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An involuntary war of economic models? The economies of Belarus, Russia and Ukraine in the first quarter of 2024

In October 2022, the Ukrainian researcher Volodymyr Ishchenko wrote a piece titled “Russia’s military Keynesianism”. While the Kremlin – in his assessment – was implementing policies of statism and redistribution, Kyiv focused on the neoliberal limitation of state participation. Belarus – as it frequently happens, sadly – was omitted from this comparison despite likely looking much like Moscow.

May 27, 2024 - Kacper Wańczyk - Analysis

Minsk Automobile Plant. Photo: Jasen Wright / Shutterstock

Belarus – only the price of caviar changes

Belarusian GDP in the first quarter of the year reached 4.1 per cent. Growth came mostly from the maintenance of high levels of internal consumption, supported by last year’s state policies of stimulation. The increase in the output of oil products and potassium fertilizers supported the growth.

Factors resulting from close economic relations with Russia also contributed to this growth. The growing demand of the Russian market, which remains the only significant foreign partner for Belarusian companies, ensured that part of the country’s food production found clients. It is also possible that part of the machinery plant production in Belarus was sold to the Russia military sector.

Despite suggestions last year from some analysts, the inflation dynamics remained acceptable. The rate in March equalled 5.6 per cent, so the National Bank of Ukraine kept the June 2023 base exchange rate at the level of 9.5 per cent. As last year, this was mainly an effect of a policy of manually controlling prices. This helped to tackle the pressure coming from the side of demand.

The so-called “Dranik index” (the price of products required to prepare traditional potato pancakes), calculated by the “Belarus.Eskpertiza” independent group, showed a minimal fall in the prices of basic food products, again confirming – to some extent – the effectiveness of the price control policies. The experts calculated two variants of this index deemed “normal” and “exclusive”. The second showed a significant drop in prices and the authors explained this was due to the fall in the price of caviar.

The economy of Belarus is experiencing workforce shortages. According to the experts of the independent BEROC centre, in the first three months of 2024 there were 1.1 employees for every vacancy, which is a historical minimum. This is probably an effect of the continuous migration of Belarusians, although this figure is still significantly lower than during the immediate aftermath of the 2020 repressions.

Russia – militarization pays off

The Council of Directors of the Central Bank of Russia, deciding to maintain the base exchange rate at the level of 16 per cent, at the end of April stressed that the significant push for growth in the economy came from internal consumption, which was growing faster than expected. The explanation for this is simple: state expansion saw more money poured into companies (more public procurements and import substitution programmes) and households (the growth of income).

Internal demand also partly contributed to the positive results of the execution of the budget in the first three months of the year. Federal budget income turned out to be 50 per cent higher than at the same time in 2023. The Russian finance ministry even closed March with a surplus of 9.3 billion US dollars. The deficit in the first quarter was 0.3 per cent of GDP.

For the budgetary revenue, inflows from the oil and gas sector were more important than the internal demand. These were 79 per cent higher than in the same period last year. This level of inflow was attributed to two factors. Firstly, high oil prices have persisted since the beginning of the year – Brent prices remained above 80 US dollars per barrel throughout the whole period. Secondly, the changes that Moscow introduced last year in the sector’s taxation also brought results. These adjustments included the new approach to calculating the Mineral Resource Extraction Tax (disconnecting it from the level of exports) and the introduction of windfall taxes.

All these phenomena led to GDP growth of 5.2 per cent in the first quarter of 2024. At the same time, unemployment in March dropped to a historically low 2.7 per cent. In its March report, the Centre for Data and Research on Russia (CEDAR) explains that using this indicator is not fully reliable for several reasons. Still, it labels it as “Somewhat reliable” on a three-point scale. Moreover, several experts and journalists, as well as Russian officials, have – in recent months – underlined the lack of cadres in the economy as one of the major problems right now.

 Ukraine – signs of internal recovery

Ukrainian data – due to the most obvious reasons – arrive later than the Russian ones. Kyiv has not yet published data for GDP in the first quarter but the prognosis suggests that it reached 4.5 per cent. Meanwhile, the situation with inflation was better than in Russia. At the end of April the National Bank of Ukraine (NBU) decided to lower the basic interest rate by one percentage point to 13.5 per cent.

The Ukrainian budget continued to depend on external financing. As a result, the finance ministry struggled to execute it in the first two months and was only able to stabilize it in March, when it received a significant inflow of nine billion US dollars, of which more than half was transferred from the EU. Another important source of income for the budget was the record revenues that came from corporate taxes and excises. This was mostly a consequence of the continuous recovery of business activity within the country. This was partly because of a positive mood among entrepreneurs (particularly in trade and construction) but also the initiation of some infrastructure projects (multimodal transportation) financed by the state.

Interestingly, Ukraine also experienced a deficit of employees much like Belarus and Russia. The number of vacancies reached 60,000 overall. This amounts to February 2022 levels, surpassed only by the September to October 2021 situation after the COVID-19 pandemic. According to NBU analysts, this is mostly the effect of inflation levels that still remain high.

However, since all these elements are largely external to Kyiv’s policies, it is best to have a look at the “Reforms matrix”, which was presented on Valentine’s Day at a meeting of the Steering Committee of the Multi-Agency Donor Coordination Platform for Ukraine (Italy, Canada, the EU, France, Germany, Japan, Ukraine, the UK, and the US) by the Ukrainian Finance Minister Sergii Marchenko. It may help us to have a peek inside Kyiv’s understanding of macroeconomic policies.

While writing about reforming state companies, the authors rather focus on the strengthening of corporate governance, rather than discussing full-scale privatization in the style of the 1990s. The parts concerning the plans to strengthen small and medium-sized enterprises seem to be no more “neoliberal” (to use Ishchenko’s words) than in other transformation efforts. One could be more suspicious while reading about planned changes in the labour regulations, given the fact that the easing of workers’ protections introduced in early 2022 was never changed. It is also not clear what it would mean to “to enhance harmonization with EU acquis” in this particular sphere. But overall, the document – like many produced by the Ukrainian government – seemed to be rather a combination of statements, to please foreign supporters, than an elaborate strategy.

Into the second quarter

Looking at the dynamics in the first quarter of 2024, two years into the Russian invasion, one may notice some similarities in the behaviour of the three economies. The internal dynamics in all of them seemed to be benefitting from the growth of internal consumption (although to a different extent). The state sector and the impulses coming from it, remain important elements in the functioning of these economies. However, here I would agree that the private sector in Ukraine remains stronger than in Russia and – even more so – in Belarus. At the same time, this does not seem to be an effect of recent (or for that matter any) strategies from Kyiv.

Ishchenko’s framework may have come from a desire to introduce a new version of the conflict between capitalism and communism. But it seems that the war behaviour of the three economies is only to a limited extent an effect of the conscious economic policy decisions of Kyiv, Minsk and Moscow. Mostly this is a result of the institutional setup of these economies. Ukraine’s economy was already more decentralized and more “voluntary” (if you will) than those in Belarus and Russia. In fact, what we rather saw, for example, last year was rather an attempt by the presidential centre to centralize control over the eonomy. The Belarusian economy was and remains the most centralized of the three. Therefore, in fighting the effects of the war they instinctively went for , to quote the part of Donald Rumsfeld’s (former US secretary of state) famous speech on weapons of mass destruction and Iraq..

But I think that in one instance the author of “Russia’s military Keynesianism” was right. Redistribution in Russia, caused by the military policies, will solidify an important part of society’s support for the existing system.

Kacper Wańczyk is an analyst focusing on Belarus, Russia and Ukraine and a PhD student at Koźmiński University in Warsaw. He is a former diplomat who has served in Belarus and Afghanistan, among other places.


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