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Quick Facts
- Population:
- GDP (PPP):
- $131.2 billion
- 7.6% growth
- 7.3% 5-year compound annual growth
- $13,909 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
Belarus’s economic freedom score is 49, making its economy the 153rd freest in the 2012 Index. Its overall score is 1.1 points better than last year due to score improvements in six of the 10 economic freedoms, including government spending and monetary freedom. Belarus is ranked 42nd among the 43 countries in the Europe region.
Despite some progress, Belarus’s economy remains mired in the “repressed” category—one of only two European economies to share that dubious distinction. Reflecting poor scores in property rights and freedom from corruption, the foundations of economic freedom are weak. Corruption remains widespread, and the enforcement of property rights is subject to an ineffective judiciary and time-consuming bureaucracy.
With pervasive state control and involvement in the economy, Belarus lacks regulatory efficiency and flexibility. Overall progress in business reform has been uneven, and the small private sector remains marginalized. Policies needed to open markets and improve productivity are lacking, undermining competitiveness and the growth of dynamic investment.
Background
In 2005, authoritarian President Alexander Lukashenko vowed to guide Belarus toward “market socialism,” and the economy has been deteriorating ever since. Industry and state-controlled agriculture are uncompetitive. A significant percentage of Russian oil and gas exports to Europe passes through Belarus, but relations with Russia remain tense due to Belarus’s inability to pay for its own energy imports. The European Union and the West have threatened to step up sanctions in the wake of a brutal crackdown on opposition politicians following the December 2010 presidential elections. In December 2010, Belarus, Russia, and Kazakhstan signed an agreement to form a customs union and a common economic space by 2012. Russia and Belarus also reached an agreement on oil imports. Growing ties with Iran, Venezuela, and China have not improved economic prospects.
The structure of property rights is largely unchanged since the Soviet period, with state ownership of land and government-controlled collective and state farms. The state is involved in many commercial transactions. Private property rights are not adequately protected. Corruption is pervasive in both the private and public sectors, from the executive and judiciary to doctors, police, and teachers.
The income tax rate is a flat 12 percent. The top corporate tax rate remains 24 percent. Other taxes include excise taxes and a value-added tax (VAT) that has been increased to 20 percent, with the overall tax burden amounting to 24.9 percent of total domestic income. Although government spending has fallen slightly to 46.6 percent of total domestic output, the budget balance is in deficit. Public debt has increased to 26.5 percent of GDP.
Business formation has been facilitated by simplified registration formalities and abolition of the minimum capital requirement. Procedural requirements for getting necessary permits have also been reduced. An efficient labor market is not fully developed, and wage increases have exceeded labor productivity growth in recent years. The government subsidizes many basic goods, sets prices of products made by state-owned enterprises, and controls wages.
The trade weighted tariff rate is 2.3 percent. Extensive import restrictions and quotas, licensing requirements, and non-transparent and arbitrary regulations add to the cost of trade. Investment and financial activity are severely limited by extensive government control. Many industries are primarily or exclusively state-run to the detriment of private investment and enterprises.