Belarus and Russia: Dependency at a price

Russia and Belarus could sign an integration treaty as early as this weekend, a possibility that Belarus President Alexander Lukashenko noted just days ago. Yet, it is unclear what exactly is in the treaty text. Russian media outlets have claimed to have copies of it and suggest the deal would be less of a political nature, dealing instead with fundamental economic and social integration between the two countries — issues such as a common tax system and civil law codes.

Russia and Belarus have been in an official state union for 22 years. Still, the possibility that the two will move even closer has been thrown into doubt by conditions put forth by Lukashenko. He has demanded the two partners first come to an agreement on Russian subsidies for his country.

Russia wants to lighten its burden

Belarus is totally dependent upon Russian financing for its survival. Almost one-quarter of its GDP (roughly $55 billion / €50 billion) is driven by cheap Russian gas and oil. Yet Russia is stuck in an economic crisis of its own and wants to contribute less to Minsk than it has in the past. This year, Russia changed its tax laws, something that negatively impacted Belarus. Above all, prices for Russian oil at Belarus refineries went up, cutting revenue for Minsk. "That's a double loss for Minsk," says Russian economics expert Alexey Shurubovich. It is estimated that this change alone will cost Belarus some $11 billion in revenue by 2224.

Jacques Miniane of the International Monetary Fund (IMF) says Minsk is already suffering economically under the changes to Russian tax law.

Belarus economics expert Dmitri Kruk points out that Minsk consciously decided to pursue close relations with Russia in the 1990s in order to protect itself against economic shock: "Essentially, they put all their money on one horse." Minsk cannot simply declare its independence from Moscow now, says Kruk.

Dependent on Moscow — not just for oil and gas

Jacques Miniane of the IMF says that even though Russian oil and gas subsidies have been sinking for years, they still made up roughly 12% of Belarus GDP in 2018. And Alexey Shurubovich points out that the two economies are closely intertwined. Belarus exports some 40% of its goods to Russia.

And Moscow is also Minsk's largest creditor: Almost 38% of Belarus' debt is with Moscow, as Belarus economics expert Kateryna Bornukova tells DW. She says Belarus has no similar credit scheme with the IMF. 

Two scenarios

According to Miniane, whose IMF mission recently visited Belarus, there is "great uncertainty" about the new agreement in Minsk. He adds that it is anything but certain that Moscow will be able to reach an agreement with Belarus strongman Lukashenko. In the past, a number of pending agreements, such as a proposed monetary union, have gone up in smoke.

If the integration pact should collapse, and therewith compensation for Russian tax hikes fail to appear, "It would be a significant shock to the Belarus economy," says Jacques Miniane. "We have said it before: The economy will cease to exist in the absence of Russian compensation and subsidies and massive Belarus reforms."

Yet Miniane says even with Russian compensation, the future doesn't look all that rosy for Minsk: "I would like to dispel the myth that it would erase all of Belarus' troubles. Compensation will do no more than keep the situation from getting worse than it already is."

Experts say Belarus still has time to buffer the effects of price hikes in Russia. "One could use savings generated over the past several years to compensate for losses next year," says Dmitri Kruk. "But they will still have to come up with plan to stabilize the budget and curb dependence on Russia."Every evening at 1830 UTC, DW's editors send out a selection of the day's hard news and quality feature journalism. You can sign up to receive it directly here.