Tag: index
An Environmental Perspective on Belarus’s Sustainable Development
In the last two decades, Belarus has performed better than other CIS countries in sustainable development. However, Belarus has in recent years seen a decline in its global environmental rankings, particularly in the areas of climate action and environment. In 2023, the country’s standing worsened in the Sustainable Development Index, Climate Change Performance Index, and Environmental Performance Index compared to previous years and rankings. This policy brief analyzes Belarus’s performance across these indices and explores the potential causes of recent negative trends and the environmental decline in Belarus. It underscores the crucial role of political and civil engagement in ensuring long-term sustainability of environmental reforms in Belarus.
In recent years, political and economic turbulence has overtaken the public debate about the state of things in Belarus, while environmental issues have taken a back seat. However, tackling climate change is important in any political context, and in this policy brief, we delve into recent developments in Belarus along the environmental front.
Belarus has traditionally done relatively well in regard to sustainable development. For example, in the last two decades, it has consistently outperformed other CIS countries, as measured by the Sustainable Development Goals (SDG) Index, and has been on par with the Eastern European EU Member States (see Figure 1).
However, in the last few years, Belarus’s progress in this dimension has stagnated, and even partially reversed. This brief focuses on one of the drivers of this stagnation – recent developments in the environmental sphere. The brief shows that Belarus worsened its position in three major global indices measuring environmental performance and discusses which components of environmental performance have lagged the most. It proceeds to analyze the underlying causes for this stagnation. The brief concludes by discussing necessary policy measures to improve Belarus’s environmental sustainability.
Figure 1. SDG Index scores for selected countries, 2000-2023
Source: SDG Transformation Center.
Belarus in Global Environmental Rankings
Global environmental rankings are an essential tool for encouraging global efforts to tackle ecological challenges and promote sustainable development. The rankings aim to evaluate a country’s environmental policies and practices and provide a relative assessment of its sustainability efforts, pollution control, and conservation practices. We analyze the performance of Belarus with the help of three well-known indexes: the Sustainable Development Goals Index (SDG Index), the Climate Change Performance Index (CCPI), and the Environmental Performance Index (EPI).
The Sustainable Development Goals Index
The SDG Index measures the progress of countries towards accomplishing the 17 SDGs. Its score can be interpreted as a percentage of SDG achievement (Sachs et al., 2023). It is based on 97 indicators that are grouped by SDGs. The indicators are normalized on a 0-100 scale, and the scores are calculated as averaging across respective indicators. The SDG Index includes the total score and scores for individual goals (Sachs et al., 2023).
The SDG Index scores for Belarus improved significantly between 2000 and 2020, increasing by 8.31 points (see Figure 1). However, since 2020, the score has stagnated and even declined slightly. In 2020, Belarus ranked 23rd out of more than 160 countries. In 2023, it dropped to 30th place, the lowest since 2001.
To a large part, the decline in Belarus’s SDG Index score is driven by a drop in the index for the 16th SDG ”Peace, justice and strong institutions”. However, Belarus has also faced stagnation in the SDGs that are explicitly related to the environment – such as the index for SDG 7: “Affordable and Clean Energy”, SDG12: ”Responsible Consumption and Production” and SDG13: “Climate Action” (see Figure 2).
Figure 2. Selected SDG Index components for Belarus, 2020-23
Source: SDG Transformation Center.
These developments reflect Belarus’s key challenges, including its excessive reliance on fossil fuels and insufficient focus on renewable energy; inefficient management of waste and emissions, including plastic and food waste; low priority of climate change issues in the country’s economic and social policies, high carbon intensity in the economy and low ambition when it comes to emission reductions. The Belarusian Civil Society Report on the Sustainable Development Goals’ implementation (2022) also refers to similar challenges.
As the SDG Index covers a broad range of sustainability aspects, it may be less precise when it comes to the specificities of developments in the environmental domain. To get a better grasp of these developments, it is useful to consider more refined indices addressing specifically environmental performance and climate change adaptation.
The Climate Change Performance Index
The CCPI is a tool to monitor the climate protection efforts of 63 countries and the EU, which together make up more than 90 percent of global greenhouse gas (GHG) emissions. This index was developed by Germanwatch in collaboration with the NewClimate Institute and the Climate Action Network. Published annually since 2005, the Climate Change Performance Index tracks countries’ efforts to combat climate change. As an independent monitoring tool, it aims to enhance transparency in international climate politics and to enable comparison of climate protection efforts and progress made by individual countries. The CCPI tracks climate protection performances in four areas: GHG emissions (40 percent of the overall score), renewable energy (20 percent), energy use (20 percent) and climate policy (20 percent) (Burck et al., 2024). The CCPI ranks countries’ efforts as very high, high, medium, low, and very low, with the actual scores normalized between 0 and 100.
The CCPI for Belarus has exhibited an uneven development. In most of the considered years, Belarus’s efforts to prevent climate change were ranked as low, except for 2010-2012 and 2018-2019 when they were characterized as medium or moderate. The lowest scores were recorded in 2017 and from 2020 to 2024, highlighting that climate protection has been less prioritized in Belarus in recent years compared to earlier periods.
The relative CCPI ranking for Belarus is similar to the SDG Index (Figure 1). In 2024, Belarus performed worse than the average for Eastern European countries that are part of the EU – their average CCPI score was 55.43. Still, Belarus performed better than some members of this group (Poland (44.4), Czechia (45.41) and Hungary (45.93)). At the same time, Belarus displayed the best results among CIS countries, as Russia scored 31.00, Kazakhstan 38.52 and Uzbekistan 46.68 in 2024, respectively.
While Belarus slightly improved its score in 2024, relative to 2023, it actually moved down the country ranking in all areas considered by the CCPI. The country still received a medium rating in the areas of GHG emissions and energy use. However, the 2024 efforts with respect to renewable energy and climate policy were once again rated as very low, resulting in a relatively low overall ranking in 2024. CCPI experts point to low diversification of imported energy resources, high reliance on fossil fuels, and delayed climate action as key underlying issues.
Figure 3. CCPI Scores for Belarus, 2008-2024
Source: Based on data from Climate Change Performance Index reports 2008-2024.
The Environmental Performance Index
The Environmental Performance Index ranks the performance of countries on environmental health, ecosystem vitality, and their efforts to prevent climate change (Block et al., 2024). It allows tracking of countries’ progress towards established environmental policy targets. The EPI was developed by Yale University in collaboration with Columbia University and is supported by the World Economic Forum and the European Commission. The EPI framework has been repeatedly changed over the years to incorporate more detailed accounting and further indicators. Thus, it is not possible to directly compare EPI levels for different years.
Instead, we look at the evolution of the EPI ranking for Belarus: in 2016 the country ranked 35th among 180 countries, in 2020 it ranked 49th, and in 2022 its position dropped to 55th place.
In 2022, the EPI score for Belarus amounted to 48.5, surpassing all other CIS countries, for which the average score was 39.79. However, Eastern-European EU members all outperformed Belarus, with an average score of 57.92.
It is worth pointing out how differently Belarus performs with respect to the three policy objectives of the EPI. The first component concerns environmental health – it reflects how well a country mitigates environmental risks that directly affect the health and safety of its population and includes issues such as air quality, sanitation and drinking water, heavy metals, and waste management. Belarus’s 2022 score for environmental health was 51.1 earning them a 52nd place. The second component of EPI is Ecosystem vitality – reflecting the performance in the domains of biodiversity and habitat, ecosystem services, fisheries, forests, climate change mitigation, agriculture, and water resources. Belarus’s ecosystem vitality performance was in 2022 substantially better with a score of 55.4, earning Belarus a 41st place. However, the last component of EPI – climate change mitigation efforts, were evaluated as insufficient for Belarus. The country scored only 39.6 in this regard, equivalent to a 94th place.
Reasons for Belarus’s Decline in Environmental Rankings
The recent stagnation and negative trend observed for Belarus across these global environmental rankings warrant an inquiry into the causes of such developments. Plausibly, these are a combination of insufficient effort to address preexisting environmental challenges and consequences from more recent economic and institutional shocks.
Preexisting Environmental Challenges
One of the main examples of preexisting economic challenges is the continued dominance on imported fossil fuels in the energy sector, low diversification of energy suppliers, and only a marginal share of renewables. According to the National Statistical Committee of the Republic of Belarus, the country belongs to the top-20 most energy-dependent countries in the world. In 2020 the share of energy imports to gross consumption made up 83.7 percent, with around 85 percent of these resources imported from a single supplier: Russia (Internation Energy Agency, 2021). The share of primary energy production from renewable energy sources in the gross energy resources consumption continues to be low (7.8 percent in 2020 vs. 5.6 percent in 2015).
Another challenge has to do with the implementation and enforcement of environmental legislation. Belarus has recently developed and extended its legal framework in environmental sustainability. For instance The National strategy of sustainable development for the Republic of Belarus till 2035, was approved in 2020 and the National action plan for the development of a “green” economy in the Republic of Belarus for 2021-2025 was approved in 2021. The first document outlines the general plan for sustainable development in Belarus; the latter sets 11 priorities for the green economy in the country, including the promotion of green financing and creation of smart and energy-efficient cities, climate change mitigation and adaptation to climate change, education and social engagement.
However, the legislation falls short when it comes to practical implementation of the declared goals and mechanisms. For example, virtually no public financing has been allocated for these purposes and other sources of financing are not specified. Also, the National action plan contains only a general reference to the possibility of attracting extrabudgetary funds, foreign financial resources, or other sources.
Economic and Political Shocks
Recent political and economic crises have also had a negative impact on the environmental sustainability in Belarus.
One can begin by considering the substantial, though potentially unintended, adverse effects of sanctions – imposed in response to the widely contested validity of the 2020 elections and Belarus’s involvement in Russia’s war on Ukraine. While it wasn’t their main objective, the sanctions led to the suspension of green projects and initiatives, supported by international organizations such as the World Bank and other UN programs, the EU and the European Bank for Reconstruction and Development, IMF etc., as well as international investments into Belarus. Funding was suspended for several energy efficiency projects and other green initiatives in Belarus, and for projects promoting sustainable environmental practices, energy efficiency, and clean water access – aimed at reducing Belarus’s carbon footprint and enhancing renewable energy capacity.
The political crisis also led to Belarus’s withdrawal from the Aarhus Convention in 2022. The UNECE Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters of 1998 outlines every person’s right to a healthy and sustainable environment which includes access to justice, participation, and information. The Aarhus Convention guarantees legal protection to people exercising these rights. Belarus’s withdrawal from the Aarhus Convention has increased the likelihood of being prosecuted for environmental activism, thereby undermining civil society’s involvement in environmental decisions and practices. For example, the Belarusian Civil Society Report on Sustainable development goals implementation (2022) mentions the dangers of publicity and resulting loss of funding for local initiatives concerning sustainable consumption practices.
Another adverse consequence of the political crisis was the massive explicit liquidation of ecological NGOs in the country, accompanied by self-liquidations. This negatively impacted civil society engagement into ecological matters in Belarus.
Conclusion: Addressing Belarus’s Environmental Decline
In recent years, Belarus has worsened its position in three major global environmental rankings, the SDG index, the CCPI and the EPI.
In this policy brief, we have outlined these declines and highlighted how they are linked to a combination of preexisting dependencies and recent economic and political developments.
The continued reliance on fossil fuel imports, insufficient renewable energy integration, and problems with enforceability and implementation of green agendas have collectively contributed to these developments. Additionally, the suspension of international projects and investment in the environmental sphere as a result of sanctions, Belarus’s withdrawal from the Aarhus Convention and the massive, forced liquidation or self-liquidation of ecological NGOs has further aggravated the situation.
To enhance its sustainable development, Belarus should focus on boosting renewable energy use and diversify its energy supply. This includes enforcing stricter environmental laws and reconnecting with global environmental agreements (such as the Aarhus Convention). Additionally, Belarus should incentivize research in green technologies and encourage government and private sector collaboration on environmental initiatives. Well-funded, comprehensive climate action plans with clear targets for emission reductions and renewable energy adoption must be developed and implemented. It’s also vital for Belarus to acknowledge and collaborate with environmental NGOs and actively involve the community in addressing the environmental decline through sustainability decisions and initiatives.
References
- Belarusian Civil Society Report on Sustainable Development Goals Implementation: Trends since 2016. Vilnius: 2022 — 112 pages. https://library.fes.de/pdf-files/bueros/belarus/19382.pdf
- Block, S., Emerson, J. W., Esty, D. C., de Sherbinin, A., Wendling, Z. A. (2024). 2024 Environmental Performance Index. New Haven, CT: Yale Center for Environmental Law & Policy
- Burck, J., Uhlich, T., Bals, C., Höhne, N., Nascimento, L., Kumar, C.H., Bosse, J., Riebandt, M., Pradipta, G. (2023). ‘Monitoring Climate Mitigation Efforts of 63 Countries plus the EU – covering more than 90% of the Global Greenhouse Gas Emissions. Bonn: Germanwatch
- International Energy Agency. (2021). Belarus Energy Profile. Retrieved from: https://iea.blob.core.windows.net/assets/a9233b70-ee3e-4a0c-8cde-7a174760b3e2/BelarusEnergyProfile.pdf
- Sachs, J.D., Lafortune, G., Fuller, G., Drumm, E. (2023). Implementing the SDG Stimulus. Sustainable Development Report 2023. Paris: SDSN, Dublin: Dublin University Press, 2023. 10.25546/102924.
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.
About BEROC
BEROC promotes a market economy in Belarus through research, education, and public dialogue. It conducts academic and policy research, organizes educational programs, and fosters collaboration between Belarusian and international economists. BEROC is part of a research network including SITE (Stockholm), BICEPS (Riga), CEFIR (Moscow), CenEA (Szczecin) and KSE/KEI (Kiev).
To read more policy briefs published by BEROC, visit the Institute’s page on the FREE Network’s website.
Gender Gaps in Transition – What do we learn (and what do we not learn) from gender inequality indexes?
We look at the development of gender inequality in transition countries through the lens of the Gender Inequality Index (GII), which aims to capture overall gender inequality. By extending the measure back to 1990, we show that even though gender inequality in transition countries for the most part has decreased since the fall of the iron curtain, once overall development is taken into account, transition countries did better in relation to other countries in terms of rank differences before transition. We, however, caution against relying exclusively on composite indexes to understand patterns of gender inequality. While the desire of policy makers to get one number that captures gender inequality development is understandable, weak correlations across different overall indexes, as well as across different sub-indexes that make up each index, suggest that such an approach has limitations.
Indexes of gender inequality
In the public debate of socio-economic issues there is an understandable interest in single measures that summarize complex issues, describe historical developments and allow international comparisons. The use of GDP to measure economic development is the most immediate example of this way of proceeding. The same applies to gender inequality. Over the past decades a number of “gender equality indexes” have been developed by international organizations such as the UNDP, the EIGE (European Institute for Gender Equality) and the WEF (World Economic Forum), to name a few. These measures receive a lot of attention and in particular the reporting of country rankings tends to have an influence on political and policy discussions.
In this brief, we study the development of the Gender Inequality Index (GII) in transition countries, contrasting these to Western European countries. By transition countries, we refer to all countries that were part of the Soviet Union plus the Central and Eastern European countries that were heavily influenced by the Soviet Union before 1990 (not including Albania and former Yugoslavia). Whenever we have been able to find the underlying data, we extend the GII measure back to the early 1990s. This extension allows us to measure the development of gender inequality through the lens of a single index since the beginning of the transition. We then discuss what the GII tells us about gender inequality in transition, but also – perhaps more importantly – what it does not tell us. Our analysis is discussed as well as shown in some more detail in our forthcoming companion FREE Policy Paper.
The Gender Inequality Index
The GII was reported for the first time in the 2010 Human Development Report. It measures gender inequalities in three dimensions of human development: 1) reproductive health, measured by maternal mortality and adolescent birth rates; 2) empowerment, measured by representation in parliament and secondary education among adults; and 3) economic status, measured by labor force participation.
GII country-values from 1995 are available on the UNDP website. Conveniently for our purpose, most of the underlying data that the index is based on are also made available from the UNDP for the years 1990, 1995, 2000, 2005, and every year between 2010 and 2015, with the only exception of the female seat share in Parliament in 1990. Using the UNDP data, and data on the female seat share in Parliament in 1990 from additional sources (see the FREE Policy Paper for a list of sources), we obtain values for the GII from the beginning of the transition in 1990 until 2015.
What does the GII index tell us about gender equality in transition economies?
Figure 1 reports values for the GII index in box plots, which show the index 25th and 75th percentile (respectively bottom and top of the box), its median (horizontal line in the box), its maximum and minimum (whiskers), and outliers (dots) for two groups of countries: transition countries and Western-European countries. We have reconstructed the values of the GII index for a limited set of countries within these groups (see the note to Figure 1 for the list of countries). When interpreting Figure 1, recall that higher GII values imply more inequality.
Figure 1. The Gender Inequality Index in transition countries and Western Europe, 1990-2015
Source: Own calculations based mainly on UNDP data. The transition countries are: Armenia, Bulgaria, Georgia, Hungary, Poland, Romania, and the Russian Federation. For Western Europe the countries are: Austria, Belgium, Cyprus, Denmark, Finland, France, Greece, Iceland, Italy, Luxembourg, Malta, the Netherlands, Norway, Portugal, Spain, Sweden, and Switzerland.
Figure 1 shows that based on the GII, median gender inequality is larger in transition countries than in Western Europe and has been so throughout the entire period since 1990. In both regions, the index shows a decreasing trend, after an initial increase in 1995 in the transition countries. As we show in the Policy Paper, this decrease is mainly due to a drop in female representation in national parliaments. The variance of the index scores has declined over time in Western Europe, while it remained mostly unchanged in the transition countries.
The evidence from the GII is somewhat at odds with the common notion that transition countries enjoy relatively low level of gender inequality. However, it is important to notice that transition and Western European countries are generally at different levels of development. Figure 2 displays the country groups’ performance in relation to their level of human development. This is done by measuring the difference between their GII ranking and their Human Development Index ranking (HDI) among all the countries with non-missing GII values in the years considered. The HDI is an UNDP-developed measure of overall human development. See the policy paper for details about its measurement. The larger the difference between GII- and HDI-ranking, the worse the group performance in terms of gender inequality in relation to its level of development.
Figure 2. Difference between Gender Inequality Index ranking and Human Development Index ranking in transition countries and Western Europe, 1990-2015
Source: Own calculations based mainly on UNDP data.
The trends between transition countries and Western Europe are now opposite. In 1990, the median standing in terms of gender inequality was better than that in human development for transition countries, and the relative level of gender inequality was lower than in Western Europe. The (negative) difference between GII and HDI ranking however appears to have narrowed over time, and it is close to zero in 2015. Western European countries have instead improved their gender equality ranking in relation to their ranking in terms of human development over the period studied. Put differently, the ranking improvement in terms of human development in former socialist countries since the transition have not translated into comparable gains in gender equality ranking as measured by the GII index.
It is also important to emphasize that, according to several scholars, a dichotomy in terms of gender relations existed in transition countries during the socialist period. This is because on one hand the socialists put substantial into effort to empower women economically (see e.g. Brainerd, 2000; Pollert, 2003; Campa and Serafinelli, 2018), but on the other hand they failed to eliminate patriarchy (LaFont, 2001). This suggests that a composite index can mask important contrasting patterns among its components. In the Policy Paper we uncover such contrasting patterns. By looking separately at the different components of the GII index, we show that while Western European countries have invariantly improved their levels of gender equality since 1990, the trend in transition countries depends on the measure one looks at: Women maintained, but did not improve, their relative status in the labor force. They gained more equality in education and especially in terms of reproductive health, and lost descriptive political representation.
Conclusion
In this policy brief we have studied the development of gender inequality in transition countries through the lens of the Gender Inequality Index, whose span we have extended to the beginning of the transition period. We have shown that, based on this index, gender inequality has decreased since 1990 in transition countries, a trend which is common to that in Western Europe. However, once the changes in overall development during this period are taken into account, it appears that transition countries fared better in 1990 than today. Our analysis thus shows that analyzing gender inequality indexes in absolute terms and in relation to levels of development can deliver different conclusions. The factors that account for these differences should be kept in mind in policy discussions and policy-making. Some issues related to gender inequality, such as maternal mortality, are potentially addressed with a comprehensive strategy aimed at overall development. Conversely, other drivers of gender inequality, such as women’s political empowerment, do not necessary go hand in hand with overall development, and might therefore require more targeted policy interventions.
We have also cautioned the reader about the limitation of using comprehensive indexes to describe developments in gender inequality. A comprehensive index can overshadow important sources of gender inequality if it is composed of sub-indexes that move in opposite directions. This point can be especially relevant in the context of transition countries, which historically experienced a top-down approach to gender equality, the results of which in the long-term appear to be major advancements in some dimensions of women’s empowerment and contemporary potential backlash in other dimensions. It has been argued, for instance, that low levels of female representation in political institutions in transition countries can be the result of women’s large participation in the labor market while the division of roles in households remained traditional. In the words of anthropologist Suzanne LaFont (2001), “Women have been and continue to be overworked, and their lives have been over-politicized, the combination of which has led to apathy and/or the unwillingness to enter the male dominated sphere of politics. Many post-communist women view participation in politics as just one more burden”. In such a context, average values of an index of gender equality might mask high achievements in economic empowerment coexisting with lack of political representation.
References
- Brainerd, E. (2000), ‘Women in Transition: Changes in Gender Wage Differentials in Eastern Europe and the Former Soviet Union’, Industrial and Labour Relations Review, 54 (1), pp. 138-162.
- Campa, P. and Serafinelli, M. (2018), ’Politico-economic Regimes and Attitudes: Female Workers under State-socialism’, Review of Economics and Statistics, Forthcoming.
- LaFont, Suzanne (2001), ‘One step forward, two steps back: women in the post-communist states.’ Communist and post-communist studies 34(2), pp. 203-220.
- Pollert, A. (2003), ‘Women, work and equal opportunities in post-Communist transition’, Work, Employment and Society, Volume 17(2), pp. 331-357.
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.
Financial Stress and Economic Contraction in Belarus
This brief summarizes the results of an analysis of financial stress episodes in the Belarusian economy. Based on a principal component analysis, I construct a financial stress index for Belarus (BFSI) that incorporates distinctive indicators for the banking sector, exchange market and external debt risks covering the period January 2004 to September 2016. Next, I identify episodes of financial turmoil in Belarus using the BFSI and assess the consequences for the real economy. Finally, I investigate the long-run relationship between financial stress and economic activity in Belarus.
It has become conventional wisdom that a well developed and smoothly operating financial system is critically important for economic growth (see Levine, 2005). It helps in overcoming frictions in the real sector, influencing economic agents’ savings and investment behavior, and therefore enabling the real economy to prosper (Beck, 2014).
In contrast, financial stress to financial system can be defined as the force that influences economic agents through uncertainty and changing expectations of loss in financial markets and financial institutions. It arises from financial shocks such as banking or currency crises (Iling & Ying, 2006). Consequently, the current stress level in the financial system can be quantified by combining a number of key individual stress measures into a single composite indicator – the Financial Stress Index (FSI).
In practice, such indices are already widely used, and allow regulators to maintain financial stability and help investors to assess the overall riskiness of investments in financial instruments of the country. The FSI for Belarus (BFSI) has been estimated for the first time and can be used as an early warning signal of systematic risk in the Belarusian financial sector (Mazol, 2017). In the financial context, systematic risk captures the risk of a cascading failure in the financial sector, caused by inter-linkages within the financial system, resulting in a severe economic downturn.
Construction of the FSI for Belarus
Based on a principal component analysis, the calculated index incorporates distinctive indicators for banking-sector risk estimated by the Banking Sector Fragility Index (BSFI), currency risk assessed by the Exchange Market Pressure Index (EMPI), and the external debt risk proxied by the growth of total external debt.
The BFSI reflects the probability of a crisis (episode of financial stress) – the smaller is the indicator, the better. The stability regime ends, when the BFSI exceeds a predetermined threshold. In particular, episodes of financial stress are determined as the periods when the BFSI is more than one standard deviation above its trend, which is captured by the Hodrick–Prescott filter. The identified episodes of financial stress show that one or more of the BFSI’s subcomponents (banking, external debt or foreign exchange) has changed abruptly.
Episodes of financial stress
During 2004—2016, two episodes of financial stress were detected in the economy of Belarus (see Figure 1). In both cases, there were large devaluations of the Belarusian currency, caused by the need to adjust its real exchange rate.
Figure 1. Episodes of financial stress in Belarus 2004—2016
Source: Author’s own calculations.
The first episode began in December 2008 and ended in May 2009. This episode was mainly a consequence of the global economic and financial crisis that caused a deep recession in Russia, reducing Russia’s demand for import of products from Belarus, further loss of competitiveness due to the sharp depreciation of the Russian ruble and deterioration of the current account balance and the depletion of foreign exchange reserves.
The second episode of financial stress began in December 2011 and ended in May 2012. It was caused by the renewed unbalanced macroeconomic policy aimed primarily at boosting aggregate demand by increasing government spending and accelerating economic growth; and monetary policy aimed at targeting the exchange rate. All this has led to problems in the foreign exchange market that eventually encompassed issues in the banking sector and caused a sharp reduction in foreign exchange reserves.
Financial stress and recessions
Figure 2 shows the contribution of each of the sub-indices to the increase in the BFSI.
Figure 2. The dynamics of components of BFSI during 2004-2016
Source: Author’s own calculations.
The main feature of the graph is that the currency stress is the prevailing factor in the two identified stress episodes. However, while the origins of the second episode were in the currency market, by early 2012, the stress had become much more broad based – the banking stress and the external debt stress contributed significantly to BFSI growth at the same time.
In contrast, since the beginning of 2016 until the end of the observation period, an upward movement in the BSF sub-index was detected indicating that the National Bank of Belarus (NBB) had to be worried about instability in the banking sector, which was mostly related to a loans crisis of state-owned enterprises (SOEs). A loans crisis of SOEs in Belarus means the inability of these enterprises to repay their debts and the need for budget coverage of their obligations and investments in fixed capital (see Figure 3). This happened due to a significantly higher cost of capital for SOEs after the second episode of the financial stress had begun.
Figure 3. Sources of investment financing and overdue loans of Belarusian enterprises
Source: Belstat.
Correspondingly, in the late 2016, the above problems have amplified the external debt stress (lack of external financing) in the economy of Belarus (see Figure 2).
Next, the results showed that financial stress negatively influences economic activity proxied by the index of composite leading indicators (CLI). In particular, an increase by one standard deviation (s.d.) in the BFSI leads to the contraction in the CLI index by 0.5 s.d. (see Mazol, 2017).
Moreover, financial stress has caused significant real output losses. The first episode of financial stress has resulted in the contraction of GDP by 5.9%. Second one has pushed Belarusian economy into a severe recession, which lasted 52 months with cumulative output losses about 12.9% of GDP (see Table 1).
Table 1. Descriptive statistics on episodes of financial stress and recessions in Belarus
| Episodes of financial stress | Duration (months) | Output lossa
(% of GDP) |
Number of months after start of financial stress to recession | |
| Financial
stress |
Recessionb | |||
| December 2008 –
May 2009 |
6 | 12 | -5.85 | 0 |
| December 2011 –
May 2012 |
6 | 52 | -12.89 | 6 |
Note: a) output loss is measured as GDP below trend during recession; b) a recession is occurred if there was a serious contraction in the economic activity (CLI) during six month or more. Source: Author’s own calculations.
Finally, a great reliance of Belarusian economy on external financing is associated with longer and sharper downturn in the aftermath of second episode of financial stress (see Figure 2).
Conclusion
The study has three policy implications. First, the BFSI may be considered as a comprehensive indicator that successfully determines the main episodes of financial stress in Belarusian economy and can be used to study their macroeconomic consequences.
Second, the BFSI identifies the most salient stress factors for Belarus, thereby showing which financial sectors need to be monitored carefully by national regulator to avoid a critical buildup of risks in the financial system.
Third, efforts to confine financial stress will support the country’s economic activity in the long run, which may include intervention in the foreign exchange market and build up of investor confidence in the economy.
References
- Beck, Thorsten, 2014. “Finance, growth, and stability: lessons from the crisis”. Journal of Financial Stability, 10, 1-6.
- Illing, Mark; and Ying Liu, 2006. “Measuring financial stress in a developed country: an application to Canada”. Journal of Financial Stability, 2, 243-265.
- Levine, Ross, 2005. “Finance and growth: theory and evidence”. In: Aghion, P., Durlauf,S.N. (Eds.), Handbook of Economic Growth, vol. 1A. Elsevier, Amsterdam, 865-934.
- Mazol, Aleh, 2017. “The influence of financial stress on economic activity and monetary policy in Belarus”. BEROC Working Paper Series, WP no. 40, 33 p.