the external environment was not used by Belarus to restructure its export pattern strategically and lay down the foundations for sustainable export-driven growth. Overall, the economy’s growth remained highly dependent on ToT gains from energy-dependent exports. A strong positive association is evident between the growth rate of the economy and ToT, rendering the Belarusian economy vulnerable to external shocks (figure 1.5 and figure 1.6). Indeed, as Russia gradually started to move toward market-based pricing of its energy exports to Belarus, import prices for oil and gas increased, and Belarus’s export dividends declined. The decline in energy subsidies from Russia exposed structural vulnerabilities of the economy. The energy subsidy for Belarus was more than halved in 2009–10, from 14.5 percent in 2008 to close to 6 percent of GDP in 2010 (figure 1.3). ToT also declined by over 11 percent year-on-year in 2009, contributing to rising trade and current account deficits. The current account deficit reached 15.0 percent of GDP in 2010 as compared to a surplus of 1.4 percent of GDP in 2005 (figure 1.11). The energy prices between Russia and Belarus had to be renegotiated annually, making the economic fortune of Belarus highly dependent on these negotiations (box 1.1). As a result, since 2005, economic growth in Belarus has relied on foreign savings. The current account deficit became increasingly financed by external borrowing, with limited FDI and reserves (figures 1.11 and 1.12):
Chapter 1. A Grow th Model in Peril
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