Lithuania vs. Belarus

After the country declared independence from the Soviet Union in 1990, Lithuania faced an initial dislocation that is typical during transitions from a planned economy to a free-market economy. Macroeconomic stabilization policies, including privatization of most state-owned enterprises, and a strong commitment to a currency board arrangement led to an open and rapidly growing economy and rising consumer demand. Foreign investment and EU funding aided in the transition. Lithuania joined the WTO in May 2001, the EU in May 2004, and the euro zone in January 2015, and is now working to complete the OECD accession roadmap it received in July 2015. In 2017, joined the OECD Working Group on Bribery, an important step in the OECD accession process.

The Lithuanian economy was severely hit by the 2008-09 global financial crisis, but it has rebounded and become one of the fastest growing in the EU. Increases in exports, investment, and wage growth that supported consumption helped the economy grow by 3.6% in 2017. In 2015, Russia was Lithuania's largest trading partner, followed by Poland, Germany, and Latvia; goods and services trade between the US and Lithuania totaled $2.2 billion. Lithuania opened a self-financed liquefied natural gas terminal in January 2015, providing the first non-Russian supply of natural gas to the Baltic States and reducing Lithuania's dependence on Russian gas from 100% to approximately 30% in 2016.

Lithuania's ongoing recovery hinges on improving the business environment, especially by liberalizing labor laws, and improving competitiveness and export growth, the latter hampered by economic slowdowns in the EU and Russia. In addition, a steady outflow of young and highly educated people is causing a shortage of skilled labor, which, combined with a rapidly aging population, could stress public finances and constrain long-term growth.

As part of the former Soviet Union, Belarus had a relatively well-developed industrial base, but it is now outdated, inefficient, and dependent on subsidized Russian energy and preferential access to Russian markets. The country's agricultural base is largely dependent on government subsidies. Following the collapse of the Soviet Union, an initial burst of economic reforms included privatization of state enterprises, creation of private property rights, and the acceptance of private entrepreneurship, but by 1994 the reform effort dissipated. About 80% of industry remains in state hands, and foreign investment has virtually disappeared. Several businesses have been renationalized. State-owned entities account for 70-75% of GDP, and state banks make up 75% of the banking sector.

Economic output declined for several years following the break-up of the Soviet Union, but revived in the mid-2000s. Belarus has only small reserves of crude oil and imports crude oil and natural gas from Russia at subsidized, below market, prices. Belarus derives export revenue by refining Russian crude and selling it at market prices. Russia and Belarus have had serious disagreements over prices and quantities for Russian energy. Beginning in early 2016, Russia claimed Belarus began accumulating debt - reaching $740 million by April 2017 - for paying below the agreed price for Russian natural gas and Russia cut back its export of crude oil as a result of the debt. In April 2017, Belarus agreed to pay its gas debt and Russia restored the flow of crude.

New non-Russian foreign investment has been limited in recent years, largely because of an unfavorable financial climate. In 2011, a financial crisis lead to a nearly three-fold devaluation of the Belarusian ruble. The Belarusian economy has continued to struggle under the weight of high external debt servicing payments and a trade deficit. In mid-December 2014, the devaluation of the Russian ruble triggered a near 40% devaluation of the Belarusian ruble.

Belarus's economy stagnated between 2012 and 2016, widening productivity and income gaps between Belarus and neighboring countries. Budget revenues dropped because of falling global prices on key Belarusian export commodities. Since 2015, the Belarusian government has tightened its macro-economic policies, allowed more flexibility to its exchange rate, taken some steps towards price liberalization, and reduced subsidized government lending to state-owned enterprises. Belarus returned to modest growth in 2017, largely driven by improvement of external conditions and Belarus issued sovereign debt for the first time since 2011, which provided the country with badly-needed liquidity, and issued $600 million worth of Eurobonds in February 2018, predominantly to US and British investors.