Project: FREE policy brief
The Impact of the COVID-19 Pandemic in Eastern Europe | Key Points From the 2020 SITE Development Day Conference
After having been relatively mildly affected in the first wave, Eastern Europe is currently in the midst of the second wave of the COVID-19 pandemic with much higher levels of infected and dead compared to the spring. This health crisis not only has economic consequences but also has contributed to political instability in parts of the region. This policy brief shortly summarizes the presentations and discussions held at the SITE Development Day 2020 Conference, focusing on the consequences of the COVID-19 pandemic in Eastern Europe.
A Swedish Government Perspective
The conference started with the Swedish Minister of International Development Cooperation, Peter Eriksson, discussing the current situation in Eastern Europe with a particular focus on the partnership with Sweden.
According to Minister Eriksson, Swedish foreign policy in general, and foreign aid policy in particular, has historically paid too little attention to Eastern Europe. He has therefore emphasized that Swedish aid should be used to promote democracy and human rights in the region. As the pandemic has exacerbated global anti-democratic trends and intensified existing inequalities, international support and cooperation have become more essential than ever.
Minister Eriksson mentioned several priority areas of Swedish aid policy in the region, such as the fight against corruption, economic reforms for poverty alleviation, gender equality, and media freedom. Emphasizing the importance of the latter, Minister Eriksson mentioned education for journalists and financial support for small independent media as important Swedish efforts in the region. He stressed that the protection of pluralistic media is also a military security matter, as countries like Georgia and Ukraine have been targets of foreign disinformation campaigns. The importance to support democracy and civil society was also illustrated by the case of Belarus, where all ongoing projects in partnership with the state or state-affiliated organizations have been suspended. The Swedish government has successfully implemented regional projects in energy efficiency and water purification, although Minister Eriksson underlined that the need for measures to slow down climate change is intensifying.
The important role of European Union membership was also mentioned. Minister Eriksson argued that the incentives created by potential EU membership have been the main drivers of democratization, modernization, and poverty reduction as well as progress towards greener economies in the region.
In response to the pandemic, Sweden, as well as the European Union, have increased aid transfers to Eastern Europe. Minister Eriksson underlined, though, the need to not only support immediately affected sectors and outcomes, as the pandemic has many serious spillover effects in other areas already in need of help prior to the crisis.
The Economic Outlook for the Region
The second section of the conference provided a current account of the economic situation in the region by two speakers from different sectors.
Alexander Plekhanov, director for Transition Impact and Global Economics at the European Bank for Reconstruction and Development (EBRD), shared results from an EBRD survey on the impact of the pandemic. The survey was conducted in August and covered 8 emerging economies in Eastern Europe and 6 more advanced countries for comparison.
Analysis of the survey responses shows that the impact of the crisis is very broad. The share of respondents that had lost their job was 15% in emerging economies, and almost twice as high in advanced economies. Many factors contributed to this gap. One affected area was tourism, with international tourism being particularly important in many emerging economies, and hard to replace with increased domestic tourism. The outbound relative to inbound tourism for countries like Sweden and the UK equals a factor of 3 and 2 respectively, while the corresponding in emerging economies is often below 1.
Compared to the 2008 financial crisis, the economic impact over the first five months of the pandemic was at similar aggregate levels, but more unequal across socio-economic groups. For instance, job losses were higher among the young and those with lower income and with less education. Yet, the overall impact in emerging economies was 10% less unequal than in advanced economies due to differences in the structures of economies and the feasibility of working from home.
Fredrik Rågmark, the CEO of Medicover, a healthcare and diagnostics services provider operating in the region in the last 25 years, provided insights from a business perspective.
Similar to Minister Eriksson, Rågmark argued that, for Medicover, the biggest change in the region over recent years has been related to EU integration, and in particular to Poland becoming an EU Member. Rågmark noted that the change was not limited to Poland: all the countries in the region are on a trajectory of change but at different stages. In his mind, the biggest difference between the emerging Eastern Europe and the West is that people have higher expectations about the future in the East.
Rågmark recognized that corruption has been a major challenge for the region in attracting business and investors, but also that it has gotten significantly better in recent years. The EU integration process has been essential there, as membership and continued support relies on institutional reforms to improve governance and ensure political accountability. Recognizing the risk that governments lose incentives to continue reforms once membership is secured (currently exemplified by the policies in Hungary and Poland), Rågmark yet emphasized that the European Union has been extremely successful in improving the business climate in the region and should receive more recognition than it often does.
As for the COVID-19 crisis, Rågmark argued that Plekanovs description was very representative of what he has seen in Eastern Europe. Medicover experienced a drastic falloff in late March when people were not allowed to visit the hospital unless they had acute symptoms. When countries re-opened in the summer, the company had a strong rebound of replaced demand from the lockdown. Also, Medicover has contributed significantly to the testing effort across the region. Due to the challenges associated with the skyrocketing demand for PCR testing, many countries in Eastern Europe that previously only allowed the public sector to treat inpatient COVID-19 cases, have opened up ambulatory services to the private sector. In terms of scaling up testing capacity, the private sector has been very important. Medicover is now a major provider of PCR-testing in Ukraine and Poland, and the single largest provider in Romania.
Economic Policy Responses to the Crisis: Regional Experiences
In this section, experts from the FREE network provided brief overviews of the current situation in their respective countries, as well as the major developments during the year.
Belarus
The Academic Director of BEROC, Kataryna Bornukova, provided an alarming description of recent developments in Belarus. Even before 2020, the prospects of the Belarussian economy did not look great. As relations with Russia started to worsen, the year began with shortages in the oil supply which contributed to GDP contraction already in the first quarter. When the pandemic hit Belarus in the spring the government neglected its severity. Initially, no measures of economic relief were introduced and there are valid suspicions that the official COVID-19 statistics were inaccurate. Eventually, the government created incentives for state-owned companies to keep up output, slowing down the GDP contraction in the second quarter. However, these measures are now a source of financial risk for the whole country as the state has accumulated huge inventories and substantially increased public debt. Unfortunately, during the second wave, policy responses are still lacking and the ongoing political crisis worsens the situation as it hampers economic development through increased uncertainty and lowered public trust.
Poland
As for Poland, Michal Myck, director of CenEA, argued that development during the crises has been mixed both in terms of the pandemic itself and government response.
While infections were at low levels during the first wave in April, they increased sharply during the second wave at the end of October. Similar to Belarus, there have been significant political developments over the year such as the presidential election campaign and the “Women’s Strike”. Myck suggested that these events have complicated a clear strategic response to the virus. During the summer, the government shifted its attention away from preparations for the second wave, towards the July elections. The first wave was met by fiscal and monetary stimulus packages. Although employment and growth have not fallen that much relative to neighboring countries, Myck argued that Poland will be left with a significantly higher level of public debt and other challenges when the pandemic is over.
Georgia
Giorgi Papava, Center Head at ISET-PI, explained that the Georgian government declared a state of emergency and lockdown in March, despite the low number of infections at the time. From April to June, the economy then experienced a 13% drop in GDP. After the economy re-opened at the end of June, it has shown a slight recovery over the summer. Unfortunately, it was followed by a sharp increase in infections in the autumn. This second wave was not met by similar restrictions until after the elections at the end of November, again suggesting the role of politics in the pandemic response in the region. In terms of economic impact, the most severe blow for Georgia was the sharp decline in tourism affecting many sectors including hospitality and food services, construction, arts, entertainment, and recreation.
Ukraine
Olena Sholomytska, Senior Researcher at KSE, explained how Ukraine, like most other countries in the region, experienced low reported infection rates in the spring, though high detection rates and low levels of testing may suggest that real infection rates were higher. The summer was followed by a sharp increase in infections and the situation has worsened since then. The economy saw a 7.5% drop in GDP in the second quarter, partly due to a strict lockdown policy, followed by a slight recovery in the third. The Ukrainian government has introduced various monetary and fiscal measures for both households and firms including cash allowances for self-employed, small firms, and people with temporary pay cuts, as well as long-term financing for banks up to 5 years. Currently, the government is reluctant to enforce stricter measures to prevent the second wave of infections mainly for political reasons. Ukrainians are becoming less afraid of the virus and more discontent with the restrictions, so the government is concerned about taking an unpopular decision.
Russia
Natalya Volchkova, Director at CEFIR at NES, explained how Russia, after a relatively calm summer, was hit by the second wave in October as the number of infections and COVID-19 deaths reached their highest levels since the onset of the pandemic. As far as economic performance is concerned, monthly indicators of economic activity show a sharp decline at the beginning of March and a slight recovery since then. However, when looking at month-on-month comparisons, economic performance is significantly lower in every month throughout 2020 compared to 2019.
The support measures introduced during the spring and summer constituted 3.7% of GDP. While most stimulus was allocated to the corporate sector (2.1%) households also received a significant amount of support (1.6%). The measures targeted to help household income included: cash transfers to families with children; increased unemployment benefits; 2019 tax-return for self-employed; extra payments to medical specialists; and credit restructuring and penalty-free payment deferrals for COVID-19 infected. The support dedicated to the business sector included: tax and credit payment deferrals; bankruptcy moratorium for 6 months; reduction in property tax: and subsidies to backbone enterprises. The support measures are expected to increase GDP growth by 1.8 percentage points by boosting household consumption, corporate inventory, and investments.
Latvia
Sergej Gubin, Research Fellow at BICEPS, described the epidemiological impact of the pandemic in the spring as hardly noticeable in Latvia. Although, the country currently has the 3rd lowest COVID-19 mortality rate in the EU, infections and mortality have increased quite dramatically during the fall.
While the restrictions introduced in the spring did not include a strict lockdown or a mandatory mask policy, the government closed borders, schools, and kindergartens. Following the second wave, the restrictions adjusted to including a mask policy, open borders, and 5-12 graders on distance learning.
The economic policy response has included downtime benefits for employees of firms with a reduction in turnover of 30% or more, temporary tax reliefs, and sick leave benefits for parents with young children on distance learning. The drop in GDP for 2020 is projected to be 7% and unemployment is expected to increase by 7.7%.
The Implications of the Pandemic for Gender Inequality
It is widely known that the pandemic has had catastrophic consequences for health and economic activity. Many experts, though, have also expressed concerns about its impact on gender equality and the welfare of women. On the health side, men and women have been shown to be equally susceptible to infection, however among those that get infected women have significantly lower mortality rates than men. Monika Oczkowska, Senior Researcher at CenEA, showed that about 40 % of deaths in Poland were women, which is very similar to Western European countries, whereas excess mortality has been particularly high among men in older age groups.
The pandemic has also impacted gender inequality through the labor market. In countries like Ukraine and Georgia, the pandemic has significantly worsened pre-existing inequalities. In the latter, the number of registered unemployed increased by 16 000 in the second quarter, and among them, 90% were women, according to Yaroslava Babych, Policy Center Head at ISET-PI. Also, among the 44 000 workers that lost their employment during lockdown in the spring a vast majority were women. Partly, the reason for this is that the restrictions affected sectors that were predominantly female such as restaurants, cafés, and retail, as well as arts and entertainment.
In Belarus, a country with relatively high female labor force participation, the impact on gender inequality changed over time. In the Belarussian labor market, women are highly concentrated in the hospitality and public sector, and men in the industrial sector. After the first wave in the spring, women were worst affected, both in terms of unemployment and loss of income, which was largely driven by the impact on the hospitality industry. Over time men became more affected as the industrial sector took a hit, whereas women benefitted from steady employment within the public sector. The gender distribution in the Ukrainian labor market is similar to the Belarusian. Women are concentrated in sectors that are economically vulnerable to the crisis but also in those that are critical for everyday life such as the health and education sectors. In other words, in these countries some women are at high risk of losing their job while others, that are less at risk of an economic shock, often are particularly likely to be exposed to health shocks.
From a more positive perspective, the crisis has also brought about structural changes to the labor market that could potentially improve gender equality. In Russia, workplaces have started to provide more flexible working conditions which have enabled more women to work remotely from home.
One serious consequence of the crises is an increase in domestic violence as the pandemic has exacerbated things that are known to increase conflict and violence within households. Maria Perrotta Berlin, Assistant professor at SITE, argued that mobility restrictions have increased the time spent with family members, increased isolation from social networks and support organizations, and increased stress caused by economic insecurity. According to the international ombudsman of Russia, the number of distress calls relating to intimate partner violence has increased by 150% during the pandemic, compared to an estimated average increase of 60% in Europe during the same time.
Political Implications in the Region with a Special Focus on Belarus and Russia
The final section of the day focused on political developments in Russia and Belarus in the times of the COVID-19 pandemic, two countries with close historical, political and economic ties. SITE invited two experts on the politics in respective countries: Elena Panfilova, Founder of the Center for Anti-corruption Research and former Chair of Initiative Transparency International – Russia, and Artyom Shraibman, founder of Sense Analytics, a political consultancy in Minsk and nonresident scholar at the Carnegie Moscow Center.
Panfilova gave a comprehensive narrative of the recent political developments in Russia related to the onset of the pandemic. Panfilova argued that the political response to the pandemic in Russia changed over time. In the spring, the government and political elites had a relatively active response and clear communication with the public. However, when the second wave started in September the government largely stayed silent. According to Panfilova, the reason for this is that Russian politicians started to anticipate the important 2021 regional elections and that they found it hard to communicate with the public without challenging their future political interests as the crisis response had been met with much discontent. This discontent, Panfilova argued, had to do with Russia’s vertical system of accountability being very ineffective in dealing with a horizontal problem such as COVID-19. The response system would have needed help across the political spectrum and would have benefited from more transparency to fight the pandemic; instead, the government continued to restrict political freedom and civil rights.
Reacting to the introduction by Panfilova, Shraibman argued that there is no historic example of a situation where the response to similar situations have differed so much between the Belarusian and Russian governments. The Belarusian regime’s response, in contrast to the Russian, was close to non-existent in the first wave and this continued up until the autumn when the government started to introduce restrictions in response to the second wave of infections.
The pressure of the pandemic has revealed the weaknesses and flaws of governments around the world and not least in Belarus. Although there are several reasons for the political crisis such as the stagnation of the Belarus economy, Shraibman argued that the mismanagement of the pandemic became the tipping point.
Shraibman explained how the Belarus regime has always tried to sell a paternalistic identity and has presented itself as a stable and fair welfare system that cares for the poor and the vulnerable. The mishandling of the COVID-19 pandemic shattered this identity in the eyes of the public. The rhetoric and state-level deception during the first wave irritated a lot of people as the state-owned media outlets often accused the sick of being weak and ridiculed people for wearing masks. As many Belarusians saw relatives die and doctors started to contradict the narrative of the state, people were reminded of the Soviet government’s concealment of the Chernobyl disaster.
These developments created stress on the Belarusian society right before the presidential elections in August since the frustration that had been accumulated was channeled into political activity. During the pandemic, people learned how to organize and coordinate crowdfunding initiatives to support doctors and similar initiatives. This self-organization infrastructure transferred to the opposition campaign and is now used to support victims of political repression.
During the second wave, the government started exploiting the crisis to restrict political freedom. For instance, independent observers were not allowed to observe electoral polls, and political prisoners were not allowed to meet with lawyers. These and similar actions have further aggravated the political discontent with the regime in the country. Shraibman concluded that groups in society that previously have been apolitical now have become politicized, as they have personally experienced the repressive measures previously targeted primarily to the Belarusian opposition.
Concluding Remarks
As in previous years, the Development Day conference offered us an opportunity to invite a diverse group of experts, politicians, and practitioners to discuss a current and important topic in the area of development and transition. The different perspectives highlighted the multifaceted impact of the COVID-19 pandemic on Eastern Europe, as well as the continued engagement of Swedish society in the region. Unfortunately, the pandemic also prevented us from meeting in person this time, but we hope that next year we will be able to meet again at the Stockholm School of Economics.
List of Participants
- Peter Eriksson, Minister for International Development Cooperation, Sweden.
- Alexander Plekhanov, director for Transition Impact and Global Economics, EBRD.
- Fredrik Rågmark, CEO Medicover, Sweden.
- Kataryna Bornukova, Academic Director BEROC, Minsk, Belarus.
- Michal Myck, Director CenEA, Szczecin Poland.
- Giorgi Papava, Center Head at ISET-PI, Tbilisi, Georgia.
- Olena Sholomytska, Senior Researcher KSE, Kyiv, Ukraine.
- Natalya Volchkova, Director CEFOR at NES, Moscow, Russia.
- Sergej Gubin, Research Fellow BICEPS, Riga, Latvia.
- Lev Lvovskiy, Research Fellow BEROC, Minsk, Belarus.
- Monika Oczkowska, Senior Research Economist CenEA, Szczecin, Poland.
- Yaroslava Babych, Head of Macroeconomic Policy Research Center ISET-PI, Tbilisi, Georgia.
- Aleksandr Grigoryan, Associate Professor American University of Armenia, Yerevan, Armenia.
- Olga Kupets, Policy Professor KSE, Kyiv, Ukraine.
- Maria Perrotta Berlin, Assistant Professor SITE, Stockholm, Sweden.
- Artyom Shraibman, founder of Sense Analytics and nonresident scholar at the Carnegie Moscow Center.
- Elena Panfilova, Founder of the Center for Anti-corruption Research and former Chair of Initiative Transparency International – Russia.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Circular Economy in Belarus: What Hinders the Transformation?
The transition towards a circular economy has accelerated in response to increasing environmental challenges and the need for more sustainable and cleaner production. Many countries are mainstreaming a circular economy into their policy agenda. In particular, the European Commission’s new Circular Economy Action Plan, adopted in March 2020, will be a key element of the EU Industrial strategy. In Belarus, similar policy agendas that promote circular economy have not been developed yet, however, this concept is now attracting increasingly more attention. Therefore, it is essential to identify barriers that hamper the implementation of circular economy business practices in the country. This policy brief presents the results of a survey that studied 452 Belarusian companies and their prospects and opportunities of circular transformation both within enterprises and at the national level. The findings show that high levels of capital and technology spending and lack of state-provided economic incentives are the most pressing barriers to circular economy development in Belarus. When it comes to enterprises’ own prospects for circular transformation, lack of funding is ranked as the main impediment.
Barriers to Circular Economy Development in Belarus
Despite the fact that there has been an increased interest in the circular economy, evidence suggests that its implementation has been hampered by a variety of barriers. Based on academic literature and business case studies, these barriers can be categorized into several groups (Rizos, et al., 2015; Rizos, et al., 2016; Kirchherr et al., 2018; Ritzén and Sandström, 2017):
- Cultural barriers (e.g. social, behavioral, and managerial) – a lack of interest, environmental awareness, and/or existing differences in personal values, which hinder the development of a circular economy.
- Information constraints – a lack of consumer and producer awareness about the key principles and best practices of circular economy implementation;
- Inadequate regulatory environment – a lack of consistent legal framework, policy support, and incentives for circular economy transition (e.g., through tax relief, fiscal measures, or public procurement);
- Technological barriers – an absence of a well-managed logistic infrastructure for the collection, extraction, and processing of secondary raw materials (SRM); the lack of standardization and, as a result, lower quality of goods produced from SRM; the absence of knowledge on how circularity can be implemented in a particular industry;
- Economic impediments – barriers to circular economy transition that are due to low prices for primary raw materials and high investment costs for the implementation of circular business models, as well as lack of funding and restricted access to finance.
This categorization served as the basis for the development of our questionnaire. We surveyed enterprises on the prospects and opportunities relating to their own circular transformation as well as factors constraining the more general development of a circular economy in Belarus. The survey was conducted in 2020 by BEROC and IBB Dortmund and included 452 companies from the Belarusian regions of Brest and Mogilev. The results show that businesses view economic, regulatory, and informational barriers as the most hindering to a circular transformation of Belarus. In particular, the respondents stated that the main impediments are high levels of capital and technology spending (62.8% of respondents), as well as lack of state-provided economic incentives (50.4%). Information constraints are also important as enterprises are not aware of circular technologies and believe that they do not exist (50.4%). Furthermore, there is a lack of knowledge on how to implement circularity in their industry (33.8%) (see Figure 1).
Figure 1. Barriers to circular economy development in Belarus, % of respondents
Source: Figure compiled by the authors based on the survey results.
Respondents also identified barriers that hamper a shift of their own enterprise – rather than that of the entire Belarusian economy – from a linear to a circular business model. According to the survey, the lack of funding is considered as the main barrier to circular transformation among Belarusian companies, as 83.5% of respondents characterized its impact as high or medium. This impediment is followed by the absence of circular technologies that can be applied at the surveyed enterprise (64.9%) and the lack of information and best practice examples with regard to the implementation of circular business models (62.4%). Half of the respondents also indicated that the shift from a linear economy is hampered by the lack of consulting on how to implement circularity (see Figure 2).
Figure 2. Barriers to the circular transformation of the Belarusian enterprises, % respondents
Source: Figure compiled by the authors on the basis of the survey results.
Enterprises identified specific technical challenges associated with possible supply chain constraints. In particular, 40% of respondents raised concerns about the absence of an online database on waste and secondary raw materials, and 39.3% of them worried about possible interruptions in the supply of secondary raw materials.
Stimulus for Circular Transformation in Belarus
Respondents also expressed their views on potential stimulus measures that could be implemented to encourage a transition towards a circular economy in Belarus. Tailored support programs (83.9%), tax incentives (78.5%), and development of infrastructure for the processing of secondary raw materials (76.4%) were identified as the strongest motivators for enterprises’ decision to opt for a circular business model. Other important measures listed by the respondents were revisions of the legislative framework to prioritize the use of secondary raw materials, prevent waste generation, etc. (67.4%) as well as access to consulting on how to implement circularity in a business (62.8%) (Figure 3).
Figure 3. Stimulus for the circular economy development in Belarus, % of respondents
Source: Figure compiled by the authors on the basis of the survey results.
Surveyed enterprises stated that they had already incorporated some circular economy elements in their business model. More than 35% of respondents have used recycled materials in the production process, 19% have recycled products in the production of new materials or products, and around 19% have reused products or embedded raw materials. Moreover, more than 35% of enterprises would be ready to introduce reusage and recycling in their business within the next three years. However, they emphasized that existing regulations should be revised, and economic incentives provided in order to encourage these efforts.
Conclusion
The results confirm that Belarus has potential for circular economy development. Yet, its implementation might be hampered by economic, regulatory, informational, and technological barriers. In particular, the surveyed enterprises stated that high upfront costs, e.g., for technology and equipment, as well as the lack of state economic incentives, are the most pressing impediments to the circular transformation of Belarus. At the company level, lack of funding is seen as the main obstacle in shifting from a linear to a circular business model. Another important barrier is lack of information, as enterprises are not aware of circular technologies and best practice examples.
The results of our survey suggest that, in order to encourage a transition towards a circular economy in Belarus, a tailored support program should be developed, existing regulations revised, and economic incentives provided. The transition will not be possible without mainstreaming a circular economy into Belarus’ policy agenda.
References
- European Commission, 2020. “Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the regions, A New Circular Economy Action Plan for Cleaner and More Competitive Europe”, Brussels, COM/2020/98 final.
- Rizos, Vasileios, et.al., 2015. “The Circular Economy: Barriers and Opportunities for SMEs”,CEPS Working Document, No. 412.
- Kirchherr, Julian, et al., 2018. “Barriers to the Circular Economy: Evidence from the European Union (EU)”, Ecological Economics, V. 150, pp. 264-272.
- Rizos, V. et al., 2016. “Implementation of Circular Economy Business Models by Small and Medium-Sized Enterprises (SMEs): Barriers and Enablers”, Sustainability, No. 8 (11), 1212.
- Ritzén, Sofia; and Gunilla Ölundh, Sandström, 2017. “Barriers to the Circular Economy – integration of perspectives and domains”, Procedia Cirp, No. 64, pp. 7-12.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
The Role of Partnerships in Economic Reforms of Fragile States: Perspectives from Somalia | Summary
Fragile states are particularly vulnerable to adverse economic shocks and in need of international support. Through constructive collaboration with international partners, however, fragile state governments can successfully pursue ambitious reform agendas for the short and long run. SITE and MISUM (Mistra Center for Sustainable Markets) invited the Minister of Finance of the Federal Republic of Somalia, Dr. Abdirahman Dualeh Beileh, and the Swedish ambassador to Somalia, Staffan Tillander, to discuss the role of international partnership in the recent development of economic reforms in Somalia. This policy brief provides a summary of the key points that were discussed in the webinar.
Introduction
Fragile states, characterized by poverty, weak governance, and conflict, now also have to confront additional challenges from the COVID-19 pandemic. Negative economic shocks arising from climate change, financial crises, conflicts, and pandemics are known to be particularly detrimental for these countries as the countries lack the resources to cushion the negative impact and are vulnerable to anything exacerbating latent socioeconomic challenges and conflicts.
In these situations, international support becomes essential in reducing the immediate impact on human welfare and help sustain economic reforms that are necessary for long-run development. Somalia is a good case in point, where the recent consolidation of the country and an ambitious reform agenda together with international partners have set the country on a positive trajectory. This progress is challenged, though, by the pandemic, reinforced by drought and locust swarms.
From Independence to Civil War
Despite Somalia’s economically favorable geographical location and abundance of resources, the country has a turbulent history plagued by poverty, conflict, and humanitarian crises. Dr. Beileh provided thoughts on why the country failed to realize these opportunities and what factors led up to the civil war in 1991.
Following Somali independence in 1960, the country was lacking a sufficient level of educated citizens to run a modern government. In addition, tensions with neighboring countries and community demarcations within Somalia led to conflict and a constant struggle over resources. Also, Dr. Beileh argued that the former colonial powers had an interest in keeping the newly independent African states economically reliant in terms of imports of goods and sourcing of raw materials.
Dr. Beileh suggested that the combination of these factors contributed to the fall of the military regime in 1991 whereby Somalia plunged into civil war. With no recognized government over the following 20 years, this power vacuum became a black spot in Somalia’s history, characterized by war and poverty.
Political Consolidation and Debt Relief
After decades of suffering, in 2012 the Provisional Constitution established a federal political structure, with a parliament and the Federal Government of Somalia. Meanwhile, African Union forces liberated the major cities of Somalia from the terror of Al Shabab. In 2013 the government re-engaged with the World Bank and the IMF, and since 2016 the government together with international partners has engaged in numerous structural reforms. The main objective of the reform agenda was to qualify for international debt relief through the Heavily Indebted Poor Country (HIPC) Initiative introduced by the IMF and the World Bank in 1996 to reduce debt levels to sustainable levels in the world’s poorest countries. In Somalia’s case, this required laws and regulations that strengthened rule of law and sustainable economic management as well as poverty reduction strategies.
In March 2020, Somalia became the 37th country to qualify for the first step of debt relief under the HIPC initiative (“the decision point “) which meant that the country’s national debt was significantly reduced. This successful result was commended by the international community and Dr. Beileh stressed that it would not have been achieved without both international partnership and the resilience of the Somali people. Now, with continued successful reforms Somalia is projected to receive further debt reduction in 2023 (“the completion point”).
Structural Reforms
Besides significantly reducing the national debt, the HIPC program requirements have led to development in many areas and opened new possibilities for international cooperation.
Laws and regulations that institutionalize the rule of governance and strengthen the federal system are essential HIPC prerequisites. Both Dr. Beileh and Ambassador Tillander stressed that strong governance is not only important for a clear division of tasks and competent and honest conduct within government bodies, but also an important cross-cutting issue that influences the ability of the state to achieve other goals. Dr. Beileh described how far Somalia has come in this regard. When he started at the ministry of finance in 2017, wages, responsibilities, and accountability were up for negotiation. Today, there are rules and regulations in place that guide the responsibilities and accountability of civil servants. For instance, a public procurement authority has been established with the task of scrutinizing all government procurement and disposal of assets. Ambassador Tillander added that the strained regional tensions caused by the civil war and surrounding conflicts have been eased and the improvements in governance have led to a more constructive dialogue between the federal government and the member states.
Drawing on his experience as minister of finance, Dr. Beileh gave insight into the path of economic reform brought about by the HIPC process. The reforms focused on raising domestic revenue to achieve fiscal sustainability, keeping public expenditures at a sustainable level, and promoting various financial sector reforms. Dr. Beileh discussed the challenges related to gaining popular support for some of these reforms implemented in recent years. It is well known that economic reforms that are beneficial in the long-run often entail short-run costs which make them politically difficult to implement. To regain trust of taxpayers is of particular importance for Somalia given the need to increase domestic fiscal revenues. Efforts have been made to actively inform the public about government activity and spending in order to increase transparency and convince Somalis that they will benefit from the system.
Ambassador Tillander provided examples of how countries like Sweden can help promote democracy and human rights in Somalia. For instance, Sweden has been working closely with the Somali government to help organize elections and increase voting participation, particularly for politically marginalized groups such as women and young adults.
Looking Forward
Despite Somalia’s recent success with debt forgiveness, both speakers acknowledged that much remains to be done.
The value of high-quality educational institutions and long-term investments in human capital is crucial in Dr. Beileh’s view. Having an educated population gives a country not only the skills and knowledge required to run a government but also helps a diverse society to move in the same direction. Although the need for infrastructure and investments in other areas is crucial for economic development, he insisted that it is educated people who in the end bring wealth, build infrastructure, and run governments.
Ambassador Tillander advocated for further promoting inclusion and merit-based selection in politics and business. He argued that progress is not possible if half of the population are excluded based on gender or age. Also, Somalia needs to move away from the clan as a basis for political power and position. As part of the solution, Ambassador Tillander suggested that Somalia should replace its provisional constitution with a new one that more strongly enshrines democratic elections, human rights, media freedom, and freedom of expression.
Although both speakers recognized that the reforms have been necessary, they mentioned that some reforms have also led to unintended negative consequences. For example, regulations to curb money-laundering and anti-terrorism financing have restricted the ability to transfer money to and from Somalia. As a result, many organizations and NGOs have found it hard to access financing, and it has made it hard for the diaspora to send remittances. To solve this issue, Dr. Beileh suggested policies that would improve the transparency of money flows, focusing on creating a personal id system and on strengthening the domestic financial institutions.
Another central topic at the webinar related to how Somalia and its partners should encourage and facilitate investments beyond foreign aid. Ambassador Tillander explained how there is an international misperception of Somalia and that his visit to the Mogadishu tech forum in 2019 was an eye-opener for him in this regard. These types of high-profile events, organized to attract foreign investments and display the opportunities that exist within Somalia, have attracted numerous young entrepreneurs who interact with their foreign counterparts, and showcase a dynamic and growing Somali business sector which is generally ignored in media-depictions of the country. In the context of the Swedish-Somali partnership, Ambassador Tillander suggested that there are enormous unexplored cross-border business opportunities between the countries, where the Somali diaspora in Sweden could play an important role.
Both speakers suggested that the foundations for communication and exchange are already in place. At this stage, the key to increase private investment is to reduce uncertainty for entrepreneurs and improve the predictability of the Somali financial system. People need to have better access to credit and financing, the banking system needs to become more formal, and the rule of law needs to apply more widely than it does today. Thanks to the HIPC process and the Somali government, steps in this direction are already underway but they must continue in order to build faith in the system, so that entrepreneurs, investors, and innovators are willing to take on the risks that new investments typically entail.
Reflecting on the start of the HIPC process, Ambassador Tillander argued that few people had anticipated the extent of progress that Somalia has achieved in only 4 years. Concluding the event, Ambassador Tillander and Dr. Beileh agreed that the cooperation between Somalia and the international community has been instrumental in encouraging and driving a reform process that would have been extremely difficult otherwise.
Speakers at the Event
- Dr. Abdirahman Dualeh Beileh, Minister of Finance of the Federal Republic of Somalia.
- Dr. Staffan Tillander, Swedish ambassador to Somalia.
- Dr. Anders Olofsgård, Deputy Director SITE (moderator)
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Economic Perspectives on Domestic Violence | Insights from the FROGEE Webinar | Part 2
This policy brief is the second in a series of two briefs summarizing the research presented at the online workshop “Economic Perspectives on Domestic Violence”, organized as part of the Forum for Research on Gender Economics (FROGEE). The current brief offers an overview of the presentations that specifically studied the implications of the Covid-19 crisis for domestic violence. The remaining research presented at the workshop is addressed in the first policy brief of this series.
Introduction
As governments around the globe are continuing to enforce contagion management strategies to limit the spread of COVID-19, many experts are voicing their concerns about a different kind of pandemic. Alarming reports have surfaced from a wide range of countries suggesting significant increases in domestic violence (DV), including one of its most prevalent forms – intimate partner violence (IPV).
In Europe, the number of IPV emergency calls has increased by 60%, according to the UN’s regional director of Europe (WHO, May 07, 2020). In the Hubei province of China, a police department reported three times as many DV cases in February 2020 compared to the same month in 2019 (Axios, March 2020). In El Salvador, 95% of local and government DV support services closed due to the pandemic, while reports show that the demand for such services among women increased by 70% (IRC, 2020). Reduced social interaction and mobility, high rates of unemployment, and restricted access to support services are just some indirect consequences of the pandemic that are likely to exacerbate DV.
At the same time, data from other countries have suggested the opposite trends. In the Italian region of Lombardy, the number of women requesting support services decreased, although the region was one of the most severely hit by the pandemic (Giussy et.al., 2020). While DV hotlines in the US anticipated increases in calls for support, some regions experienced a 50% decline (The Guardian, April 2020). Many have stressed that these trends have a much darker side – underreporting. Measures aimed at limiting the spread of COVID-19, as well as the fear of getting infected, force victims to stay at home in direct contact with their abusive partner, limiting their ability to report on the violence, and restricting access to support services such as women’s shelters.
As much as pandemic-related trends in DV have heightened the concerns about the well-being of victims and increased the need for sufficient and adequate policies, the unique settings created by the pandemic have offered new opportunities for researchers to better understand the underlying causes of DV.
This policy brief is the second in a series of two briefs summarizing the papers presented in the workshop entitled “Economic Perspectives on Domestic Violence”. The workshop was organized as a part of the Forum for Research on Gender Economics (FROGEE) supported by the Swedish International Development Cooperation Agency (SIDA).
Domestic Violence and COVID-19
While studying different research settings, all the papers summarized in this brief examine the relationship between COVID-19 and DV. Most of them are focused on the effects of lockdown measures and highlight the need of combining measurements of DV in order to get an encompassing picture of the phenomenon.
Damian Clarke presented evidence on the DV-implications of quarantine in Chile. To rule out the possibility that an increase in DV was caused by other factors brought about by the pandemic, Clarke and co-authors take advantage of Chile’s rolling quarantines (i.e., regional quarantines implemented at different points in time) and compare municipalities that imposed lockdowns with those that did not. At the start of the pandemic in March, the nation-wide number of calls to domestic violence hotlines increased by 250%, and by 350% for municipalities that imposed quarantines. Police reporting on DV decreased by 11% nation-wide, and by around 27% in quarantined areas. The sharp increase in distress calls may have several explanations. It could be due to an increase in instances of DV and/or increased anxiety, or reduced tolerance. Moreover, the decline in DV reporting to the police may be explained by limited access to DV support services during quarantine, or to the fact that the victim’s opportunity to report is constrained by the abuser’s presence at home. The authors are exploring these channels in current work, including the implementation of a nationally representative survey, aiming to identify key determinants of observed patterns, as well as how they may evolve with the removal of quarantines.
Melissa Spencer offered an analysis of the pandemic’s impact on domestic abuse in Los Angeles, US. Spencer and co-authors investigate the immediate effect of the pandemic by using data on DV incidents and arrests, DV calls for service, and hotline calls. During the initial lockdown in March, they find significant effects on both crimes and calls, but in opposite direction: calls for service and hotline calls increased while DV crime and arrests for those crimes declined. During the re-opening period at the end of May, both DV crimes and arrests, calls for service and hotline calls decreased.
Ria Ivandic presented findings from a study on the pandemic´s effect on DV in the Greater London area. Using data on DV calls for service and DV crime/incidents the study shows that, for service calls, there was a 35% increase in third-party reporting in densely populated areas, whereas in low-density areas there was only a 15% increase. This effect was particularly strong in areas of high deprivation and suggests substantial under-reporting in households where abuse cannot be reported by an outsider. As for DV crimes, the study finds an average increase of 4.5% during the lockdown and a significant shift in abuse composition: current partner abuse crimes increased by 8.5%, DV by family members rose by 16.4%, while ex-partner crimes decreased by about 9.4%.
Much like England, the US, or Chile, most countries around the world adopted some kind of lockdown policy to mitigate the spread of COVID-19, but how would the pandemic affect DV in the absence of lockdown, if at all? Maria Perrotta Berlin presented her findings on the case of Sweden, a country that has had a significantly softer policy response to the pandemic. By utilizing data on DV-crime and mobility, the preliminary results show that the pandemic reduced individuals’ mobility, even in the absence of a formal lockdown. Further, Berlin finds that an increased presence in residential areas is associated with a significant increase in non-battery crimes committed by an intimate partner, whereas a reduction in mobility in retail and recreation areas is associated with an increase in other crimes. A more detailed summary of this research is presented in a recent FREE policy brief.
The workshop has offered insights into a problem that has been in urgent need of effective policies for a long time, and that has attracted renewed attention during the pandemic. Not surprisingly, it has created a large interest among the participants. FROGEE and SITE would like to thank the speakers for their contributions to the workshop and SIDA for their generous funding.
References
- Allen-Ebrahimian, Bethany. “China’s Coronavirus Quarantines Raise Domestic Violence Fears.” Axios, 7 Mar. 2020, www.axios.com/china-domestic-violence-coronavirus-quarantine-7b00c3ba-35bc-4d16-afdd-b76ecfb28882.html.
- Giussy, Barbara, et al. “Covid-19, lockdown, and intimate partner violence: some data from an Italian service and suggestions for future approaches.” Journal of Women’s Health (2020).
- Graham-Harrison, Emma, et al. “Lockdowns around the World Bring Rise in Domestic Violence.” The Guardian, Guardian News and Media, 28 Mar. 2020, www.theguardian.com/society/2020/mar/28/lockdowns-world-rise-domestic-violence.
- International Rescue Service, 2020. The Essentials for Responding to Violence Against Women and Girls During and After COVID-19.
- World Health Organization, Europe, 2020. WHO Warns Of Surge Of Domestic Violence As COVID-19 Cases Decrease In Europe.
List of participants
- Damian Clarke, Universidad de Chile, IZA, CSAE Oxford, MiSoC Essex
- Melissa Spencer, University of Virginia
- Ria Ivandic, London School of Economics
- Maria Perrotta Berlin, Stockholm Institute of Transition Economics
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Food Security in Times of Pandemic in Georgia
The lockdowns and trade restrictions related to the COVID-19 pandemic resulted in shortages of some major food commodities on international and local markets. In this policy brief, we discuss and analyze Georgia’s response to the crisis in terms of food security and agricultural policy. Furthermore, we provide recommendations to ensure fewer disruptions in food supply chains and low volatility in food prices.
Background
COVID-19 has posed significant risks to the food security of many countries including Georgia. Lockdowns and pandemic-related trade restrictions across the world have resulted in shortages of some major food commodities on international and local markets (e.g. sunflower oil shortage in Russia). As of October 16, 2020, according to a World Bank report, 62 jurisdictions have executed a total of 62 export controls in food commodities since the beginning of 2020 (Table 1).
Table 1. Total number of new export controls and import reforms in the food sector globally since January 2020, by month.
Source: World Bank Group, Global Alert Team, 2020
Most of the interventions have involved import reforms with the largest number of new regulations imposed in March-April. On August 18, 2020, the Eurasian Economic Commission announced an EAEU import tariff quota on certain agricultural goods, valid for 2021. Turkey has also conducted a price stabilization policy by announcing purchasing prices for apricots, paddy, and dried raisin. On August 5, 2020, the government of Turkey introduced additional customs duties on certain agricultural products including chocolate, pasta, and some food preparations. It also eliminated import duties on wheat and barley in October.
Given that Georgia is a net importer of food, and in light of the trade restrictions imposed by its major trade partners, food security moved up on Georgia’s agricultural policy agenda. In order to weaken the adverse impact of the pandemic, keep food prices stable, and reduce input prices for farmers, the state designed the following set of measures:
- 10M Georgian lari (GEL) from the Ministry of Environmental Protection and Agriculture (MEPA) budget were allocated to subsidize imports of 9 food products: pasta, buckwheat, vegetable oil, sugar, wheat, wheat flour, milk powder, and beans (Legislative Herald of Georgia, 2020). The program subsidized importers’ additional costs resulting from exchange rate fluctuations and was implemented between March 15-May 15;
- Additional 16M GEL were allocated for purchasing sugar (5,000 tons), vegetable oil (1,500 thousand liters), and pasta (500 tons) stocks from private companies;
- An anti-crisis plan, “Caring for Farmers and Agriculture”, was presented by the state on March 12. The plan entailed two forms of aid: direct assistance to farmers and sectoral support. Some of the support measures included the distribution of so-called “agricultural cards”– subsidies for cattle-breeding and land cultivation services for smallholder farmers (registered farms with plots in the range of 0.25-10 ha); provision of cheap diesel fuel for farmers; nullification of costs of land reclamation services; provision of agricultural loans and insurance; grants for machinery, equipment, and cooperatives.
Results of Government Interventions
As of October 9, 2020, state support schemes had the following results:
- Up to 165,000 farmers had been granted agricultural cards. The size of the subsidy exceeded 28.9M GEL;
- Under the agro-diesel program (which subsidized fuel prices for agro-producers) 122,000 beneficiaries received discount cards on 32,000 tons of agro-diesel;
- More than 17,000 policies had been issued and 18,000 hectares (around 2% of agricultural land) had been insured under the agro-insurance program. The value of the insured crop exceeded 160M GEL;
- Across different regions of Georgia, 255 applications for modernization of the dairy sector were approved. In total, 12.4M GEL were spent on this program;
- 2,215 agro-loans had been issued with a 6-month interest rate covered by the state. The total amount of loans exceeded 40M GEL, including the co-financing of interest rates, which exceeded 3.3M GEL.
While many farmers have benefited from state support programs, these programs were not directly focused on the main consequences of the pandemic. The major threats posed by the pandemic – disruptions in food supply chains leading to decreased sales of agricultural products and price volatility – were not sufficiently addressed by the state support programs. According to the Georgian Farmers’ Association (GFA), 55% of surveyed farmers and agricultural business representatives encountered complications with product realization due to pandemic-related restrictions. Most farmers depend on the HoReCa (hotels, restaurants, and cafés) and hospitality sector, and their products are largely procured for accommodation and food facilities. 60% of those surveyed claimed that they were simply unable to sell their products due to the closure of hotels, restaurants, and cafés.
Food Price Dynamics
During March-May 2020 – the first months of the pandemic – food prices in Georgia showed upward trends on both a month-on-month and year-on-year basis (Figure 1).
Figure 1. Month-on-month and year-on-year changes in food prices
Source: GeoStat, 2020
The main explanation is likely the depreciation of the GEL against the US dollar: during March-May 2020, the GEL depreciated against the USD by 15.8% from 2.71 to 3.14 compared to March-May 2019 (National Bank of Georgia, 2020). As Georgia is a net importer of food commodities, the depreciation of the GEL put upward pressure on food prices. To limit the GEL depreciation and its impact on food prices, the Government of Georgia subsidized additional costs of importers of major food commodities arising from exchange rate fluctuations. The price restraint mechanism involved negotiating with food importers to not increase prices of their commodities and setting the exchange rate of the GEL against the USD at 3, while the Government of Georgia subsidized the corresponding difference between the actual and fixed exchange rates. Despite minimizing the effects of GEL depreciation, food prices in Georgia experienced a significant increase during the observed period: disruptions in supply chains associated with the COVID-19 pandemic led to food shortages that further increased food prices.
In April, annual food price inflation marked its highest level at 16.1% during March-August 2020. Since then, annual food price inflation has been decreasing as farming activities resumed after COVID-19-related restrictions were relaxed and seasonal (locally produced) agricultural products appeared on the market. Accordingly, food prices started to decrease on a monthly basis.
However, with very few exceptions, prices for major food commodities that were subsidized by the state during March-May increased for both month-over-month and year-on-year comparison (Table 2). On a monthly basis, the biggest price changes were observed for sugar; while on annual basis prices for buckwheat increased the most.
Table 2. Year-on-year changes in prices of major food commodities, March-September 2020
Source: GeoStat, 2020
While food prices could have increased even more in the absence of subsidies, it appears that the state measures did not fully reach their objectives and could not fully overshadow the adverse impact of the pandemic and GEL depreciation.
Recommendations
The pandemic has shown the need for increasing the level of food security in Georgia. Given the multidimensional nature of food security, a longer-term policy should consider not only an increase in domestic production of key food commodities but also a diversification of import markets to ensure low volatility in food supply and prices. As an immediate response to the pandemic, it is recommended to:
- further subsidize farm inputs in order to reduce the current costs of production;
- support farmers in selling their produce;
- develop state programs that strengthen local producers;
- focus on diversification of import markets for food commodities which constitute a high share of households’ consumption basket.
References
- GeoStat (National Statistics Office of Georgia), 2014. “Agricultural Census of Georgia“, Tbilisi, Georgia.
- Georgian Farmers’ Association, 2020. “The effects of COVID-19 on farmers and agriculture”, available only in Georgian.
- GeoStat, 2020. Statistics of food prices, retrieved from: https://www.geostat.ge/en/modules/categories/26/cpi-inflation
- Government of Georgia, 2020. “Ordinance of the Government of Georgia on subsidizing prices of major food commodities”, Legislative Herald of Georgia, available only in Georgian.
- National Bank of Georgia, 2020. Statistics of exchange rates, retrieved from: https://www.nbg.gov.ge/index.php?m=582
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Do Condominiums Pay Less for Heating?
In Ukraine, a widely shared perception is that housing utility costs are too high. In this policy brief, we study if these costs can be alleviated by introducing a modern form of housing management practice, condominiums. We find that condominiums in old houses (built before 1991) pay 22% less for heating compared to old non-condominiums. Among new houses (built after 1991), we find that condominiums pay 29% less for heating. Considering the dynamics of condominium formation in 2018-2020, old houses do not show any significant immediate effect of condominium formation on heating costs relative to that of non-condominiums. However, condominium formation among new houses leads to a relative 18% decrease in heating costs. In addition, among condominiums in old houses, participation in an overhaul co-financing program is associated with a 15% lower heating bill. The immediate effect of the program in 2018-2020 is a 16% relative decrease in heating costs for old condominiums and 37% – for new ones.
Heating Costs and Condominiums
In recent years, the cost of housing utilities has been a common concern among Ukrainians. According to a recent survey, 80% of Ukrainians believe that tariffs on utilities are too high.
The form of housing management is a factor that could affect utility costs. Experiences from Slovakia, Hungary, Poland, and Romania in the 1990s suggest that state-owned housing maintenance companies are often associated with inefficient management. Residential buildings that are owned and managed collectively by its dwellers (hereafter referred to as condominiums) are more likely to choose a more efficient private housing maintenance company (Banks, O’Leary et. al., 1996). For instance, in Slovakia’s second-largest city, Kosice, one-third of houses that were privatized in the 1990s chose private maintenance companies with competitive prices. Residents perceived the services as “far more effective” (ibid).
This brief summarizes our analysis of the relationship between heating costs and the form of housing management in Ukraine. Analyzing a large sample of houses in Kyiv, we show that condominiums are associated with lower heating costs, both among the older houses, built before Ukrainian independence in 1991, and among newer houses.
Types of Housing Management Practices in Ukraine
The different housing management practices in Ukraine can be roughly divided into three types. The most commonly used practice is when housing maintenance is carried out by a municipally owned company (commonly referred to as ZhEK – “zhilischno-eksplotazionnaja kontora”, housing maintenance office). Usually, houses that have the ZhEK-type management were built before Ukrainian independence and have kept this practice since Soviet times. The second practice is when housing maintenance is done by a private company affiliated with the building developer. This management type is usually used by houses built after Ukrainian independence that did not form condominiums. These two practices are similar in the sense that dwellers are not directly involved in the decision-making, all decisions are made by the municipal or private company, respectively.
The third type of housing management practice, relatively new for Ukraine, is condominium ownership (the Ukrainian term for it is ОСББ, translated as “Association of Co-owners of Multi-Apartment House”). In a condominium, unlike in the previous two types, the house is managed collectively by the dwellers; in particular, they have the freedom to choose and/or change utility providers, invest in major overhaul, and participate in co-financing programs.
Houses with Condominiums Pay Less for Heating
In our analysis, we use monthly data on housing costs between 2018 and 2020 collected from the Ukrainian municipal enterprise Kyivteploenergo. The data covers more than 70% of residential buildings in Kyiv and includes information on heating costs per square meter, whether or not the house is a condominium, and other house-characteristics (including the source of heating production; the presence of the meter; type of the meter number of service days per month; and share of heat consumption by legal entities).
In addition, we have information on the year of building construction retrieved from the real estate portal LUN, and condominium formation date between 2018-2020, as well as data on house participation in overhaul co-financing programs obtained from the Kyiv state administration.
Our final sample contains 7957 houses. Since we only are interested in apartment housing, we exclude residential buildings with an area below 500 m2, which would normally correspond to a small private house (these constitute only a small part of our sample). The share of condominiums in the sample is 11%, the share of houses with ZhEK is 81% and the share of houses managed by private companies is 8%.
Figure 1. Median costs for heating per m2 across housing management types and house age.
Source: Authors’ calculations. Old houses are those built before 1991, the year of Ukrainian independence, and new houses are built after 1991.
Figure 1 provides preliminary evidence towards our hypothesis, showing that the median heating costs are lower in condominiums, independent of the year of construction.
In our first econometric model, we use an OLS-approach to compare utility costs across different types of housing and management models, while controlling for a number of observable characteristics. We find that condominiums in old houses pay 22% less for heating than old non-condominium. Similarly, we find that condominiums in new houses pay 29% less for heating compared to new non-condominiums.
The lower heating costs observed in condominiums may have several explanations:
- First, condominium-type management could be more flexible in its response to weather conditions. Considering that they are profit-maximizing, heating providers in Ukraine tend to overheat houses during the heating season; it could be that condominiums reduce consumption of heating on the warmer days to a greater extent than other houses. In other words, condominiums could increase the efficiency of heating use.
- Second, it could be that condominiums have lower heating costs because they improve energy efficiency, for example, by installing individual heating points (an automatized unit transferring heat energy from external heat networks to the house heating, hot water supply, ventilation, etc.), new windows, or even insulating the house.
Is There an Immediate Effect?
The next step in our econometric analysis is to study the effect of condominium formation during 2018-2020. Here, we investigate whether non-condominium houses that became condominiums experienced changes in heating costs by utilizing a fixed-effects regression model. This approach not only allows us to assess the immediate effect of condominium formation but also controls for unobservable house-specific characteristics that are constant over time, such as differences in building materials.
For new houses, we find that condominium formation decreases heating costs by 18% compared to other new houses. For old houses, we find that the corresponding effect is statistically insignificant.
This estimation only evaluates the effect of condominium formation in a relatively short timeframe, between 2018 and 2020. While the data coverage does not allow us to give a precise quantitative assessment for a long-run effect, we argue that the positive impact of condominium formation on heating costs could potentially be higher in the longer-run. Indeed, our previous OLS estimation assesses the average utility costs for all condominiums in the sample (including those formed prior to 2018). It shows that the gap in heating costs between all condominiums and non-condominiums is higher than the corresponding gap derived from our fixed-effects estimation (22% for the old houses and 29% – for the new ones). While this difference in results can be driven by several reasons (e.g., fixed effect estimation taking into account unobservable house-specific characteristics), a stronger long-term effect could be among them.
Concerning the results for new vs. old houses, it might be the case that new houses are technically equipped to be more flexible when it comes to adjusting costs (e.g., are able to switch the heating on/off), while old houses might be inferior in this regard. If this is the case, old houses would only experience lower costs after some thermo-modernization, such as installing individual heating points.
Heating Costs and the Co-financing Program
Since 2015, the Kyiv city council offers a program that helps condominiums to finance major overhauls with the intent to improve the energy efficiency of the residential sector. Applicants compete in planning thermo-modernization projects where winning condominiums are awarded financing covering 70% of the overhaul cost.
Our results show that for old houses with condominiums, those who at some point participated in the co-financing program pay on average 15% less for heating compared to non-participants. The corresponding effect for new houses with condominiums is not significantly different from zero.
However, the immediate effect of program participation is present in both new and old houses with condominiums. Old and new condominiums that took part in the program in 2018-2019 experienced an immediate reduction in heating costs by 16% and 37% respectively.
Figure 2. The number of houses participating in the 70/30 co-financing program across the years.
Authors’ calculations.
There are several potential explanations as to why we observe an immediate effect but no effect of ever participating in the program for the new houses with condominiums.
First, it could be that new houses with condominiums that are not participating in the program are investing in overhaul anyway, although somewhat delayed compared to investments made by participating new condominiums. The average difference in heating costs between participants and non-participants would then be visible in the short-run and fade away after a few years. If this is the case, the program is financing houses that would have invested in overhaul anyway, even without co-financing. This explanation is partly supported by the fact that the share of the new houses condominiums among participants is 32%, while the corresponding share is 15% among all houses. In other words, old houses with condominiums, that are usually in a worse condition, are underrepresented in the program.
If this is the case, the share of old houses with condominiums among participants should be increased. Given that the purpose of the program is to improve the energy efficiency of residential buildings, its efficient implementation implies encouraging overhauls in houses that are otherwise unable to fund it. In other words, the program should incentivize people living in energy-inefficient housing to form condominiums and undertake overhauls to improve their energy efficiency, rather than finance houses who are already doing well in that regard. To improve on such selection issues, the program could change the co-financing proportions, making participation more beneficial to old houses with condominiums, e.g. 80/20 – for old and 60/40 – for new condominiums.
Second, the new houses with condominiums that participate in the program might be in a much worse state before participation than those that do not. Program part-taking could make participants catch up to the average level of energy-efficiency (or perhaps do slightly better). If this is the case, the program fulfills its function in the sense that it targets the most energy-inefficient houses.
Government Policies That Should Be Changed
Above, we argue that the formation of condominiums leads to efficiency gains in energy use and cuts utility costs for dwellers. Given the design of the overhaul co-financing program, the Kyiv city council seems to recognize these benefits as well. However, there is a range of government policies currently in place that discourage people from condominium formation.
For example, there are cases when the government finances 100% of overhaul costs using a subvention (“subvention for socio-economic development”). In 2020, 17 houses in Kyiv got overhaul expenses funded by this type of subvention. At the same time, 85 houses that participated in the co-financing competition did not receive any state funding (there were 100 winners among 185 participants).
Considering that this type of subvention predominantly finances non-condominiums, we argue that this policy creates the wrong incentives. Dwellers will likely refrain from forming condominiums in the hope of eventually being selected for an overhaul fully financed by the state, instead of forming condominium and getting only part of overhauls expenses covered (70% of the overhaul funding if winning co-finance program competition, and no funding otherwise).
In addition, this subvention typically has a “pork-barrel” nature since it is often allocated to the constituencies of the ruling party’s MPs. State financed overhauls are often used as an advertisement tool to get popular support. This creates an additional problem in the sense that subvention is targeted to politically loyal regions and not necessarily to regions in need of support.
Along this line of reasoning, we suggest that this pork-barrel subvention should be cancelled and housing-overhauls should instead be funded through co-financing programs. The government should implement programs similar to the “70/30” and further encourage people to adopt condominium ownership.
Conclusion
Motivated by the common perception that utility costs are excessively high, we study one possible way of reducing the utility bill – condominium housing management.
Our analysis shows that old houses with condominiums pay 22% less for heating compared to old non-condominiums. For new houses, we find that condominiums pay 29% less in heating costs than non-condominiums. In addition, old houses with condominiums that participate in Kyiv’s co-financing program pay 15% less than other old condominiums. That is, condominium formation combined with the co-financing program could save more than one-third of a resident’s heating costs.
Our analysis suggests the following policy implications:
- Condominiums have a positive effect on energy efficiency, and utility cost savings, and should thus be promoted to the population as a preferable form of house management practice.
- State and municipal governments should provide incentives for condominium formation through, e.g., overhaul co-financing programs. Other state-provided forms of overhaul financing, such as pork-barrel subvention, should be cancelled.
- Co-financing programs should combine better targeting (e.g., to those houses that are in greater need of overhaul) with sufficient incentives for condominium formation.
References
- Hamaniuk, Oleksii; and Andrii Doschyn, 2020. “Let’s reduce the cost of heating by a third!” – ACMH and co-financing program for buildings”, https://voxukraine.org/en/let-s-reduce-the-cost-of-heating-by-a-third-acmh-and-co-financing-program-for-buildings/
- Banks, Christopher, Sheila O’Leary, and Carol Rabenhorst, 1996. Review of urban & regional development studies, vol. 8, issue 2. https://doi.org/10.1111/j.1467-940X.1996.tb00114.x
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Economic Perspectives on Domestic Violence | Insights from the FROGEE Webinar | Part 1
The COVID-19 pandemic and the resulting lockdown restrictions have amplified the academic and policy interest in the causes and consequences of domestic violence. With this in mind, the FREE Network invited academic researchers to participate in an online workshop entitled “Economic perspectives on domestic violence“. This policy brief is the first in a series of two briefs summarizing the papers presented at the workshop. The current brief addresses the presentations that had a more general focus on domestic violence. The second brief will discuss the papers devoted to the domestic violence implications of the pandemic.
Introduction
Domestic violence (DV), as well as one of its main forms – intimate partner violence (IPV) – are societal issues of massive proportion. The World Health Organization estimates that 1 in 3 women across 80 countries worldwide are victims of IPV during their lifetime (WHO, 2013). IPV imposes huge costs on society: its victims, for instance, are estimated to be twice as susceptible to depression and alcohol abuse, and 16% more likely to give birth to a low birth-weight child (WHO, 2013).
IPV separates itself from other types of violent offenses in several aspects. To start with, the intimate victim-perpetrator relationship causes IPV to be vastly underreported. The victim may have feelings of shame, guilt, and self-blame, which could deter her from seeking support. Further, IPV and more generally DV cases also have high rates of attrition within the justice system. These distinct characteristics highlight the level of difficulty in developing policies aimed at helping victims of intimate partner abuse. The fact that the prevalence of IPV is widespread and at the same time vastly under-reported, casts doubt on the policy measures and legislation in place today.
This policy brief is the first in a series of two that summarizes the recent economic research on IPV presented in the workshop entitled “Economic Perspectives on Domestic Violence”. The workshop was organized as a part of the Forum for Research on Gender Economics (FROGEE) supported by the Swedish International Development Cooperation Agency (SIDA).
Economic Determinants of Domestic Violence
A number of presentations in the workshop were devoted to the economic determinants of domestic violence.
Andreas Kotsadam presented a paper on the relationship between women’s employment and IPV in Ethiopia. The link between the two is twofold: employment could increase women’s empowerment and, thereby, decrease IPV; however, the boost in empowerment could threaten the man’s status in (male-female) relationships, and lead to violent retaliation. Violence could also be used to extract economic resources from working women. To study which of these mechanisms prevail, the authors conducted an extensive field experiment collaborating with shoe and garment factories in Ethiopia. From a list of qualified job-candidates provided by employers, they randomly assigned 1500 equally qualified women living with partners to either getting a job (treatment group) or not (control group). Prior to treatment, women from both groups were interviewed and asked to answer various questions regarding intimate partner abuse. They were also called to a follow-up survey 6 months later. The statistical analysis of these answers fails to establish a causal link between employment status and the incidence of IPV.
Taking a more theoretical approach, Paul Seabright‘s preliminary work on the determinants of IPV offered a dynamic framework modeling how (unpredictable) economic circumstances and (predictable) individuals’ traits influence domestic violence, as well as formation and dissolution of partnerships. The model distinguishes individuals in their ability to control resources within relationships without the use of violence (“skills”), and in their costs of engaging in violence (“temperament”). The model assumes that individuals with more violent temperaments are on average endowed with lower skills. It predicts women’s income and their risk of IPV should be negatively correlated cross-sectionally, but that positive shocks in income should increase IPV for married women while decreasing it for women with easier exit options. The authors test the model on survey data from Brazil and data on randomized expansions of a food-program in Ecuador. The results support the cross-sectional prediction and confirm that the effect of income shocks depends on exit options, though does not support the prediction of an increase for married women.
Sonia Bhalotra’s presentation addressed the DV consequences of another type of economic shock, namely female and male unemployment, and also considered the role of unemployment benefits as a mitigating factor. By exploiting an extensive dataset covering every court case in Brazil between 2009 and 2017, and information on mass layoffs at the local level, the study finds that the probability of a male being prosecuted for a DV crime increases by 32% when he loses his job and persists at similar levels 4 years after. For female job-loss, the corresponding effect is significantly larger and amounts to 52%. Bhalotra and her co-authors argue that the fact that unemployment of either the man or the woman leads to an increase in domestic violence is consistent with unemployment constituting a negative shock to income and a positive shock to time spent at home. They further argue that the larger impact of female relative to male unemployment is potentially consistent with the “household bargaining model”, which encapsulates the idea that it becomes more difficult for a woman to leave a violent relationship when she is more economically dependent on her partner. Additional analysis shows that eligibility for unemployment insurance increases DV once benefits expire and that this is in turn a result of unemployment benefits increasing peoples’ time in unemployment.
The Role of Police
Part of the workshop was dedicated to the role of the criminal justice system. A fact that stresses the importance of studying police behavior is that domestic abuse cases generally suffer from high legal attrition and most of them are dropped before reaching the court. Variation in the characteristics of law enforcement could likely play a role in explaining differences in DV across contexts.
In this vein, Sofia Amaral introduced a study on the relationship between gender diversity of the police force and domestic violence in the UK. The gender-distribution within law enforcement is believed to directly influence DV in two ways: First, gender-based differences in attitudes and norms may influence police-handling in DV cases. Second, if the gender of the victim aligns with that of the officer, the victim may be more willing to cooperate and disclose evidence. The data shows that the total share of women in the police force is almost equal to that of men, but the tasks performed differ systematically across genders. Women are found to be overrepresented among call-handlers and underrepresented among first-response teams. For each position, Amaral and her co-authors investigate whether changes in gender-distribution influence the rate of legal attrition, rate of repeat victimization, and the amount of time spent at a scene (response duration). By analyzing police force and crime data the study shows that there are substantial efficiency gains from increasing gender diversity, particularly in first-response teams. An increase in the share of females in first-response teams increases response duration, reduces legal attrition, and decreases repeat victimization. There is an even larger effect when a female is the most experienced officer in the team. The gender of the call-handler has no significant effect on the outcomes of interest.
Along somewhat similar lines, Victoria Endl-Geyer presented research on the link between the quality of police response and DV in the UK. More specifically, the research explores how increased police response times, caused by police station closures in 2012, affected the rate of repeat victimization in DV cases. Faster police response times are believed to improve the victim’s cooperation: If the police are quick to arrive at the scene, the victim gets less time to revise the initial assessment that she needed support. The results show that faster police responses are associated with a higher conviction rate. However, they also increase the likelihood of repeat victimization. A potential explanation could be the so-called “reprisal effect” – the perpetrator retaliates with more violence as a response to being reported by his partner.
Criminalization
Many studies on IPV, including some that were presented at the workshop, highlight that an inherently good policy such as improving police response, sometimes leads to unintended negative consequences to victims. In the keynote speech, Leigh Goodmark addressed this topic by critically discussing the history, consequences, and alternatives to criminalization of IPV in the US. As suggested by her recent book, domestic violence has fallen in the US since the introduction of criminalization and mandatory arrest of IPV crimes. However, historical trends show that the overall crime rate has fallen to a greater extent. Goodmark provided several reasons why criminalization has likely been unsuccessful in deterring IPV. Some studies emphasize that it is the accountability and monitoring of perpetrators (even after incarceration) that has been effective in deterring IPV crimes and not the punishment itself. In fact, there are vast costs of DV criminalization occurring to victims of domestic abuse, such as financial instability caused by unemployment of (in many cases) the primary breadwinner in a household. Also, criminalization has been shown to exacerbate other correlates of IPV such as aggressive and hostile tendencies of the perpetrator. Goodmark proposed alternatives to DV criminalization that avoid such costs and thereby, are potentially more effective in reducing domestic abuse. First, there are solutions rooted in economics such as cash-transfer programs, employment training, and micro-financing. These types of measures can help to reduce the economic penalties of seeking support and strengthen the victim’s financial independence. Also, more social solutions were suggested such as community organizing, restorative justice, and community accountability. Moreover, Goodmark underlined the fact that individuals with adverse childhood experiences, often involving violence, are significantly more likely to commit violent crimes such as IPV. Identifying and intervening at an early age to educate these individuals about intimate relationships has been shown to be effective in dealing with the problem. In a nutshell, Goodmark stressed the importance of constructing a balanced policy approach that targets the origins of DV and argued that the time has come to reconsider punishing violence with more violence.
Reporting
Problems related to IPV misreporting were a recurring subject of discussion at the workshop. A lot of the previous research on IPV relies on direct surveys asking women whether they were a victim of different instances of IPV. The main problem associated with such surveys relates to accuracy: social factors such as stigma, shame, and/or self-blame, as well as privacy concerns, are likely to influence respondents’ answers. A practice that has proven successful for sensitive questions is the use of an indirect method called list experiments, where the structure of the survey mitigates much of the above concerns on the respondent’s side (see, e.g., https://blogs.worldbank.org/ impactevaluation/list-experiments-sensitive-questions-methods-bleg).
Veronica Frisancho presented a study on the gap in reporting originating from direct questionnaires vs. list experiments based on experimental evidence from Peru. The experiment considers two groups of 500 women each. Women in the first group participate in a survey that uses direct questionnaires, whereas those in the second group answer a survey using indirect questionnaires. Based on the answers, the authors obtain an IPV prevalence rate for each group and define under-reporting as the difference in prevalence between them, under the assumption that the rate of under-reporting in the presence of indirect questionnaires is minor. Unexpectedly, yet encouraging, they find no evidence of misreporting in the direct-questions method. However, when looking closer at different education levels, they find that under-reporting is significantly more prevalent for highly educated women. In other words, less educated women are more truthful when answering questions about IPV. Frisancho emphasized that these types of patterns make it more difficult to identify the most vulnerable groups, implying that direct methods could increase the risk of mistargeted policies.
More generally, there are several reasons why respondents may be less truthful when answering questions related to IPV. On the one hand, individuals may be aware that they are victims of abuse, but perhaps are unwilling to confess due to stigma. On the other hand, it could be that individuals fail to identify themselves as victims of abuse at all, and do not consider their relationship unhealthy. Against this background, Nishith Prakash presented preliminary results of an ongoing study on behavioral barriers to the demand for DV-support services. The baseline results of the survey indicate belief gaps among women who scored high on levels of abuse: a significant majority of abuse victims rated their relationship as healthy. While 46.43% of respondents report some form of physical, emotional, or sexual violence, the portion of those with the prior belief that they are in an abusive relationship is only 1%. The study also finds that stress about Covid-19 correlates with higher levels of self-blame, abuse, and lower levels of understanding of what abusive behaviors are.
The covid-19 pandemic and its massive repercussions on determinants of DV such as mobility, economic insecurity, and social isolation have offered new possibilities for researchers to study the underlying causes of DV, while also making DV research ever more important. The next policy brief in this series will summarize the presentations which were specifically devoted to the consequences of the pandemic on DV. On behalf of FROGEE and SITE, we would like to thank the speakers for their contributions to the understanding of this topic, which will be indispensable both to the academic community and to policymakers in their efforts to design more effective policies for the future. We would also like to thank SIDA for generous financial support.
References
- WHO, Department of Reproductive Health and Research, London School of Hygiene and Tropical Medicine, South African Medical Research Council. “Global and regional estimates of violence against women”. Reference No. 978 92 4 156462 5. 2013.
List of Participants
- Andreas Kotsadam, The Frisch Centre, Oslo University, EGAP, CESifo
- Paul Seabright, Toulouse School of Economics, IAST
- Sonia Bhalotra, University of Essex
- Sofia Amaral, University of Munich, CESifo
- Victoria Endl-Geyer, ifo Institute
- Leigh Goodmark, University of Maryland
- Veronica Frisancho, Inter-American Development Bank
- Nishith Prakash, University of Connecticut
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Belarus Economic Outlook
The Belarus economy was already struggling to generate growth before both the corona pandemic and the political protests following the August presidential election. The lack of growth was the result of an incomplete transition process to modernize the economy combined with a strong reliance on the Russian economy and its dependence on international commodity prices that have not paid off in recent years. With the added political turmoil and, so far, lack of a new political and economic strategy, the economic outlook for Belarus looks grim. Even if a full-blown crisis may be avoided by restrictive economic policies, stagnation will nevertheless be the most likely outcome without fundamental reforms.
Introduction
The Belarus economy was for many years doing very well under president Lukashenko, but since the global financial crisis in 2008/09, this course has been reversed. The downward growth trend has been exacerbated by both slumps in international oil prices (particularly important because of linkages with Russia, see Becker 2016a, 2016b, 2018, 2020), and the COVID-19 pandemic. This is clearly illustrated in Figure 1, which shows how the average growth rate has fallen all the way to a negative one percent in the years since 2015, while the period before the global financial crisis generated an average growth of 8 percent.
The lack of growth in Belarus and its causes has been analyzed in several papers long before the current developments. Akulava (2015) discusses how the government already five years ago understood that it needs to stimulate the private sector to generate growth; Kruk and Bornukova (2016) in turn describe how growth in the boom years was driven by capital accumulation but not improvements in productivity (TFP) that could have sustained growth in more recent years. As for policies to generate growth, Kruk (2014) argues that Belarus should focus on institutional changes that create the right incentives for firms and lead to a more efficient resource allocation rather than simply spend money on new equipment for existing firms. The need for productivity-enhancing reforms is further stressed in Kruk (2019) who points out that there is limited space to stimulate growth by expansionary macroeconomic policies.
Although the political situation after the election is strongly linked to the lack of democracy and freedom, the citizens’ willingness to protest is most likely enforced by the very poor economic performance of recent years. And while the importance of economic developments is sometimes glossed over in the current reporting and narrative of Belarus it will be an important factor in the popularity of any future government in Belarus as well as the current one.
Figure 1. Real GDP growth
Source: IMF World Economic Outlook April 2020.
Note: The chart is based on the April 2020 version of the IMF’s World Economic Outlook and in the just-released October edition, the 2020 forecast is less negative due to global economic developments. However, this does not change the general downward growth trend Belarus has experienced.
Background
On the structural side, the economy of Belarus is heavily connected to Russian economic developments, which in turn depends on international oil prices (Becker 2016a, 2016b). In the group of FSU countries, Belarus stands out as the country that has the largest share of its exports going to Russia and the largest share of its FDI coming from Russia. On top of that, Belarus enjoys subsidized prices on oil and gas from Russia that benefits not only its exporting refineries but also other energy-intensive industries that are important for generating export revenues.
Figure 2. Exports and FDI shares with Russia and Rest of the World
Source: IMF directions of trade, World Bank development indicators and Central Bank of Russia data on FDI
As a final background note, the importance of SOEs in terms of employment has gone down in recent years but SOEs are still an important provider of jobs in Belarus and another sign of an unfinished transition agenda.
Figure 3. Importance of SOEs
Source: Belstat
To improve growth prospects, this is clearly a sector in need of reforms, including some privatizations, to make it more competitive and less of a drain on government finances. However, this process will need to deal with sensitive employment issue regardless of who is in charge politically.
Furthermore, Marozau, Aginskaya, and Akulava (2020) discuss how the corona pandemic may threaten the jobs of the over 1 million people that are employed by SMEs. The financial constraints of the government make it hard to offer widespread support to SMEs, and the authors argue that the government should target future winners among SMEs rather than the big losers in the crisis.
The challenge of increased unemployment is further exacerbated by the lack of an unemployment benefit system with extensive coverage (Bornukova, 2017). The lack of a well-targeted social security system could lead to a new increase in poverty rates. Mazol (2019) shows how past crises had a negative impact on poverty with absolute poverty increasing almost twofold in 2015/2016.
Recent Developments
The economy in Belarus was facing challenges (like much of the world) this year due to the COVID-19 pandemic well before the political crisis following the August election triggered additional problems. The IMF growth forecast for the year was well into negative numbers and given the (not always stable) links to Russia and thus to oil prices, the longer-term outlook was cloudy as well. Although the IMF’s October forecast shows less negative growth for 2020 (from minus 6 to minus 3 percent as the world is expected to see less of a contraction due to the COVID-19 pandemic), the longer-term outlook is one of stagnation with annual growth of around 1 percent.
For 2020, the economic and political difficulties can be seen in exchange rate developments as well as in the evolution of foreign exchange reserves (Figures 4 and 5). In some ways, the 25-30 percent depreciation of the currency viz the dollar and euro is not the full story on the currency, since the exchange rate viz the Russian ruble has been much more stable. Given the close links to the Russian economy, this is quite important to note. Indeed, foreign currency reserves (the more liquid part of international reserves) have gone down by some 40% this year but are still at around 3 billion USD.
Additional pressure on the financial system in the past months came from significant withdrawals and people moving their savings to hard currencies after the August election. Krug and Lvovskiy (2020) discuss how this development is driven by political turmoil and also how the lack of trust that is currently generated in the system will lead to further stagnation of the economy. This line of reasoning is supported by Mazol (2018), who shows how financial stress in the past has contributed to costly economic contractions.
Figure 4. Exchange rate indices
(Jan 2020=100)
Source: National Bank of Belarus
Figure 5. Foreign exchange reserves
Source: National Bank of Belarus
Outlook and Policy Conclusions
The current economic policy will not generate growth in the short or long term by itself and the current political situation is clearly affecting growth negatively. The current political leadership could of course once again turn to Russia to ask for economic assistance in various forms, including loans, subsidies, or investments. Given the situation in Belarus, this will clearly come at a high political cost that will not necessarily be immediately transparent to people in Belarus or the outside world. Further, a sufficient level of assistance is not bulletproof either – Russia is itself facing difficult economic times ahead, both because of the COVID-19 pandemic and its impact on oil prices but also because of its own inability to generate sustainable growth that is not based on oil, gas and minerals (Becker, 2018, 2020).
How long the political and economic repression can go on without triggering a full-blown meltdown of the financial system in Belarus is anyone’s guess. Unfortunately, a policy mix of more restrictions on financial and exchange transactions in combination with accepting stagnation has been shown to be a model that has “worked” from Cuba, to Iran, Venezuela and North Korea for very long periods of time, so there are no given deadlines for such regimes.
Regardless of short-term policy changes, Russia will remain an important economic player in Belarus for a long time unless something dramatic changes. If there is a transition of political power in Belarus, any new political leadership will have to make careful choices with regard to its relationship with Russia. Quickly cutting ties to its big eastern neighbor could turn out to be very costly for Belarus from an economic perspective given the structure of trade, subsidies, and investments between the two countries.
If the EU (or the West more generally) wants to provide Belarus with a realistic economic alternative to Russia in the short run, it will need to provide substantial funding and strongly support a wide-ranging economic reform program that will need to address transition issues that most of its neighbors did many years ago. This will involve not only selling state assets to foreign investors but also changing the economic system from the ground up, including institutions and management practices. Another important part of the needed change is modern Western education. The importance of higher education institutions (HEI) to generate growth in Belarus is stressed by Marozau (2019), who discusses the role of HEIs in improving productivity and how the universities in Belarus fail to stimulate innovation and entrepreneurship.
The support package may not be cheap for the EU financially but helping the people in Belarus to finally make the transition to a modern, democratic market economy on the doorstep of the EU would certainly be worth it. The question is if the EU will manage to unite around such a policy in a time of COVID-19 lockdowns and economic hardship within its current boundaries. Patience may be required among those that fight for their freedom and a new economic model in Belarus.
References
- Akulava, Maryia, 2015. ”The Role of Belarusian Private Sector”, FREE policy brief, January.
- Becker, Torbjörn, 2016a. “Russia’s Oil Dependence and the EU”, SITE Working paper 38.
- Becker, Torbjörn, 2016b. “Russia and Oil — Out of Control”, FREE policy brief.
- Becker, Torbjörn, 2020, “Russia’s Macroeconomy — A Closer Look at Growth, Investment and Uncertainty”, Ch 2 in Putin’s Russia: Economy, Defence and Foreign Policy, Steven Rosefielde (ed.), World Scientific Publishers, Singapore.
- Becker, Torbjörn and Susanne Oxenstierna, (eds.) 2018, The Russian Economy under Putin, Routledge, London.
- Belstat, 2020, National Statistical Committee of the Republic of Belarus data on SOE employment at https://belstat.gov.by/en/ .
- Bornukova, Kateryna, 2017. “Fiscal Redistribution in Belarus: What Works and What Doesn’t?”, FREE policy brief, September.
- Bornukova, Kateryna, Cojocaru, Alexandru, Matytsin, Mikhail, Shymanovich, Gleb, 2019. “Poverty, Vulnerability, and Household Coping Strategies During the 2015/16 Recession in Belarus”, Policy Research Working Papers 49, The World Bank.
- Central Bank of Russia, 2020, data on FDI at http://cbr.ru/eng/ .
- IMF, 2020, World Economic outlook data April and October at https://www.imf.org/en/Publications/SPROLLS/world-economic-outlook-databases#sort=%40imfdate%20descending .
- Kruk, Dzmitry, 2014. ”Stimulating Growth in Belarus: Selecting the Right Priorities”, FREE policy brief, November.
- Kruk, Dzmitry , 2019. ”Can Loose Macroeconomic Policies Secure a ‘Growth Injection’ for Belarus?”, FREE policy brief, December.
- Kruk, Dzmitry and Kateryna Bornukova, 2016. ”The Anatomy of Recession in Belarus”, FREE policy brief, December.
- Kruk, Dzmitry and Lev Lvovskiy, 2020. “Does Political Illegitimacy in Belarus Imply New Economic Risks?”, FREE policy brief, October.
- Marozau, Radzivon, 2019. “Development of Belarusian Higher Education Institutions Based on the Entrepreneurial University Framework”, FREE policy brief, January.
- Marozau, Radzivon, Hanna Aginskaya and Maryia Akulava, 2020, ”Supporting Measures for Belarusian SMEs: the Context of the Covid-19 Pandemic”, FREE policy brief, May.
- Mazol, Aleh, 2018. ”Financial Stress and Economic Contraction in Belarus”, FREE policy brief, February.
- Mazol, Aleh, 2019. ” Poverty Dynamics in Belarus from 2009 to 2016”, FREE policy brief, March.
- National Bank of Belarus data on exchange rates and reserves.
- World Bank, 2020, World Development Indicators data on FDI at https://databank.worldbank.org/source/world-development-indicators
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Domestic Violence in the Time of Covid-19
Since the outbreak of Covid-19 in the spring of 2020, media outlets around the world have reported increases in domestic violence. United Nations secretary-general António Guterres has even referred to it as a “shadow pandemic”. Besides news outlets, academic researchers have also taken an interest in the issue, which is crucial if we are to draw the right conclusions from the patterns we see in the statistics. Preliminary evidence shows that the incidence of intimate partner violence has also increased in Sweden, notwithstanding the absence of a strict lockdown. This is likely related to the socio-economic changes brought about by the pandemic.
A Shadow Pandemic?
In response to the Covid-19 pandemic, governments around the world introduced a variety of measures aimed to stave off the contagion, and billions of worried people adapted their behavior and lifestyle. But did the pandemic, and the changes brought by it, also lead to an increase in domestic violence?
Were we to simply look at the number of domestic violence offenses reported over time, we would not be able to answer this question. Historical trends and seasonal patterns in domestic violence would confound this observation, while the crisis might affect the reporting of crimes independently of their occurrence. More rigorous statistical analysis is needed for understanding not only the true situation with domestic violence under the pandemic, but also the reasons behind it. Investigating the driving factors is crucial for informing policy reactions already in the short run — is it a loss of income that generates violence, or could it simply be increased exposure? Do we need more unemployment benefits or shelters for victims? Moreover, the rather special conditions created by the pandemic can contribute to our general understanding of how domestic violence occurs in relation to other societal dynamics, unveil some of the causal mechanisms that are still open questions in the literature and help to fight this issue further, even after the pandemic is over.
Socio-economic Theories of Violence
Within social science research, studies that focus on the relationship between domestic violence and factors at a societal level can be divided into several different branches. A large corpus of theories interprets violence as a result of power imbalance within households. This perspective is associated with explanations such as bargaining power, exit options, and status, theoretical concepts that are often embodied and approximated by observable factors such as (relative) education, income or employment status. For example, Aizer (2010) provides results in line with the bargaining power hypothesis showing that a decrease in the gender wage gap in the US is associated with a decrease in domestic violence against women. Along the same lines, Anderberg et al. (2016) use UK data to show that an increase in unemployment among men reduces the incidence of intimate partner violence (IPV) while an increase in unemployment among women increases it. In contrast, a study from Spain documents the opposite relationship in provinces characterized by stronger traditional gender roles (Tur-Prats, 2019). It finds that a decrease in female relative to male unemployment causes an increase in violence, which is more in line with the “backlash explanation” — when a woman improves her economic position and independence, the man in the household feels that his identity as breadwinner is threatened and retaliates with violence as a result. Studies such as Iyer et al. (2012) and Miller and Segal (2018) highlight the importance of improving the position of women in society, which can be achieved, for example, through role models and female representation in critical positions. They associate the proportion of women among elected politicians and among the police, in India and the United States respectively, with a significant increase in reports of crimes against women and at the same time a significant decrease in the incidence of such crimes.
An alternative interpretation of domestic violence puts more emphasis on its emotional and irrational nature. In this case, particular events or negative emotional shocks, such as an unexpected negative result of an important football match (Card and Dahl, 2011), are believed to trigger violent reactions in the heat of the moment. The likelihood of such incidents is exacerbated by stress and emotional climate within a household, which in turn are influenced by economic conditions or financial uncertainty. For example, several studies from developing countries associate improvements in general economic conditions with a reduction in domestic violence (Hidrobo et al., 2016; Kim et al., 2007; Haushofer et al., 2019).
Finally, there is a common perception that domestic violence increases during holidays and weekends as families spend more time together and potential victims are more isolated from their social networks, in line with the so-called exposure model in criminology. So far, research on this hypothesis is limited and incomplete. However, it is precisely one of the areas where studies from the recent months may fill the knowledge gap: the fact that lockdowns and work from home forced many families to spend more time together at home while retaining full wages, gives a unique opportunity to examine exposure in isolation from other economic factors.
The opposite of exposure is known as (self-) incapacitation theory: no aggression will occur while a (potentially violent) partner is occupied with something else, whether imposed or self-chosen. Several studies focusing on this hypothesis have documented that the incidence of violent crimes declines, on the street or in the home environment, when potential perpetrators are in school (Jacob and Lefgren, 2003), in prison (Levitt, 1996), at the cinema (Dahl and DellaVigna, 2009) and when they have access to a legal prostitution market (Cunningham and Shah, 2018; Ciacci and Sviatschi, 2018; Berlin et al., 2019). During a lockdown, the availability of such activities is restricted, both to violent people as well as potential victims.
Research on Domestic Violence During Covid-19
The list of studies analyzing data from the past few months is growing by the day. Although full consensus is yet to be reached, the results that have emerged point towards a few patterns: spikes in domestic violence can be credibly connected to strict limitations of movement, at least in some contexts (India, Ravindran and Shah, 2020; Peru, Agüero, 2020; 15 large US cities, Leslie and Wilson, 2020); unemployment could be an important mechanism (Bhalotra et al., 2020; in Canada, Beland et al., 2020 find no impact of unemployment or work arrangements per se, but do associate spikes in violence to financial difficulties); alcohol does not seem to amplify domestic violence during the pandemic, at least in some context (Silverio-Murillo and Balmori de la Miyar do not find any effect of the prohibition to sell alcohol in parts of Mexico City); and by and large barriers to reporting might be a serious issue (Spencer et al, 2020).
A selection of studies on domestic violence during the Covid-19 crisis, many of which are as yet unpublished, were presented at the recent FROGEE Workshop “Economic Perspectives on Domestic Violence”. Two FREE Policy Briefs summarizing the event are forthcoming.
Domestic Violence in Sweden During Covid-19
Studying Sweden against this background can be particularly interesting for at least two reasons. Sweden regularly occupies the top positions in international rankings of gender equality in many dimensions and is seen as having advanced progressive norms and attitudes in this area. As pointed out by the literature on the economic determinants of domestic violence, underlying norms and attitudes can play a significant role in shaping the impact of other factors, such as unemployment (Tur-Prats, 2019). Therefore, the Swedish case can offer a valuable comparison to studies focusing on countries that have different attitudes and norms.
According to estimates by the National Council for Crime Prevention (BRÅ), at least 7% of the Swedish population is exposed yearly to domestic violence, both men and women in roughly equal parts. However, women are much more likely to report recurring violence and to end up hospitalized.
When it comes to the particular situation of the Covid-19 crisis, Sweden is also close to unique in its contagion-management strategy. Swedish policy relied much more than elsewhere on voluntary participation and individual responsibility rather than coercion. Certainly, working from home when possible was encouraged, the use of public transport discouraged, and indoor events with more than 500, and thereafter 50 participants were forbidden, which included many sports and cultural events. In fact, the Google mobility index, based on location data from Google Account users, shows patterns of clear deviation from the baseline since week 11 of 2020, when the authorities declared a very high risk of community spread.
Figure 1. Mobility patterns in Sweden during Covid-19
Source: Author’s aggregation of Google mobility index. The lines show the deviation from baseline, in percentual terms, of total user presence in different urban areas by category.
The plots in Figure 1 show that the presence of Google Account users was about 10% higher in residential areas (the pink line) and much lower in workplaces, despite some variation over the period: the initial decline was roughly half as large as the impact of summer vacation, as shown by the blue line. Also, visits to retail centers and grocery stores, recreation places (such as restaurants, cinemas, and theaters), and transit stations decreased, especially during the beginning of the period. Mobility in parks and green areas, shown separately, follow to a larger extent a seasonal pattern.
Nevertheless, the general population was never forbidden or even discouraged from leaving their homes, which clearly makes a stark difference for many of the mechanisms that, based on the literature, we think could play a role in explaining domestic violence.
According to BRÅ, during the first half of 2020, there was a 1% increase in total reported crime compared to the same period of the previous year. However, there is wide variation among the crime categories: 9% more violent assaults against women were reported, and 4% more against men, but 6% fewer rapes of women and 9% fewer rapes of men. As discussed above, it is not straightforward to draw conclusions from simple comparisons over time. Preliminary analysis utilizing the variation in mobility patterns over weeks and municipalities reveals that a 10% increase in residential mobility is associated with a (lower bound) increase in reported non-battery crimes against women committed by an intimate partner by 0.015 crimes per 10,000 individuals (a sixth of the mean). The corresponding figure for a 10% reduction in mobility in retail and recreation areas and transit mobility is around 0.0025 additional crimes (3% of the mean) (see Figure 2). Crime categories include attempted or planned homicides; sexual molestations, sexual assaults, and rapes; violations of integrity and privacy (including limitation of freedom, coercion, threats, persecutions; battery crimes are not included for the time being because of a coding mistake in the police system pertaining this particular category).
Figure 2. Mobility patterns and IPV in Sweden during Covid-19 – non-battery crimes
Source: Author’s analysis. Crime data provided by the police, mobility index provided by Google.
We consider this a lower bound because of the voluntary nature of the Swedish ”lockdown” – if people have the freedom to choose, then it is reasonable to expect that individuals more exposed to the risk of domestic violence would decide to be less at home, which would reduce the strength of the relationship observed. In the opposite direction, we might be worried that when more people are at home, more crimes are reported by a third party, such as neighbors, and thus not implying that more crimes are being committed. However, we differentially see more reported crimes with a female victim than with a male victim, which is not necessarily easy for a third party to distinguish by the sounds. Therefore, it seems likely that, based on the changes in mobility patterns, IPV against women has increased in Sweden during the Covid-19 crisis. Other consequences of the crisis that might also play an important role in shaping IPV and domestic violence, including the huge increase in unemployment and changes in alcohol sales, remain to be investigated.
Conclusion
In conclusion, research from the past months finds some limited support for hypotheses originating from previous literature on the relationship between different socio-economic factors and domestic violence. When these factors were affected by the pandemic and the associated economic crisis, domestic violence responded as well, to a varying extent depending on the context. This can be seen as an indirect and hidden cost of the pandemic.
Preliminary evidence indicates a similar case for Sweden, notwithstanding the absence of a strict lockdown. This implies that a significant part of the changes in behavior, which in turn can be expected to affect domestic violence, have occurred as a response to the pandemic itself and not necessarily as a result of policy measures.
While the shock of the pandemic will help us to better understand some of the underlying mechanisms behind the phenomenon of domestic violence, many questions are still open, and it is important to look beyond the pandemic. Domestic violence existed before Covid-19 and will, unfortunately, remain part of our societies when the pandemic is over. Investigating and understanding its determinants is important in order to formulate proper policies to combat it during and after the crisis.
References
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- Béland, Louis-Philippe; Abel Brodeur; and Taylor Wright, 2020. “The short-term economic consequences of Covid-19: exposure to disease, remote work and government response.” Unpublished.
- Berlin, Maria P.; Giovanni Immordino, Francesco F. Russo and Giancarlo Spagnolo, 2020. “Prostitution and Violence. Empirical Evidence from Sweden”, Unpublished.
- Berlin, Maria P.; and Manne Gerell, 2020. “Economic Determinants of Violence in the Home: The Case of Sweden During Covid-19”, Unpublished.
- Bhalotra, Sonia; Damian Clarke; Emilia Brito; Pilar Larroulet; and Francisco Pino, 2020. “Impact of Covid-19 on Domestic Violence, Crime and Male and Female Time Use and Labor Supply: Evidence from Rolling Quarantines in Chile”, Unpublished.
- Capaldi, Deborah M.; Naomi B. Knoble, Joann Wu Shortt, and Hyoun K. Kim, 2012. “A systematic review of risk factors for intimate partner violence.” Partner abuse 3, no. 2. 231-280.
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- Haushofer, Johannes, Charlotte Ringdal, Jeremy P. Shapiro, and Xiao Yu Wang, 2019. “Income changes and intimate partner violence: Evidence from unconditional cash transfers in Kenya”, Unpublished.
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- Kim, Julia C.; Charlotte H. Watts, James R. Hargreaves, Luceth X. Ndhlovu, Godfrey Phetla, Linda A. Morison, Joanna Busza, John DH Porter, and Paul Pronyk, 2007. “Understanding the impact of a microfinance-based intervention on women’s empowerment and the reduction of intimate partner violence in South Africa.” American journal of public health. 97, no. 10. 1794-1802.
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- Leslie, Emily; and Riley Wilson, 2020. “Sheltering in place and domestic violence: Evidence from calls for service during COVID-19.” Unpublished.
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- Ravindran, Saravana; and Manisha Shah, 2020. ”Unintended consequences of lockdowns: Covid-19 and the shadow pandemic.” Unpublished.
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Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.
Does Political Illegitimacy in Belarus Imply New Economic Risks?
Today’s political crisis in Belarus has given rise to the phenomenon classified in political science as political illegitimacy. However, this is not a pure political phenomenon. It causes adverse and severe economic adjustments. In a short-term perspective, it gives rise to numerous risks of financial destabilization. Moreover, it is likely to deepen the current recession and make it protracted. In the long-term, political illegitimacy causes adverse institutional adjustments and erosion of human capital, which is likely to lead a country into a long-lasting depression. We argue that resolving the political crisis in a way that revives trust and legitimacy is the only ‘good’ solution.
Short-term Economic Effects of Political Illegitimacy
Since August 9, 2020, Belarus has been widely discussed worldwide in mass media because of the country’s political crisis. Political scientists classify the current situation in Belarus as a case of political illegitimacy, i.e. there is no consensus in the Belarusian society concerning the recognition and acceptance of a new term for the governing regime.
In turn, the governing regime prefers to ignore the illegitimacy issue. There is an implicit assumption behind this: illegitimacy is an intangible issue that can hardly result in any tangible threat to the sustainability of the governing regime.
We oppose this view and argue that, at least in an economic dimension, there are numerous channels through which illegitimacy transforms into tangible problems. Inasmuch as the stance of the economy affects political sustainability, it will undermine the latter.
From a short-term perspective, the issue of political illegitimacy has become part of the information accounted for in the decision-making of economic agents in Belarus. Hence, in their economic decisions they either try to struggle against it, or at least to hedge against corresponding adverse effects.
Most evident, the adjustments in decision-making has already visualized in households’ savings behavior. Directly, illegitimacy considerations gave rise to deposit withdrawals from the banking system and enlarged demand for hard currency. Consequently, this led to a rise in depreciation-/inflation-expectations and lowered public trust in the banking system, which in turn has amplified these patterns of the households’ behavior. In August, Belarus experienced historical peaks in deposit outflows and international reserves were depleted as a result. This has substantially amplified the risks of financial turmoil.
So far, the authorities have curbed the financial stress by implementing a restrictive monetary policy. However, this does not suppress adverse patterns in households’ behavior. It only somewhat allows for a shift of adverse adjustments from financial markets towards the real economy. Moreover, it weakens but does not completely remove the threat of full-fledged financial turmoil, taking into account the systemic financial fragility in Belarus.
In addition to the illegitimacy issue itself, other adverse expectations are likely to give rise to unfavourable trends in households’ consumption behaviour as well. First, household consumption is likely to be dampened as a result of poor consumer confidence and sentiment. Second, additional losses in consumption are likely to occur due to tightening access to credit and progressing financial fragility.
Similar mechanisms are likely to be in place with respect to investment demand. First, poor confidence and sentiment undermine the investment activity of businesses. In Belarus, this channel is likely to be more powerful for private businesses, as investment plans of SOEs (due to their directive nature) are less sensitive to confidence and expectations. Second, investment activity is likely to decline due to deteriorating financial conditions and consequent contraction of credit. This linkage is especially important for the SOEs and housing investments.
The power of adverse consumption and demand trends is still questionable. However, preliminary estimates (introducing negative shocks in addition to scenarios in Kruk, 2020) show that they will reduce the output growth rate by at least 1.5-2.0 percentage points in 2020 Q3-Q4. In other words, they are expected to deepen the current recession and are likely to make it more long-lasting.
Deteriorating payment discipline is one more expected outcome from political illegitimacy. Being amplified by deteriorating financial conditions and economic activity, it can turn into a full-fledged payment crisis and fiscal instability.
Adverse Institutional Adjustments and Effects on Labor Market
Human-to-human interactions based on mutual benefit and trust are the core of a modern market-based economy. Key institutions created to support this interpersonal trust are laws and law-enforcement agencies. If a person does not trust her counterpart in a deal and does not think that she can take him to court to defend her rights, no deal will be signed. When an individual observes unrightful and politically-motivated court decisions in criminal cases, the distrust is also passed on to her beliefs that she would be able to defend her economic rights in the same court. As we observe police violence, tortures, and criminal charges of protesters with no attempt to prosecute those responsible, public trust in the law-enforcement system fades away, and thus all kinds of deals previously supported by a contract-enforcement system cease to exist.
The quality of a judicial system is widely recognized as a powerful determinant to overall institutional quality and the business environment. Hence, poor trust in it would likely undermine business activity directly. Existing businesses are to re-orient towards shorter-term strategies, being reluctant to initiating long-term and risky projects. Moreover, their inclination to geographical diversification of their business activity or even full migration is likely to rise. New entrants – that are extremely important to achieve productivity gains (Foster, Haltiwanger, and Syversen, 2008) – are less likely to start business in the country.
An increase in emigration is a usual consequence of political crisis, especially if it is accompanied by violence and politically-motivated incarcerations. What is unique about the current Belarus crises is that the list of potential emigrees include not only individuals but also firms, especially those working in the IT sector. After 11 August 2020, many IT companies found their employees detained, beaten and tortured. The offices of Yandex, Google and PandaDoc were searched and four top managers working at the latter were detained on tax evasion charges which are likely to be politically-inspired. As of the 18th of September, around 200 IT companies are considering relocation from Belarus and many more are considering partial relocation of their employees to already established foreign offices (Dev.by(2020a)). Results from a recent survey show that 33% of IT specialists have already decided to leave Belarus and the rest indicated that they will leave if the situation worsens (Dev.by(2020b)).
There are several major reasons for why the IT-sector is affected more by the current crises compared to traditional sectors of the Belarusian economy. Firstly, IT companies rarely own physical capital and thus can change their location in a matter of days by simply relocating their employees and laptops. Secondly, the IT labor market is global and mobile, and companies compete for the workers. Therefore, if many workers hold similar strong views on a particular situation, employers are bound to support them to a certain extent. As a result of the latter, many IT companies have openly voiced their disagreement with the election results and the politically motivated violence following the election. High-level employees and owners of major companies have participated in various opposition initiatives and as a result, now face retribution from Lukashenko’s government.
In addition to politically-motivated emigration, we can expect an increase in economically-driven emigration rates as the economy is expected to shrink (Bornukova and Lvovskiy, 2020).
What Is the Way Forward?
The political crisis in Belarus has triggered multidimensional adverse economic adjustments. Nevertheless, the authorities prefer to ignore the links between politics and economics. Hence, they try to overcome the problems with economic policy tools only. However, the room to maneuver with these tools is considerably restricted, and in some cases completely ineffective in suppressing adverse trends.
With respect to the short-term agenda, the authorities cannot offset the adverse trends. They can just mitigate challenges in one dimension and try to re-direct it to another one. For instance, currently the authorities focus on mitigating the probability of a full-fledged financial crisis. This consideration requires restricting monetary conditions. Otherwise, the exchange rate is likely to depreciate, which would be problematic from a corporate debt sustainability perspective. Although being somewhat effective in this regard, this policy mix dampens economic activity. From a financial dimension, the challenge is being re-directed to the real economy.
A similar picture might soon emerge in a fiscal sphere as well. An economic downturn and political crisis can result in a widening income gap. At the same time, the room for maneuver on the expenditure side is constrained. The funds accumulated from the previous periods have to a large extent already been spent to support SOEs. Hence, a further expansion of expenditures is hardly possible, as it would undermine fiscal and public debt sustainability. Therefore, fiscal stimulus is likely to fade away and can gradually even become negative.
Based on estimations in Kruk (2020), before the issue of illegitimacy appeared, the economy was developing according to a scenario of about a 3% drop in GDP in 2020 and a meagre recovery (if any) in 2021. Adding the assumptions associated with adverse adjustments due to the illegitimacy issue into the Kruk (2020) estimates, we show that the recession is likely to deepen by at least 1 percentage point in 2020. In 2021, output losses are likely to expand considerably. In regard to the long-term agenda, the situation is even worse. Conceptual decisions on economic activity by firms and households are closely linked with the issues of trust and legitimacy (Bornukova et al., 2020). Having lost them, the authorities are unlikely to have any effective tools for standing against adverse institutional adjustments and the erosion of human capital. Hence, we may expect that today’s poor growth potential of the Belarusian economy – up to 2.5% of per annum growth (Kruk, 2020) – is likely to weaken further and could even become negative. This means that the stagnation over the recent decade is likely to turn into a long-term depression.
Conclusions
The political crisis and the arising issue of political illegitimacy in Belarus impose severe economic challenges for the country. In a short-term perspective, there are numerous channels that are likely to deepen the recession and make it long-lasting. Moreover, risks to financial stability are progressing rapidly. Hence, there is little room for securing macro stabilization in the near future.
In a long-term perspective, the country is likely to suffer from the disruption of productivity enhancers. It will stem from lower business initiatives and the erosion of human capital. This is a way to a long-term depression.
Standard economic tools are mainly ineffective against both the short-term and long-term challenges. Resolving the political crisis in a way that revives trust and legitimacy is the only ‘good’ solution.
References
- Bornukova, K. and Lvovskiy, L. (2020). Demography as a Challenge for Economic Growth, Bankauski Vesnik, 680 (3), PP. 31-35.
- Bornukova, K. Godes, N., and Shcherba, E. (2020). Confidence in the Economy: What is It, How it Works and Why We Need it?, Bankauski Vesnik, 680 (3), PP. 95-99.
- Foster, L., Haltiwanger, J., and Syversen, Ch. (2008). Reallocation, Firm Turnover, and Efficiency: Selection on Productivity of Profitability? American Economic Review, 98(1), PP. 394-425.
- Kruk, D. (2020). Short-term Perspective for the Belarusian Economy, BEROC Policy Paper No. 92.
- Dev.by. (2020a). https://dev.by/news/pochti200-relocate
- Dev.by. (2020b). https://dev.by/news/opros-relocate-september2020.
Disclaimer: Opinions expressed in policy briefs and other publications are those of the authors; they do not necessarily reflect those of the FREE Network and its research institutes.