Belarus’s economy is doing surprisingly well, on the back of Russia’s recovery and moreover the government is being prudent using the windfall income to pay off debt.

Belarus' gross domestic product (GDP) increased by 5.1% year-on-year in the first quarter of this year, According to the National Statistical Committee of Belarus. The official statistics showed that during the first quarter, Belarus' GDP at current prices totalled 26bn Belarusian rubles. The country's GDP grew by 2.4% last year, as the government managed to reach the economic growth parameters specified by a five-year program and compensated for the lag of 2016, which saw an annual decrease of 2.6%. According to the April edition of the International Monetary Fund's World Economic Outlook report, Belarus' economy was predicted to expand by 2.8% in 2018.

Belarus will spend almost $7bn on repaying the external debt in 2018, the authorities said at the end of March after updating its statistics on external debt.

The external state debt of Belarus totalled $16.4bn as of March 1, down by $279mn or 1.7% from early January, according to the Finance Ministry in Minsk. The result was mainly attributed to January's debt repayments, specifically the repayment of Eurobonds worth $800mn, as a result of which the nation's foreign exchange reserves declined to $6.477bn.

In S&P’s recently released report on Belarus’ sovereign rating, the continuing “milk war” with Russia was noted as a serious risk to the country’s economic outlook. While the World Bank notes that the economy has exited serious recession and it’s authorizing a $570 mn financing plan, Minsk’s access to international credit and higher resource commodity prices have driven the recovery.

Russia’s energy subsidies to Belarus are declining and its tax manoeuvre for its oil and gas producers is likely to eat into Belarus’ petrochemical exports and domestic demand.

The Ministry of Foreign Affairs is signalling that increasing exports of services will be a priority, but this dodges the heart of the economy’s problem: it’s far too exposed to energy prices and dependent on energy exports. Industrial production was up 10.2% for January-February. Only oil prices and markets for refined oil products explain it.

In 4Q last year, profits for the banking sector dropped 27.3%. The drop comes on the heels of a 7.0% drop year-on-year in real terms from January-October of last year. VTB Belarus’ small and medium-sized business lending portfolio as of January 1 included BYN197.7mn Belarusian rubles lent to 531 clients. With profits across the sector down, new loan rules were introduced by the National Bank. Banks are to refuse loans if servicing costs exceed 40% of a company’s revenues. Doing so is going to make it harder for smaller businesses trying to grow just as the country’s indebtedness continues to rise.

The ministries are circling the wagons, duking it out with Russia over violations of EAEU trade norms. Bilateral trade turnover was up 23% for 2017. Belarus ran an external trade surplus of $206mn for January-February.

Minsk is hoping to launch a joint venture with Ukraine to manufacture cranes for construction projects. Industrial joint ventures may be an interesting area to watch in the coming year. After all, Minsk is getting increasingly creative in trying to signal some sort of progress on human rights to the EU in light of this. “Diversification” remains the buzzword du jour.