The risk of financial instability.
In January the statistical details of the currency crisis of late 2014 came to light, which turned out to be really impressive. Thus, the net purchase of foreign currency by the population and organizations showed a record in spring of 2011 and exceeded USD 1.35 bln. The ruble deposits of the population decreased almost by 14%, while the currency deposits practically remained unchanged. The attempts of the National Bank to cease the panic by means of foreign exchange interventions led to reduction in gold and foreign exchange reserves to USD 760 mln. The reduction would have been even more significant, if the National Bank had not borrowed loans for the amount of USD 1 bln., which is evidenced by the statistical data of the net foreign assets of the National Bank and the reserve assets of the country. Apparently, this is the mysterious loan, which the Deputy Minister of Finance was talking about on the New Year’s Eve and which source and amount have not been officially announced.
It is the rapid depletion of gold and foreign exchange reserves that obviously forced the authorities to urgently turn to unpopular measures, although initially (as Alexander Lukashenko later declared) the Government did not plan the devaluation. As a result of the actions taken (first of all a 40-percent devaluation of the ruble, which has become a fait accompli after the complete abolition of tax on purchase of foreign currency) the currency market was gradually stabilized. By the end of January the problem of currency shortage in the cash market was generally solved, since the banks have regained access to currency at the exchange to support their exchange points. However, the overall situation in the money market remains quite tense. A very substantial deficit of ruble liquidity is observed in the banking sector: thus the support of banks by the regulator at the beginning of February amounted to BYR 11 trn. with the total balances on correspondent accounts of about BYR 17 trn. The reason for this may be the continued outflow of ruble deposits and significant withdrawal of funds through the tax mechanism with simultaneous slowdown of budget spending. We may assume that such a rapid increase in the deficit was caused by the fact that the obligation to build the regulatory reserves were again distributed between the two largest banks, which were released from that in autumn of 2012. At least, in its press release the National Bank declares equal conditions for all banks in formation of the required reserves fund. On the background of the existing problems the National Bank decided to ease of monetary policy, which was not practiced earlier at the time of crisis: thus the reserve requirement on attracted foreign currency resources was reduced from 13% to 12.5% and then to 10%, the rates on instruments of liquidity provision to banks were reduced from 50% to 40%, since 01.02.2015 the restrictions for increase of the banks loan portfolio are cancelled. At the same time the National Bank actively provides liquidity to the banks at the rate of 40%, which prevents sharp increase in interest rates on the ruble deposits.
In general, the National Bank and the Government declared tough policy in the field of finance, although sometimes the goals claimed seem quite contradictory. For example, earlier this month, the National Bank announced a new proportional binding of the Belarusian ruble to the basket of currencies (40% to the Russian ruble and 30% to the US dollar and the euro each), which increase in value for the year is estimated at the rate of 3-7%. At the same time, it declared the hard limit of foreign exchange interventions, which contradicted with the basket targeting. Later, the National Bank informed about its transition to the regime of money supply control, which increase in one year should not exceed 30% (in terms of past depreciation rate this is quite hard), and the inflation target at the same time will be 16-20%. In general, there is a high probability that the authorities will try again to support the current level of rate. And in case the acceptable balance of foreign trade will not be reached (and this is more than likely, judging by the record deficit in trade of goods in December at the level of nearly USD 1.4 bln.), the gold and foreign currency reserves will continue to decline rapidly.
The risk for economic independence.
The size of the gold and foreign currency reserves on the background of significant payments on the foreign debt (minimum USD 4 bln. in 2015) is still a major weakness of the economic system of the country. Initially, the authorities considered the following sources to meet its obligations: oil export duties remaining in the 2015 budget of Belarus, new Eurobond placement and borrowing in the domestic market. And if the first source is generally clear (according to experts, subject to reduction in the price of oil, the revenues may give about USD 1.5 bln.), the internal and external borrowing is clearly a problem. The current yield on the Belarusian Eurobonds is about 20% (according to Alexander Lukashenko talking about the national debt restructuring), which, as a matter of fact, blocks the ability of new borrowings. The placements on the domestic market are quite slow, thus it is possible to accumulate very few resources. On the whole, the potential of the internal market, taking into account the banking risks, raises serious doubts. It is also not necessary to talk about the National Bank buying currency at the exchange – the authorities are clearly not going to pursue the policy of undervalued exchange rate. The interaction with the IMF comes in a slow format and agreement of any credit program is absolutely unreal at the moment. In this situation, the only possible lender, allowing to pass through the 2015 without declaration of default, is Russia. In words the Russian authorities are ready to support Belarus in case of emergency, but in practice you may recollect that the last tranche of the Anti-crisis Fund loan had still not been settled. Serious differences are observed in the sale of state property to the Russian capital: none of the promised integration projects of the 2014 have been implemented. The question of trade restrictions has also not fully been settled, which turned into serious losses for the Belarusian producers. All this suggests that the possible allocation of the Russian credit resources will be furnished by political and economic requirements, primarily in the area of state property sale.
The risk of economic recession.
According to the results of the year a GDP growth was recorded at the rate of 1.6%, which is a good indicator in the current situation. It is noteworthy that in the structural cut the annual decline was observed only in investments (- 8.5%), but the industry, agriculture and trade showed an increase. The plans of authorities for the current year (GDP growth at the rate of 0.2-0.7% according to the official forecast) and the expectations of experts are considerably more pessimistic (for example, the European Bank for Reconstruction and Development expects recession by 1.5%).
In the context of the approaching recession the Belarusian authorities may not afford the anti-crisis plan similar to the plan of the Russian Government, which involves substantial reserves spending to stimulate the economic activity. The National Bank and the Government is forced to implement the deterrent policy aimed at stabilizing the money market of the country. This is resulted in a growth of rates on ruble loans and overall tightening of their accommodation, reduction of state programs and quasi-fiscal support of the public sector. The inhibition of the economic growth is forcing the authorities to seek new sources of budget revenues, and as a result, in January (in fact at the beginning of the fiscal year) the Government introduced export tax on oil, returned the suspended in 2012 export tax on potash fertilizers, as well as obliged the state-owned enterprises to quarterly pay the additional 30% of the profits to the budget. Most likely, such a hasty increase in the budget revenues is due to the problems associated with the devaluation and the need of the external debt servicing, which will result in an even greater reduction in investment and consumer activity in the economy.
The new Government has not yet declared any conceptual plans for the structural reforms. Prime Minister Kobyakov offered to allocate 30 largest enterprises and provide their normal functioning in the new conditions of state restrictions by joint efforts of the Government, local authorities, banks and management companies. In fact it is typical for the common Belarusian economic management system: a tendency to manual operation and addressing the local problems instead of macroeconomic regulation, from which the previous Government was actively refusing. In general, after A. Lukashenko has critisized the structural reforms and privatization, one should not expect serious progress in this area.
Thus, in January due to the devaluation performed and other governmental measures, the situation on the currency market has significantly stabilized. To prevent the following collapse of the national currency and normal servicing of the foreign debt, the Government and the National Bank have chosen a tough money-credit policy, aimed at reducing the ruble mass and the issuing support of the state sector. Furthermore, this policy is not accompanied by the measures of structural reforms aimed at improving the efficiency of the real economy sector. The past experience allows to doubt that the Government will be able to implement the deterrent policy on a long-term basis defeating the industry lobbyists in the fight for the A. Lukashenko’s position. The extremely small size of gold and currency reserves, which will require further reduction in search of emergency recovery sources, also remains the headache of the authorities.