We go on to analyze the dynamics of subjective financial well‐being and coping strategies as reported by the households. People mostly cite inflation, decrease in salaries and loss of employment as major reasons for the well‐being deterioration during the crisis. Cutting expenditure is the most popular reported coping strategy, and only few are relying on government or attempting to find new sources of income. We explore the expenditure data to verify that cutting expenditure was an almost universal response to crisis. The bottom income deciles mostly cut expenditure on food (possibly replacing it in part with in‐kind income); while the top deciles were able to cut down expenses on purchase of durable goods. Other households relied to a large extent on cutting their consumption of utility services. Finally, we show that many households not only reduced their expenditure on savings during the crisis but also consumed their previously accumulated savings. However, savings as a coping mechanism are available for the middle‐class, not for the mostly affected bottom income deciles.

The rest of the paper is organized as follows: section 2 presents a brief overview of the recent macroeconomic environment, while section 3 looks at how the macroeconomic developments translate into household income dynamics and composition during the recession. Section 4 reviews the poverty dynamics in Belarus and develops a concept of poverty vulnerability, based on the probability of falling into poverty. Section 5 analyzes household self‐reported well‐being changes and coping strategies, as well as presenting an analysis of expenditure and saving changes during the crisis. Some concluding remarks are outlined in section 6.

# 2. Macro‐Economic Environment

Belarus suffered a series of economic crises during the last decade. Triggered by external shocks, they were rooted in overheated domestic demand, while the absence of adjustment of economic policy led to the recurrence of crises. However, the crisis of 2015‐2016 differed in this regard from the previous ones. This time economic authorities pursued a policy of macroeconomic stabilization, which allowed them to balance external demand and curb inflation. This revision of economic policy also implied a sluggish economic recovery as long‐term economic growth rates are undermined by structural weaknesses of the Belarusian economy. As a result, the effect of the 2015‐2016 crisis and post‐crisis recovery on the welfare of the population differed significantly from the previous crisis events.

The recession of 2015–2016 resulted in the contraction of domestic demand. The macroeconomic adjustment to the new environment took place largely via a reduction in investments. Falling economic activity, however, also caused a decrease in household consumption. The main driver of economic growth during the post‐recession period was the external sector. On the one hand, falling domestic demand led to a reduction of imports. On the other hand, the real devaluation of national currency and improved external environment stimulated export growth. As a result, it was export‐oriented businesses that supported economic recovery in the beginning of 2017. Later, in the second part of 2017, recovery was also supported by domestic demand. There was an increase in investments, on the back of local budget expenditure, and household consumption (Figure 2).

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