Many post-socialist countries have completed their planned-to-market economy transition. Poland, Hungary or Estonia can be already compared with Greece, Italy or Cyprus. Russia, Ukraine and Moldova can be in transition for rather long, since they are not yet completely sure where they want to go. Belarus, Uzbekistan and Tajikistan are following their unique ways, although not in the direction of a market economy. These conclusions follow from a recent annual report by the European Bank for Reconstruction and Development (EBRD), Transition Report 2005. Business in Transition.
EBRD experts point out that Central and Eastern Europe has made significant progress in its transition to a market economy and welcome positive changes in some CIS countries, particularly, in Ukraine, Caucasian region and Russia.
Economic growth across transition countries has slowed but is still forecast to reach 5.3 percent in 2005. Sustained expansion of the financial sector is boosting demand but also increasing potential risks of going into recession or even stagnation in the mid-term.
GDP growth is Central and Eastern Europe is 4.2 percent. However, the region's countries have a lack of balance in public finance and problems linked with growing debt. Growth in CIS countries is planned at the level of 6.2 percent. Prices for oil and petroleum products are the main reason for this remarkable growth. The largest part of the 2005 report focuses on a detailed analysis of company performance in 26 countries, except for Turkmenistan. It is based on a survey among 9,500 companies. Experts have found out that business climate is improving but governments of transition countries still have a lot of obstacles for success business development.
One more conclusion of the report would be particularly useful for Belarus: "Foreign-owned and new private firms tend to be more efficient than privatized and state-owned enterprises. This difference in performance has remained constant over time."
In terms of promoting and intensifying market reforms, the year of 2005 has been lost for the region. The new EU member states in Central and Eastern Europe have been resting on their oars. They have been happy with what they achieved and continued to accumulate debts. CIS governments have not been in a hurry, either, despite their slow reforms and lower quality of business climate and institutions. And Belarus is traditionally in the end of the EBRD's list of countries in terms of reform progress.
Meanwhile, a favorable situation in external markets, low prices for energy resources and stable operation of large companies provide ideal conditions for the beginning of serious structural reforms. It is the best time for reforming banking, financial market, power engineering, transportation sector, telecommunications and public utilities. However, Belarus continues to build up costs of lost opportunities and lose time. When the current price situation changes, Belarusian companies, which could be sold for, say, $10 billion, will be sold for $1 billion.
In the end of 2004 the EBRD predicted that Belarusian GDP growth would reach the level of 5.6 percent. In November 2005 the prediction was revised upward to 8 percent. Interestingly enough, the EBRD does not make predictions for 2006, as if having realized their highly speculative nature. The revision of growth for Ukraine followed an opposite direction, from 7.2 to 4 percent. The prediction did not change for Russia - 6 percent.
Economic performance in 2004 shows that Poland, Albania, Slovenia and Slovakia are leading in exceeding the level of GDP in 1989 - 142, 131, 126 and 121 percent, respectively. Belarus also looks quite good against their background - 111 percent, especially as Russia and Ukraine have not yet reached the level of 1989, with 82 and 57 percent, respectively.
At the same time, the EBRD analysis shows that the most painful and expensive reforms are still ahead for Belarus. Every year of Russian support increases costs for Belarus in the future. When Russia and Ukraine complete restructuring, enter the WTO and liberalize their financial and commodity markets, Belarus will have to sell most of its products domestically. To be ousted from large markets would be a shock for a small open economy, such as the one in Belarus.

Prospects and risks of Belarusian economy as assessed by EBRD experts:

The government's current policy of supporting enterprises and making administrative increases of wages, in combination with a high level of external demand, should ensure further economic growth in the near term. However, long-term prospects of growth remain doubtful, unless radical market reforms are conducted, including tough budgetary restrictions for enterprises. Excessive dependence of Russia as a major export market and supplier of cheap energy is also a serious factor of vulnerability.

Reform leaders and outsiders 2005. EBRD indicators*

Source: Transition report 2005, European Bank for Reconstruction and Development
*Scale from "1" (no reform) to "4+" (industrially developed market economy)
** Arrows show improved or worsened indicators

GDP change in 2001-2005