The Belarusian banking sector (2016–2021): from timid recovery to renewed crisis?

Belarus’ aging economic system of centralized state capitalism, in which state-owned banks continue to play an instrumental role through government-directed lending to state-owned enterprises, has experienced a decade of sluggish growth punctuated by recessions (2015/16 and 2020). The system has been supported by subsidized energy deliveries from Russia, which, however, have been curtailed step-by-step in recent years. Belarus’ high trade and financial dependence on Russia implied that the oil price slide in 2014 to 2016 also pushed Belarus into recession. The ensuing recovery featured a degree of fiscal as well as monetary tightening (reduced directed lending, move toward inflation targeting), which cut inflation and somewhat reined in the high dollarization of deposits and lending. In 2020, stabilization tendencies were interrupted anew by the crisis triggered by the outbreak of the COVID-19 pandemic and political instability triggered by the brutal repression of demonstrations against the likely rigged presidential elections of August. While the recession of 2020 turned out to be quite mild in Belarus, Western economic and financial sanctions imposed in mid-2021 are likely to have an appreciable negative impact on the economy and banks from 2022. Given Belarus’ political isolation from the West, Russia’s external “lender of last resort” status looms even larger.