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

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Abstract

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.

Suggested Citation

  • Stephan Barisitz, 2022. "The Belarusian banking sector (2016–2021): from timid recovery to renewed crisis?," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/22, pages 55-69.
  • Handle: RePEc:onb:oenbfi:y:2022:i:q1/22:b:3
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    File URL: https://www.oenb.at/dam/jcr:8c2625a3-4d23-43dd-95f1-201182de07d1/04_FEEI_q1-22_The-Belarusian-banking-sector.pdf
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    References listed on IDEAS

    as
    1. Stephan Barisitz, 2016. "Belarus in recession, banking sector in difficulties – Russia to the rescue," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 41-49.
    2. Amat Adarov & Kateryna Bornukova & Rumen Dobrinsky & Peter Havlik & Gabor Hunya & Dzmitry Kruk & Olga Pindyuk, 2016. "The Belarus Economy: The Challenges of Stalled Reforms," wiiw Research Reports 413, The Vienna Institute for International Economic Studies, wiiw.
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    More about this item

    Keywords

    state capitalism; government-directed lending; soft budget constraints; evergreening; recapitalization; dollarization; quasi-fiscal activities; muddling-through strategies; sanctions;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P34 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Finance

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