Macroeconomic stability factors

Belarus played the role of an «assembly plant» in the Soviet Economy. Due to limited natural resources and raw materials, the country was one of the largest recipients of funds channeled to industrial development. During the USSR's last 20 years, the value of capital assets in real terms in Belarus grew 4.l times, compared with a 3.4 times average growth in other Soviet Republics. Between 1970 and 1989, Belarusian national income growth rates stood 1.7 percentage points higher than the Soviet average. Thus, a very substantial and to some extent unique industrial base was created in Belarus, dominated mainly by the traditional industries (49% of GDP in 1990).

Even during the Soviet era, the Belarusian economy was export-oriented. In 1990, the Total Exports / GDP ratio amounted to 50%, far higher than in other Soviet Republics. Exports came to 5.5 % of GDP - in second place behind Russia, which exported mainly natural resources. Even during Soviet times Belarus held certain niches on the global market.

Thus, based on the Soviet heritage, traditional industries continue to play the most important role in theeconomy. The contribution of these industries to the GDP in 2007 amounted to 26.7%.However, a certain shift towards expansion of share of services and trade appears logical and is in line with the global trend.

Belarusian industry is dominated by machinery andmetalworking. In 2007, the share of this sector in total industrial output aggregated 24.5%.

Sectors dealing with fuels, fertilizers, and petrochemicals hold very good positions due to a solid industrial base in Belarus and favourable external conditions. Belarus possesses one of the largest deposits of potash salts for production of potash fertilizers.

Belarus is a country with an open economy: external trade turnover/ GDP ratio in 2007 reached 1.18.

Since the beginning of 2008, external trade turnover has been growing 5 times faster than GDP, so that the ratio could reach 1.7 by the end of the year.

The major import and export items are Mineral products and Machinery and Equipment. These sectorscontribute 57.9% to total exports and 60.5% to imports.

The largest trading partner of Belarus is Russia. This position has even strengthened since 2006. In 2007 the share of the Russian Federation in Belarus' total external trade turnover reached 49.2%; exports to Russia - 36.6%; imports from Russia - 59.3%.

Russia is the largest supplier of raw materials to Belarus and the largest consumer of Belarusian investment, chemical, and food products. The main export items from Belarus to the EU are:

- Mineral products

- Petrochemicals and fertilizers

- Ferrous metals

- Textiles and textile goods

- Wood and wood products.

During 2007, the Belarusian economy demonstrated high rates of economic growth. Nominal GDP in 2007 reached US$ 44.7 billion and grew by 8.2% in

real terms compared to 2006.

The major reason for a slight growth slowdown in 2007 compared to 2006 was a worsening of external trade conditions: the price hike on energy resources from Russia.

The first half of 2008 showed that the GDP growth rate slowdown had been overcome and the, economy had returned to a development track common for 2004-2006. In 1H2008, real GDP growth rate amounted to 10.4%. The key drivers of GDP became growth in capital expenditure and household consumption stimulated by income growth.

In 2007, gross capital expenditure reached US$11.8 billion and amounted to 26.3% of total GDP. For 1H2008 capital investment growth amounted to 23.9% - growing by 28.4% in June.

High growth rates in individual disposable incomes stimulated consumer demand and final expenditure. Thus, in January-May 2008 real income growth rate amounted to 11.4%.

The income structure of Belarusian households in 2007 appears as follows: 57.5% of all household income received from salaries and wages; entrepreneur income amounted to 20.7%. Just 1.9% of gross income was received from property. This share is much lower than in neighbouring countries. In Russia, for example, incomes received from property averaged 6.7% of total income. A high income growth rate is based on growth of wages and salaries. In 2007, real salary growth amounted to 10%. In lH2008 this indicator reached 8.3%.

As of 1 July 2008, nominal monthly wages amounted to US$ 376. However, this figure lags considerably behind comparables for CEE countries and Russia. In 1H2008, nominal monthly wages in Belarus were not much higher than in Ukraine, but only half as much as in Russia, where nominal monthly wages reached US$ 723. High income growth rates stimulate retail sales and retail trade turnover.

In 2007, retail turnover growth rate reached 14.8%, while in 1H 2008 it grew by 19.3%. Per capita retail turnover in Belarus in 2007 amounted to US$ 1 883, far lower than in neighbouring countries.

During the past seven years, the Belarusian national currency exchange rate has remained stable. No significant or unpredictable exchange rate changes have occurred.

Since 2002, the Belarusian rouble has strengthened its position against the US dollar by 0.55% annually, at the same time weakening against the Russian Rouble and the Euro by 5.9% and 6.8% respectively.

As of 1 January 2008, monetization of Belarusian GDP reached 16.4%. Since 2001, the monetization ratio has grown 2.3 times. However, this figure is much lower than in some neighbouring countries.

A budget deficit of 0.22% of GDP in 2005 was followed by a budget surplus in 2006. Thus, the 2006 budget surplus amounted to 1.49% of GDP compared

with 0.31% in 2007. Growth of budget surplus has occurred mainly due to significant increase in receipts from export duties on oil products, which were unified with those in Russia. In 1H2008, the budget surplus reached 4.2% of GDP.

In 2007, Belarusian gross foreign debt grew 1.9 times and amounted to US$ 12.7 billion. The share of external debt in GDP reached 28.4% in 2007 compared to 18.4% in 2006. The amount of debt is within acceptable frames and does not threaten financial stability.

In 2007, the Belarusian economy received US$1.77 billionof foreign direct investment (FDI), five times than in 2006. This positive trend continued in 2008.

In 1H 2008, FDI inflow into the country grew by 32.7% compared to the same period in 2007, totaling US$ 1.23 billion. Thus, in 2001-1H2008 aggregated FDI stocks in Belarus amounted to US$ 4.5 billion. FDI inflow growth resulted in FDI per capita growth. Thus in 2007 this figure reached US$ 181 exceeded FDI inflow growth in the Ukraine. Attempts to carry out a liberal and open economic poliсу became the key driver of FDI growth. In 1H 2008, the largest volume of foreign inflows in the sum of US$ 625 million came into the Belarusian economy from a payment from the Russian company "Gazprom" for 12.5% of "Beltransgaz's" shares. Total inflows - excluding this transaction – into the Belarusian industrial sector in 1H 2008 reached US$ 245 million.

Major investing countries included the Russian Federation, Switzerland, Austria, the UK, and Cyprus.

Vocabulary Notes

affirm - утверждать, подтверждать amount – доходить до, равняться assembly – сбoрка assert – утверждать, отстаивать assess – оценивать assets – имущество, активы average – средний contribution – содействие, вклад disposable – такой, которым можно распоряжаться entrepreneur – предприниматель estimate – оценивать expansion – расширение expenditure – трата, расход extent – размер fertilizer – удобрение hike – скачок

household – хозяйство inflow – приток, наплыв niche – ниша overcome – преодолеть per capita – на душу населения heritage – наследие petrochemicals – нефтехимические продукты potash – карбонат калия proclaim – провозглашать, объявлять ratio – отношение, пропорция retail – розничная продажа shift – изменение, передвижение substantial – основательный, реальный surplus – избыток turnover – оборот 1H 2008(the first half of) - первое полугодие 2008

2. Find in the text the information on the following points:

a) a historical overview

b) structure of the Belarusian economy

c) recent developments 2007-2008

d) macroeconomic stability factors

e) FDI inflows into the Belarusian economy.

3. Scan the text again and summarise it using the following phrases:

The text is headlined…; it focuses on…; the main idea is…; the author believes that…; according to the article…; to take into account…; it should be mentioned that…; in addition to…; to weigh up…; in conclusion…; in brief…; as a result.

Text 2

1. Learn more about the types of legal entities in Belarus.

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