Traditionally, the main obstacle to even greater integration between Moscow and Minsk has been contested Belarusian leader Alexander Lukashenko’s concerns that it would ultimately result in him losing control of his country. In recent years, however, systemic differences have begun to appear over the issue of economic regulation. Russia may have partially restructured its economy to put it on a war footing, but it retains all the basic market mechanisms, while Belarus is gradually returning to the administrative-command system of a centrally managed economy.
Having broken with the Soviet planned system, Belarus moved over to its own “socially oriented” market with all the hallmarks of perestroika, such as directed lending and cross-subsidization. For decades, banks provided preestablished volumes of preferential loans for priority sectors, such as agriculture, industry, export support, and infrastructure development.
According to IMF estimates, in 2011–2014, the volume of directed loans amounted to 4–9 percent of Belarus’s GDP. In 2015, more than 40 percent of the loan portfolio of commercial banks was made up of directed loans. Many of them later became problematic, necessitating state intervention.
In the second half of the 2010s, attempts were made to rectify the situation. Led by Pavel Kallaur, the central bank managed to transition to a more classical monetary policy. Meanwhile, a development bank was set up to begin tackling the problem of bad loans in the state sector, and took on problem assets.
But several waves of Western sanctions—prompted by a brutal crackdown following rigged presidential elections in 2020, and by Minsk’s support for Russia’s invasion of Ukraine in 2022—have meant that the Belarusian authorities have had to take an increasingly creative approach to finding resources to keep the economy afloat, including turning to Soviet experience and abandoning market mechanisms.
In 2022, the rapid growth in Russian military spending opened up new opportunities for Minsk. But as inflation accelerated, the Belarusian government decided to keep prices from soaring too high in the simplest way they knew: by returning to the Soviet-era practice of price regulation.
In October 2022, the state began to regulate prices for hundreds of goods. At the same time, Russia decided to fight inflation and the heating up of the economy in a completely different way: by raising the key rate.
The Belarusian authorities acknowledged certain signs of economic overheating, namely the output gap, the overheating of domestic demand, and the growth in labor costs. At the same time, administrative price controls reduced producers’ ability to compensate for these increased costs. Despite the growing imbalances, the policy of stimulating output was maintained.
Just one year after the introduction of restrictions, trade profitability in the retail sector fell to 1 percent. Several large chains, including children’s goods retailer Buslik and the country’s largest discounter, Ostrov Chistoty, went bankrupt.
That didn’t stop the movement toward administrative-command methods, however. On the contrary—the process only accelerated.
From the very beginning of the price regulation experiments, Lukashenko was warned about the risks of shortages. Given the Soviet experience, such consequences were entirely predictable, yet the Belarusian authorities rejected such scenarios. Two years after the start of price regulation, Lukashenko said that the “panic-mongers and naysayers” had been put to shame: stores had not gone bankrupt and the range of goods had only expanded.
In the spring of 2025, however, one of the country’s key food items—potatoes—all but disappeared from the shelves in Belarus. The maximum retail price set by the state ($0.30 per kilogram before April and $0.50 after) made their sale simply unprofitable. Washed potatoes did remain on sale, since the government had not set a limit on their price, but they cost three times more: $1.50 per kilogram.
The deficit of potatoes on the domestic market was in sharp contrast with the export dynamics. In 2024, Belarus was the largest supplier of potatoes to Russia, exporting about 200,000 tons. Belarusian producers explained the lack of potato patriotism very simply: in Russia, there were no price controls on potatoes, and due to increased demand and a poor harvest, retail prices there were 2.8 times higher: more than $1 per kilogram.
Another area to suffer from state intervention was banking, which had been largely left alone since the mid-2010s. In 2025, with the inflow of capital from abroad blocked by sanctions, the Belarusian authorities decided it was time to put banks to work for the benefit of the economy.
They were ordered to increase investment lending by 16 percent in 2025, and to slow the growth rate of consumer lending for anything other than the purchase of domestically produced goods. In March, Lukashenko appointed former prime minister Roman Golovchenko chairman of the National Bank and ordered him to strengthen control over commercial banks. At the same time, Lukashenko entrusted control over the National Bank itself to the government, resolving the issue of the regulator’s independence once and for all.
Golovchenko understood the rules of the game, and immediately began saying that banks’ activities should be aimed first and foremost at serving the interests of the national economy. Among other measures, he announced the launch this year of a “system for assessing the contribution of each bank to the country’s socioeconomic development.”
At the same time, almost a third of the assets of the Belarusian banking system are controlled by subsidiaries of Russia’s biggest banks, including Sberbank, VEB, VTB, and Gazprombank. There will be no exceptions to the rules for them: the Belarusian government will issue them with targets for the volume and structure of lending, as well as acceptable interest rates.
Russian businesses clearly did not acquire Belarusian assets in order to lose money. But it is becoming increasingly difficult to make money in Belarus. According to the Belarusian research center Beroc, in the first quarter of 2025, interest rates grew on both ruble loans and deposits. The average interest rate on new fixed-term ruble deposits increased by 1.4 percentage points to 10.8 percent, while interest rates on market ruble loans increased by 0.5 percentage points to 11.9 percent. As a result, the interest rate spread decreased to 1.1 percentage points. That is significantly lower than in previous years: it averaged 3.5 percentage points during the past five years and 4.2 percentage points in 2023–2024.
There are also problems with the quality of the directed investment loans that banks will be obliged to issue, sometimes against all commercial logic. The big question is how willing the banks’ owners will be to see their assets effectively transformed into Lukashenko’s savings bank.
The risk of socialist practices spreading to new areas makes Belarus increasingly toxic for Russian businesses. It is one thing to buy cheap potatoes, and quite another to invest in an economy in which foreign investors can be dictated to over what to produce and at what price to sell.
At the macro level, there may also be disagreements between the two allies. Moscow and Minsk may not have reached the stage of planning a single monetary policy, but previously the regulators were at least still on the same page. Now they are on different chapters altogether.
