How will the situation in Ukraine affect the Belarusian economy?

    The sanctions imposed on Russia in connection with the armed conflict in Ukraine have become a serious blow to the Russian economy. A number of restrictive measures have also affected Belarus. In addition, some states have introduced their own bans, and companies have suspended operation in our country.


    Foreign exchange market

    The outbreak of hostilities on the territory of Ukraine has a serious impact on the foreign exchange market. On the first day, February 24, trading on the Belarusian Currency and Stock Exchange ended with a sharp decline in the Belarusian ruble against the euro and the dollar. The dollar rose by 5.9% (+0.1558 BYN) – up to 2.7977 BYN. The euro rose by 4.78% (+0.1430 BYN) – up to 3.1375 BYN.

    In addition, there were shortages of currency in Minsk. Some currency exchange offices stopped working, and queues lined up at ATMs.

    As of Thursday evening, March 3, the exchange rates on the Belarusian Currency and Stock Exchange (BCSE) were as follows: USD – 3.0995 BYN, EUR – 3.4443 BYN. The capital’s currency exchange offices bought dollars within the range of 2.9 – 3.18 BYN, and sold at 3.4 – 3.6 BYN, as for the Euro – they purchased for 3.1 – 3.53 BYN, and sold for 3.8 – 4.14 BYN.

    It is very difficult to predict the future of the foreign exchange market of Belarus. The situation is changing rapidly. However, a number of experts, including Vadim Iosub, a senior analyst at Alpari Eurasia, believe that the sanctions imposed against Russia will also affect Belarus. And even possible assistance from Russia will not be enough to compensate for all economic losses and to return the dollar to the rate of 2.5 BYN.

    In any case, geopolitics, the degree of escalation of the conflict in Ukraine and the situation on the Moscow Exchange will have a direct impact on the foreign exchange market of Belarus. By the way, on Thursday, March 3, the dollar on the Moscow Exchange was already worth 106.0100 RUB.

    According to the analysts of the Kosht ​​Urada project, the further fall of the exchange rate of the Belarusian ruble is now being prevented artificially, and many more shocks await the Belarusians.

    An important factor for the foreign exchange market is the sharp strengthening of the Belarusian ruble against the Russian ruble, which means an increase in prices for Belarusian goods for Russian people and a decrease in prices for Russian goods for the Belarusian side.

    As a result, there is an increase in imports and a decrease in exports, an increase in import costs and a decrease in foreign exchange earnings. As a result, on the domestic Belarusian market, the supply of foreign currency is reducing and the demand for it is growing. The Belarusian ruble is weakening – in real terms, in terms of the consumer basket. This process takes several months, but it is inevitable,” experts say.


    Banking sector

    The banking sector of Belarus has been affected by the situation in Ukraine as well. Before the start of the armed Russian-Ukrainian conflict, the VEB.RF state corporation came under Western sanctions due to Russia’s recognition of the Donetsk and Luhansk People’s Republics.

    Subsidiaries of VEB, including Bank BelVEB, came under the sanctions. True, the bank immediately (on February 23) made a statement that the institution was operating normally and provided a full range of services to private individuals and legal entities. Also, Bank BelVEB assured that the cards issued by the bank worked without restrictions on the territory of Belarus and abroad.

    However, a new statement dated March 1 was no longer so optimistic: “Due to the sanctions imposed on BelVEB Bank by the EU and the USA, our Visa and Mastercard cards have become impossible to use to pay for goods and services outside the Republic of Belarus.”

    In addition, since February 25, 2022, Bank BelVEB has suspended the acceptance of documents from private individuals for obtaining loans and increase in the amounts (limits) of loans under 11 lending programs.

    Since February 25, the acceptance of documents for a number of retail loan products has also been suspended by Belagroprombank. The credit for consumer needs, the credit “Na raz” (“For one time”) and a number of others are no longer available. It’s the same with “Supersila” (“Superpower”) credit cards.

    Belinvestbank also did not stand aside. From March 1, 2022, the acceptance of applications from private individuals for the provision of certain loan products for consumer needs and real estate financing has been temporarily suspended. Lending to legal entities is carried out in the usual mode.

    In addition, currency transfers abroad became unavailable. Services of international transfers “Western Union” and “Zolotaya Korona” are not available. According to the bank’s statement dated March 1, denials of service are possible for transfers with Visa and Mastercard cards.

    On the territory of Belarus, all Belinvestbank cards continue to work. At the same time, payments with Visa and Mastercard cards are not available in online services (Yandex, Ozon, Wildberries, AliExpress, etc.), as well as using tokenized Mastercard and Visa cards in Apple Pay, Wallet Pay, Samsung Pay, Xiaomi Pay wallets, Garmin Pay, Fitbit Pay, Pay.

    On Wednesday, March 2, the largest bank in the country Belarusbank assured that transactions with private individuals in the direction of payment cards are carried out as usual. Cards issued by the bank work without restrictions on the territory of Belarus and foreign countries.

    However, payment and cash withdrawal operations using Apple Pay, Samsung Pay, Wallet Pay, Garmin Pay, Huawei Pay, Fitbit Pay services may not be available.

    Other banks also have problems in their work. Apple Pay, Samsung Pay and other similar services are not available at Dabrabyt Bank. However, card payments work in Belarus. The Bank recommends making transfers from cards through ERIP (Settlement system).

    The use of Visa and Mastercard cards of Dabrabyt Bank is not available abroad: restrictions affected payment for purchases using cards in stores, on foreign Internet resources (Ozon, Wildberries, AliExpress), as well as cash withdrawals from ATMs abroad.

    Some operations using bank cards are not available at Bank VTB Belarus: cashless payments in stores and on the Internet, cash withdrawals from ATMs of other banks.

    Technobank has suspended operations on depersonalized metal accounts since February 25. RRB-Bank has reported that Visa cardholders are temporarily unable to operate operations outside the Republic of Belarus, including in foreign online services (Yandex, Wildberries, AIlExpress, Ozon). Since February 28, Zepter Bank has temporarily suspended accepting new applications for loan programs for private individuals: “Zepter Club”, “Overdraft on Card”, “Zepter Online”.

    Banks of other countries and international financial institutions added fuel to the fire flames.

    From March 1, 2022, the National Bank of Ukraine banned the transfer of money to the accounts of individuals – cardholders of Belarus and Russia. Such cards are no longer accepted for payment, it is impossible to send a transfer or withdraw cash from them.

    On Tuesday, March 1, the Board of Directors of the European Bank for Reconstruction and Development (EBRD) voted for the adoption of sanctions measures against Russia and Belarus. If approved by the bank’s governors, Russia’s and Belarus’ access to EBRD finance will be suspended indefinitely.

    On Wednesday, March 2, The World Bank made a statement about the suspension of all its projects and programs in the Republic of Belarus and the Russian Federation.

    The Asian Infrastructure Investment Bank headquartered in Beijing, the main shareholder of which is the Chinese authorities, has suspended all operations related to Russia and Belarus since March 3.

    Thus, the end of February and the beginning of March turned out to be very “hot” for financial institutions – a number of Belarusian banks (both state and commercial) faced interruptions in the work of cards, reduced the provision of services (crediting, operations on unallocated metal accounts, etc.).

    Another issue is customer dissatisfaction. Instability in work undermines confidence in banks, many are trying to withdraw money from cards as soon as possible; some people withdraw money deposited in banks – they feel safe when the savings are “in hand”.

    The position of international financial institutions (World Bank, EBRD) also does not add optimism.

    Prime Minister of Belarus Roman Golovchenko spoke about the main risks for the Belarusian economy in connection with the already imposed and potential sanctions of the West against the country. The sanctions also apply to the banking sector, the Prime Minister stated.

    These measures significantly reduce the ability of bank customers to use payments in dollars and euros. The issue of disconnecting from SWIFT is being discussed. Some Russian banks have already been turned off,” Golovchenko said at a meeting of the Presidium of the Council of Ministers on Wednesday, March 2.

    It should be noted that, unlike Russian banks, Belarusian banks are not yet disconnected from the SWIFT international interbank system.

    It is likely that gradually the problems that have already become obvious in the Russian economy and the financial sector will be relevant for Belarus as well. And if this happens (and the probability of such a situation is very high), the banking system will “shrink” even more.

    Will Russia help? Maybe yes. However, the question is: why will Russia do this and how beneficial is it for Russia?

    Russia has a lot of money but also a lot of its citizens, a lot of its regions that need money. So far, we do not see any strong desire of Vladimir Putin to shower Belarus with money,” says Lev Lvovsky, senior researcher at BEROC (Kyiv).

    Today, Russia has enough problems of its own. Especially in the context of the military conflict with Ukraine and sanctions pressure from the West.


    Real estate market is bracing for the worst

    The first news about the hostilities in Ukraine reduced the demand for real estate in Belarus by a third. The remaining buyers were slowed down by banks, one by one closing loan programs for real estate.

    Andrey Chernyshev, deputy head of the consulting and analytics department at Tvoya Stolitsa Group of Companies, notes: “As soon as the dollar rises in price, real estate automatically rises in price – in Belarusian rubles, no matter how much some would like to neglect it.”

    The situation with housing in Belarus is directly related to the credit support of banks. For many people, the only way to buy a flat is to use a bank loan. Right now there is a risk of losing this option – there will be no banks to borrow from.

    I would like to remind you that in 2019, when the loan rate went up, the number of buyers with loans fell by half: from 60+ to 30% on the primary housing market, and from 32 to 18% on the secondary housing market. There will be the same story soon. Bank loans will not only rise in price, but at the same time, the conditions to get a loan will become tougher. Theoretically, there is a risk that we will return to the 35-40% per annum rates that we had in 2014-2015, or we will completely lose this financial instrument,” Andrey Chernyshev believes.


    Expansion of economic sanctions

    On Wednesday, March 2, the Official Journal of the European Union published a list of additional economic restrictions applied to the Republic of Belarus.

    The European Union sanctions apply to:

    • – supply of dual-use goods and technologies to Belarus;
    • – supplies to Belarus of goods and technologies that can contribute to the military-technical strengthening of Belarus or the development of the defense sector;
    • – imports of wood products produced or exported by Belarus;
    • – imports of cement products produced or exported by Belarus;
    • – imports of rubber products produced or exported by Belarus;
    • – deliveries of certain equipment to Belarus;
    • – imports of steel and iron products produced or exported by Belarus.

    Thus, the EU will not buy a number of commodity items from Belarus. And this is a serious blow to the country’s exports.

    For example, in 2021, the export item “wood and wood products; charcoal” brought foreign exchange earnings to Belarus in the amount of 2,329,693.1 thousand dollars.

    The value of exports of products from cement, concrete or artificial stone amounted to 130,136.2 thousand dollars, products from asbestos cement – 3,942.1 thousand dollars.

    Foreign exchange earnings from the export item “wire of non-alloyed steel” amounted to 246,565.6 thousand dollars last year, from the commodity item “hot-rolled bars in coils of non-alloyed steel” – 235,595.1 thousand dollars.

    These are just a few examples; the list of items is much larger. All of the above products in 2021 were actively supplied to the EU countries (Italy, Poland, Lithuania, the Netherlands, Germany, Estonia, Austria, etc.).

    In addition to extended EU sanctions, Belarus is facing new trade policies from Canada.

    The Canadian authorities have decided to deprive the Russian Federation and Belarus of the status of the most favoured nation in trade, and have introduced tariffs of 35% on exports from these countries.

    In 2021, the trade turnover between Belarus and Canada amounted to 47,695.3 thousand dollars. Belarusian exports reached the level of 16,489.4 thousand dollars, imports from Canada – 31,205.9 thousand dollars.

    Against the backdrop of new restrictions, as well as sanctions measures taken earlier, one can expect a drop in Belarusian exports, although official plans for 2022 were based on the fact that supplies to the external circuit would continue to grow.

    Last year, Belarusian exports grew by 36.7% and reached 39,889,022.8 thousand dollars. This phenomenon, associated with active supplies abroad, has already been called a “foreign trade miracle”.

    True, a miracle is usually a fleeting, one-time phenomenon, which has the property of suddenly appearing and also suddenly and quickly disappearing.


    Non-cooperation and boycott of Belarusian goods

    Over the past week, a number of companies, institutions and retail chains have refused to cooperate with Belarus. Of course, this will not give the same effect as sanctions do, but nevertheless, there will be consequences for the economy and the image of the country (albeit minimal ones).

    The Estonian retail concern Coop Eesti, following the example of other retail chains, announced on Friday, February 25, the termination of sales of Russian and Belarusian goods. Earlier, the international trading networks Rimi and Maxima operating in Estonia announced the termination of trade in products of Russian and Belarusian production.

    The Lithuanian national postal service operator (Lietuvos Pastas) has suspended money transfers to Russia and Belarus.

    The delivery of goods and documents to Russia and Belarus was also suspended by the transnational postal and logistics company DHL, which is part of the Deutsche Post DHL group of companies.

    In addition, the production and retail trade group IKEA, which is one of the world’s largest retail chains selling furniture and household goods, announced the suspension of activities in Belarus and Russia.

    The American online store of goods for beauty and health iHerb temporarily does not deliver goods to Belarus. There is also information that H&M stores stopped working in Minsk, suspending sales “for an indefinite period”.