The Presidential Administration of Belarus expects the economy to double in size between 2011-2015, though President Alexander Lukashenko said the government should aim for a more modest target of 62-68% above the current size of the economy.
The deputy head of the Presidential Administration, Leonid Anfimov, told the government at the end of August: "We believe the country will thus have a 'new face'," and that the GDP growth forecast for next year is 9-10%, industrial output is to increase 9-9.5%, and capital investments are to expand 16-17%, reported Prime Tass.
After being hit hard by the global economic crisis, Belarus has been doing relatively well, largely thanks to heavy government spending. Over the first seven months of this year, the economy grew by 7% to BRR83.836 trillion ($27.8bn), with industrial output increasing 9.6% on the year.
At the same time the situation in the bank sector improved considerably, with local banks' loan portfolios up by a fifth over the first half of this year, investment portfolios up by a third and foreign capital in the banking sector reaching just under 30% of total sector assets.
But there are clouds on the horizon. Analysts warn that the main danger is growing inflationary pressures: producer prices have been growing twice as fast as consumer prices since December 2009 and economists expect the price rises will spill over into the shops sooner or later. Indeed, the state has already begun to increase the price on staples like milk and eggs, while household energy prices were also raised by 20% in August.
However, the plan isn't working. Investment is nowhere near the government targets, despite the growing commitment by the state to finally open up the economy to outsiders. Despite the substantial improvement of the real sector, capital investments were up by only 5% in January-July, well below the original target of 23-25% or about $2.7bn of foreign direct investment. "We should change our investment policy and go over from individual projects to wide-scale cooperation with foreign investors," Prime Minister Sergei Sidorsky said at the start of the year when the targets were set.
Furthermore, local banks that are largely controlled by the state funded what economic recovery has so far been achieved, but this isn't sustainable as a long-term solution. In 2009, banks propped up business by expanding their lending to the economy by 42.2% on year. But more telling was the share of short-term loans in the portfolio soared by almost half that year. Moreover, banks' share of invested capital in Belarus rose to just over a third, according to Belstat, which is triple the share of Russian bank loans in invested capital.
Belarus' current account deficit is falling, down 41.4% in the first quarter on year, but still stood at $1.127bn. The government issued a $500m Eurobond in August, but will have to borrow more - there are plans for a $1bn Eurobond - to plug the gap at a time when international credit markets are in poor shape and appetite for bonds is low. The result is the budget deficit has been growing relentlessly: by the end of the first seven months of this year, the budget deficit reached almost BRR2 trillion, or 2.4% of GDP.
The Belarusian government sees no other way to tackle the deficits but to sell strategic state property, the deputy head of the Presidential Administration, Leonid Anfimov has said, but the prospects of raising money this way are poor.
Bottom line is that Minsk is more dependent than most CIS countries on the recovery in its two export markets of the EU and Russia. However, neither of these markets look to be in any position to help out Minsk until next year at the earliest. In the meantime, the best Belarus can do is muddle through and hope the growing strains on the banking sector don't get worse.