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Belarus faces a funding conundrum

The Ukrainian crisis has come at a bad time for Belarus’s state-driven economy, already in urgent need of external financing to fend off a balance-of-payments crisis.

In the months since the annexation of Crimea, the likely impact of Russia’s actions – and the western sanctions imposed in response – on its own faltering economy has been exhaustively discussed. Yet the potential knock-on effect of the crisis on Ukraine’s northern neighbour, Belarus, has been almost entirely ignored.

This is perhaps unsurprising, given the reluctance of authoritarian president Alexander Lukashenko to open his country up to private-sector – and especially western – investment. Twenty-three years on from the demise of the Soviet Union, the state still controls more than two-thirds of Belarus’s economy, while Russia remains the country’s key trading partner and main source of external investment.

This means, however, that Belarus is uniquely vulnerable to any further slowdown in Russia, particularly given the country’s own economic weakness. Even before theUkrainian crisis, researchers at VTB Capital were predicting GDP growth of just 1.7% for Belarus this year, a forecast that has since been shaved by a further 50 basis points.

Putin and Lukashenko envelope
Russian president Vladimir Putin (R) and Belarus's president Alexander Lukashenko shake hands before watching the men's ice hockey world championship

Gunter Deuber, head of CEE bond and currency research at Raiffeisen Bank International, takes an even gloomier view.

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