Expert Opinion. September 2023

INFLATION RISK TOLERANT MONETARY POLICY TESTS ITS LIMITS
The policy of the National Bank has ceased to be a “fuse” against the negative consequences of mis- takes made by the government in its economic actions. The regulator lost its operational independ- ence in mid-2020; and it began a large-scale easing of monetary policy in 2022 despite persisting elevated inflation. This leads to economy overheating and intensification of inflation risks. In the con- text of the overheated domestic demand and the labor market, delaying the exit from strict price con- trols exercised by the government will be associated with ever-greater potential costs in the form of an inflationary surge and a sharp tightening of the monetary policy in the future. Moreover, if loose mon- etary policy continues, inflation will gradually accelerate even if current approaches to price controls are maintained.

SUPPORT CHANNELS FROM RUSSIA FOR THE BELARUSIAN ECONOMY
Belarus continues to actively enjoy Russian support for its economy. However, the channels are trans- formed depending on the economic and geopolitical situation in both countries and in the region. However, the benefits currently enjoyed by the Belarusian economy are likely to decline soon. At the same time, Belarus’s dependence on the Russian market and the decisions of the Russian govern- ment has been increasing: this is a vulnerability factor. Despite the high quality of human capital and availability of a number of highly competitive sectors, it will be challenging to mitigate emerging risks in the current context.

IT SECTOR: STATUS AND PROSPECTS
The Belarusian IT sector has suffered heavy losses due to the outflow of professionals and companies; the sector continues to shrink, and it has been transforming from a driver to a brake for the economy since last year. The authorities hardly wanted to bring the sector to this status, but the conditions, including those provoked by the actions of the authorities, contributed to this. However, the IT sector will not die out in Belarus. Considering that almost all IT professionals and IT firms who wanted to relocate from Belarus did this, one can expect that the remaining representatives of the sector will more actively adapt to the new context, and they will look for projects in new markets. This will boost the sector from this year's low baseline. However, larger-scale changes are needed for sustainable recovery and development of the IT sector.

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