Tag: macro economy

Monetary Policy in Belarus Since Mid-2020: From Rules to Discretion

20240211 Monetary Policy in Belarus Image 00

The most important “safeguard” against negative consequences from government’s economic policy mistakes is an independent monetary policy aimed at maintaining inflation near a pre-announced target and smoothing out short-term fluctuations. In Belarus, various monetary policy regimes have been employed and, for most of history, the ability of the National Bank of Belarus to set goals and deploy monetary policy instruments without government intervention has been limited. As a result, monetary policy in Belarus tend to exacerbate negative shocks to the Belarusian economy rather than play a stabilizing role. Since mid-2020, the National Bank has de facto lost operational and institutional independence, and monetary policy has become discretionary – focused on stimulating economic activity. As of 2024 this discretionary and expansionary monetary policy has increasingly come into conflict with the need to ensure macroeconomic stability.

Monetary Policy Design in Belarus: Developments in the Last Decade

Since 2015, the National Bank of Belarus (henceforth the National Bank) has declared its monetary policy regime to be monetary targeting. The primary goal of such policy is price stability, while the intermediate target is broad money supply growth. However, research results show that monetary targeting was employed only until mid-2016. From mid-2016 to mid-2020, the National Bank implicitly employed flexible inflation targeting (Kharitonchik, 2023b).

In mid-2020 the National Bank de facto lost its operational independence as the bank was no longer in control of the rules concerning monetary policy (Kharitonchik, 2023a). In 2022-2024, among other things, targets were set for inflation, the growth of the ruble monetary base, broad money supply, the banks’ claims on the economy, and the refinancing rate level. Thus, the National Bank seeks to simultaneously control both the volume of money in the economy and the prices. This is, in practice, expressed in the implementation of discretionary and situational monetary policy.

Under pressure from the government, the National Bank’s monetary policy has since mid-2020 focused on stimulating economic activity, with a high degree of tolerance to inflationary risks. After the US, EU, UK, and several other countries imposed strict sanctions on Belarus in the beginning of 2022, the government’s pressure on the National bank to support economic activity increased even further.

Since October 2022, the only inflation regulator has been strict price controls, exercised by the government in the form of a system of price regulations for approximately 85 percent of the items in the consumer basket. According to the system, manufacturers are obliged to coordinate wholesale prices with government authorities and retailers were in Q4 2022 forced to adjust prices. The system has been modified several times, but as of 2024, it continues to operate in an extremely rigorous version.

Besides the erosion of operational independence, the recent years have been characterized by a marked decline in the institutional framework for executing monetary policy. Aspirations to enhance transparency and accountability of the National Bank to the public seem to be history, at least for the time being. The frequency of the bank’s communication has decreased significantly and its content, as well as the bank’s published data and analytical materials have deteriorated. There are no longer any National Bank briefings on the outcomes of its board meetings, nor are there clear explanations of the decisions made or meetings with the expert community.

The National Bank also introduces uncertainty and undermines confidence in its policies with its strange approach to setting and announcing inflation targets. The increased inflation target, from the previous 5, to 7-8 percent for 2023 is unexplained, the explicit inflation target for 2024 was not presented until the end of August 2023, and the medium-term inflation target is nonexistent. Under such conditions, investment planning and forecasting becomes challenging, necessitating substantial efforts to rebuild trust in monetary authorities for the future.

Figure 1. Inflation and inflation targets in Belarus, 2015–2023.

Source: Author’s estimates based on data from Belstat and the National Bank of Belarus.

Between 2020 and 2023, the National Bank was unable to effectively implement monetary policy in a coordinated manner, falling short in achieving de jure primary and intermediate targets. Thus, inflation in 2020–2022 was significantly higher than targeted levels, while the money supply growth was close to the lower bound of its target range (see Figure 1 and 2).

Figure 2. Broad money growth and its target in Belarus, 2015–2023.

Source: Author’s estimates based on data from the National Bank of Belarus.

In 2023, the inflation was below its target due to total price controls, while money supply growth was twice its target (see Figure 2). Such targeted monetary policy dynamics indicate the instability of the economy’s demand for money and the money multiplier, the instability and poor predictability of money velocity in the face of shocks to the Belarusian economy, as well as the lack (or inability) of a strict commitment by the National Bank to achieve the primary goal of monetary policy.

Monetary Conditions Between 2020 and 2023

Monetary conditions are calculated as a weighted combination of deviations of real interest rates on assets in Belarusian rubles and the real effective exchange rate of the Belarusian ruble from their equilibrium levels. As detailed in Figure 3, the monetary conditions for 2020–2023 are considered stimulative for economic activity and pro-inflationary.

Figure 3. Monetary conditions in Belarus,2015–2023.

Source: Author’s estimates based on QPM BEROC (Kharitonchik, 2023b).
Note: Monetary conditions are estimated as a combination of deviations of real interest rates on the Belarusian ruble assets and of the real effective Belarusian ruble exchange rate from their equilibrium (or inflation-neutral) levels (assessed within the model). Positive monetary condition values indicate their restraining-economic-activity and disinflationary stance, and negative monetary condition values indicate their stimulating and pro-inflationary stance.

In 2020, the soft monetary conditions (the combined effect of interest rates and the exchange rate on the economy) were determined by the behavior of the exchange rate. The Belarusian ruble weakened significantly and became undervalued in 2020 due to a sharp increase in demand for foreign currency at the onset of the Covid-19 pandemic in Belarus and following the presidential elections in August 2020.

As a result of the National Bank’s discretionary monetary policy, interest rates’ volatility significantly increased. A deterioration of the liquidity situation in the banking system and increased risks to the economy during the acute phase of the socio-political crisis in 2020 resulted in interest rates restraining economic activity in September-December 2020.

In 2021, there was a notable improvement in the economic situation in Belarus compared to the crisis experienced in 2020. External demand for Belarusian goods and services rose, and export prices increased significantly which contributed to an increase in foreign currency earnings. As a result, the undervaluation of the Belarusian ruble neutralized during 2021, the banking system moved to a liquidity surplus, and interest rates decreased noticeably, creating soft monetary conditions (see Figure 3).

In 2022–2023, monetary conditions became even softer against the backdrop of increasing priority for the National Bank to support economic activity over inflation containment. The Belarusian ruble again became undervalued which increased foreign trade and allowed for the banking system’s liquidity surplus to expand significantly (see Figure 4).

The realization of a substantial liquidity surplus in 2022 resulted from the National Bank’s active emission policy, likely associated with considerable government pressure. The National Bank injected at least 1.7 billion Belarusian rubles (0.9 percent of GDP) into the financial system through lending to non-deposit financial organizations in 2022, and more than 1.9 billion Belarusian rubles (1 percent of GDP) in 2022 and 1.1 billion Belarusian rubles (0.5 percent of GDP) in 2023, through the purchase of government bonds on the secondary market.

Figure 4. Banking system liquidity in Belarus, 2017–2023.

Source: Author’s estimates based on data from Belstat and the National Bank of Belarus.

Under a colossal and stable liquidity surplus – not withdrawn by the National Bank – interest rates in the money and credit-deposit markets, in 2022-2023, repeatedly reached historically low levels in nominal terms, and in real terms remained  significantly below their equilibrium levels (see Figure 3).

The Monetary Conditions’ Impact on Economic Activity and Inflation in Belarus, 2022–2024

Under loose monetary conditions there was a significant strengthening of the credit impulse (share of new loans in GDP) from Q3 2022 and onwards (BEROC, 2023). In this environment of increased credit activity, the money supply grew at a rapid pace in the second half of 2022–2023 (see Figure 2). The money supply growth significantly exceeded an inflation-neutral pace and by the end of 2023, the volume of real money supply exceeded the inflation-neutral level by almost 10 percent.

Expansionary monetary policy was one of the drivers of the rapid economic recovery in the second half of 2022–2023. The negative output gap, which widened in Q2 2022, following increased sanctions against Belarus, was offset in Q1 2023. Moreover, in Q2–Q4 2023, GDP surpassed its equilibrium level (see Figure 5).

Figure 5. Output gap decomposition in Belarus, 2015–2023.

Source: Author’s estimates based on QPM BEROC (Kharitonchik, 2023b).
Note: The output gap is the deviation of real GDP from its potential (or equilibrium) level, where potential is understood as such a volume of GDP that does not exert any additional pro-inflationary or disinflationary pressure.

By 2024, the Belarusian economy reached a state of moderate overheating (see Figure 5). Currently, loose monetary policy fuels demand but the ability to adjust supply to increased demand levels is limited under sanctions and labor shortages. This mismatch between supply and demand would normally lead to a significant acceleration of inflation. However, due to the strict price controls, this is yet to realize. In fact, inflation reached a historically low value of 2.0 percent Year over Year (YoY), in September 2023. Nonetheless, inflation in Belarus began to accelerate in Q4 in 2023 and amounted to 5.8 percent YoY at the end of the year. In an environment of excess demand and a shortage of workers, firms’ costs rise and translate into higher selling prices, albeit on a limited scale and with a time lag due to the price controls (see Figure 6).

Figure 6. CPI inflation in Belarus, 2015–2023.

Source: Author’s estimates based on data from Belstat. Calculations based on QPM BEROC (Kharitonchik, 2023b).

A prolonged combination of total price controls and loose monetary policy leads to an inflationary overhang – the potential for delayed accelerated price growth. Inflation overhang is a highly undesirable phenomenon since it increases the risk of a price surge in the future and the need for a sharp and aggressive tightening of monetary policy. The inflationary overhang in Belarus is estimated at 5–9 percent (for the end of 2023).  This means that there is a risk of a sharp increase in prices by 5-9 percent if price controls are removed or significantly relaxed.


Since mid-2020, the National Bank has de facto lost its operational independence, and monetary policy has become discretionary, focused on stimulating economic activity. By the beginning of 2024, this discretionary and overly loose monetary policy has increasing come into conflict with the task of ensuring macroeconomic stability.

The Belarusian economy enters 2024 in a state of low economic growth potential (about 1 percent per year) and an imbalance of supply and demand, which creates threats of intensified inflation and a decline in foreign trade.

Attempts by the authorities to artificially maintain high rates of GDP growth and low inflation through excessively stimulating economic policies and archaic price controls may lead to an economic overheating by the end of 2024 similar to the situations leading up to the currency crises in 2009, 2011 and 2015. Under such developments, the fragility of the economy and the likelihood of an economic crisis in Belarus will increase.

To prevent such negative development, it is critical to gradually normalize the monetary policy design in coordination with fiscal policy. Key recommendations from experts for a strengthening of the stabilizing role of monetary policy include ensuring the National Bank’s independence, eliminating discretionary and subjective policymaking, and outlining a clear hierarchy of monetary policy goals (Kruk, 2023).

Simulation results indicate that the use of flexible inflation targeting is the most preferable monetary policy strategy for Belarus under existing sanctions and internal and external capital control measures (as discussed in Kharitonchik, 2023a).

Lastly, as monetary policy is about managing expectations for which trust (i.e. credibility) plays a key role, restoring the public’s trust in the National Bank is essential. To achieve this, the National Bank needs to reestablish communication with the public and resume the publication of analytical and statistical reports, at a minimum matching the extent seen in early 2021.


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.

Russia’s State Armament Plan of 2010 – The Macro View in mid-2016

FREE Policy Brief Torbjorn Becker

Russian defense spending has increased significantly in recent years and reached over 4 percent of GDP in 2015 according to estimates. If the Russian state armament program for 2011-2020 is fulfilled, further large investments will be made in the years to come to modernize the military forces. However, the macro economic realties have change dramatically since the original plans were drawn up in 2010. This brief provides an analysis of what the new macro economic reality means for the armament plans that were made in 2010. In short, the major issue is not that spending as a share of GDP has increased dramatically but rather that the nominal ruble amounts that make up the plan amount to significantly less real purchasing power both in real ruble and dollar terms according to the most recent forecasts. In other words, it is not necessarily the trade off between different government spending areas that will be the main issue in this new macro economic environment, but rather what the priorities will be regarding different types of military equipment within the existing plan.

A 2016 study by Julian Cooper details Russia’s state armament plans for 2011 to 2020, “GPV-2020” (in Russian, State armament program is Gosudarstvennaia Programma Vooruzheniia), to the extent that is possible by using open source information. He makes a special point of discussing the non-transparent structure of Russian defense spending, which makes more precise calculations and statements regarding this expenditure area difficult or even impossible. Nevertheless, he provides broad numbers for the state armament plans that are publically available and this is used in this brief.

The plans of 2010

The state armament plans for 2011-2020 that were made in 2010 were stated in nominal ruble terms. The full path of the plan has not been announced but a total of 19 trillion rubles has been mentioned.

Figure 1. Armament and defense spending

slide1Source: Author’s calculations based on Cooper (2016)

Cooper’s study details amount until 2015 and in Figure 1, the remaining years have been guesstimated by a smooth trend that delivers a cumulative plan of 19 trillion rubles.

The armament plans were very ambitious and it is noteworthy that they were almost fully implemented during the years for which we have actual numbers from Cooper’s study (the blue and red lines almost overlap perfectly). The other rather remarkable feature is how high these spending are compared to the national defense spending reported in his report, with the GPV plan peaking at 70 percent of defense spending.

Changing macro environment

The armament plans were not made in a vacuum but decided based on the economic outlook at the time, i.e., what policy makers projected in 2010.

Figure 2. IMF forecasts and actual GDP

slide2Source: Author’s calculations based on IMF (2010, 2016). Note: The IMF’s 2010 forecast only goes to 2015 and for the remaining years a constant growth rate based on the last year is used.

Figure 2 shows what the IMF’s growth forecasts back in 2010 implied for the development of nominal GDP (dotted blue line); what actually happened until 2015 (solid red line); and what is projected to happen between 2016 and 2020 according to the latest IMF World Economic Outlook forecast of April 2016 (dotted red line). As is pointed out in Becker (2016), international oil prices are key for Russia’s growth performance and any forecast of it is no better than the forecast of oil prices. This implies that also the IMF’s April 2016 projection is highly uncertain, but this is true for any other forecast of Russian GDP as well.

There are two important observations that follow from Figure 2; first, nominal GDP at the start of the program was underestimated; and second, the growth rate was overestimated. As coincidence some times has it, two wrongs make close to a right for 2016; i.e., the forecast of 2010 almost perfectly coincides with what is expected to be the nominal GDP level in 2016 and 2017 in the latest IMF forecast. However, since the slowdown in expected growth is rather significant, in later years the IMF now expects nominal GDP to be less than what it thought it would be in 2010.

Implications for the GPV

The fact that nominal GDP in 2016 and 2017 is almost exactly the same as projected in 2010 implies that the GPV plan as a share of GDP based on the 2010 forecast compared with the 2016 forecast is almost the same in 2016 and 2017. This may be viewed as a peculiar circumstance but it can also have real implications. If the plan in 2010 was developed with a greater view of priorities in different government spending areas, the fact that the plan is still not absorbing more as a share of GDP suggest that the plan may not necessarily be a contentious issue at the level of the government.

However, this is expected to change after 2017 when nominal GDP will be lower than originally thought, and therefore the GPV share of GDP would be higher as seen in Figure 3.

Figure 3. GPV plan as share of GDP

slide3Source: Author’s calculations based on Cooper (2016) and IMF (2010, 2016)

A more immediate concern would be what the nominal spending plan from 2010 actually buys in real terms in 2016. This is a more fundamental issue than changes in nominal GDP that will affect how quickly the armed forces can modernize their equipment. Figure 4 compares how the real purchasing power of the plan has changed from the 2010 to the 2016 forecasts, both in terms of constant (or real) ruble terms (green and purple lines) and in nominal U.S. dollar terms (red and blue lines).

Figure 4. The real spending power of GPV

slide4Source: Author’s calculations based on Cooper (2016) and IMF (2010, 2016)

It is clear that there has been a significant reduction in real purchasing power both in real ruble and dollar terms. The cumulative change in real ruble terms is a loss of 12 percent in purchasing power, while the loss in dollar terms is 45 percent. Since most of the loss in spending powers is from 2014 forward, the impact in the remaining years is even higher than what these cumulative numbers indicate.

The actual impact on the spending plan will crucially depend on how much of what is planned needs to be imported but it is nevertheless clear that there has been a significant reduction in purchasing power if the initial plan in nominal ruble is implemented. This is without any consideration of the impact of sanctions or reallocating government resources to other spending areas that may be considered and would affect this calculation.

Policy conclusions

Although the precision of the discussion in this brief is no better than the accuracy of the available numbers, the general trends and qualitative conclusions made here are most likely still relevant. And without any claim of being able to assess the quality of military equipment or the ability Russia’s military industrial complex to make the right priorities (see instead Rosefielde, 2016 for such discussion), it is clear from a pure economics standpoint that the changing macro environment will have serious real implications for how quickly the modernization process of equipment can go.

It is also highly likely that the worsening of the economic outlook in 2016 compared with 2010 will lead to more general discussions of government spending priorities. Spending on producing arms by the military industrial complex could in principle be a Keynesian type of demand injection that can raise growth in the short run if there are idle resources that are put to use and generate income to workers that in turn spend more of consumption. However, it is not likely that the resources required to build sophisticated new military equipment is idle even in an economic downturn, so this effect is likely not very significant. Instead, more spending in areas that are already in short supply will generate inflation or put pressure on the exchange rate depending on how much is produced domestically and how much is imported of the demanded goods and services.

Long-term growth can also be affected if the GPV plan crowd out resources from other spending areas. The effect will of course depend on what the spending alternatives are and how this is linked to future growth; if military spending does not generate growth by itself while reducing spending on education, research and health care that we think promote long-term growth, prioritizing military spending will have an additional price in terms of reduced future growth. There could be cases where spillovers from military production are significant and spur new businesses and thus generate economic growth, but this does not seem to have been the case in the past in Russia.

In short, it will be hard for policy makers to avoid making tough decisions on what spending areas to prioritize given the new macro outlook for Russia. And even if the spending in nominal rubles in the GPV-2020 plan does not change, there will be new trade-offs to be made within the plan given how higher inflation and a depreciated currency has reduced the purchasing power of the original 2010 plan.


  • Becker, T, 2016, “Russia’s oil dependence and the EU”, SITE Working paper 38, August.
  • Rosefielde, S., 2016, “Russia’s Military Industrial Resurgence: Evidence and Potential”, Paper prepared for the conference on The Russian Military in Contemporary Perspective Organized by the American Foreign Policy Council, Washington DC, May 9-10, 2016.
  • Cooper, J., 2016, “Russia’s state armament programme to 2020: a quantitative assessment of implementation 2011-2015”, FOI report, FOI-R-4239-SE.
  • IMF, 2010, World Economic Outlook, October 2010 data, http://www.imf.org/external/pubs/ft/weo/2010/02/weodata/index.aspx
  • IMF, 2016, World Economic Outlook, April 2016 data, http://www.imf.org/external/pubs/ft/weo/2016/01/weodata/index.aspx



Changes in Oil Price and Economic Impacts

Authors: Chloé Le Coq and Zorica Trkulja, SITE.

Oil has for decades been perceived as a necessary and highly addictive energy commodity, fueling the world economy. It is a crucial input good for most of the net-oil consumer countries, and it is an important source of revenue for the net-oil supplier countries. This means that any changes in the oil price will affect the entire world economy. However, the extent to which the oil-price fluctuations matter for the economy depends on the perspective (e.g. whether it is that of the macro economy, international trade, firm strategies, or the climate economy). In this policy brief, we outline the answers to this question that were provided at the 9th SITE Energy Day, held at the Stockholm School of Economics on November 5, 2015.