The risk of financial instability.
The key condition for maintaining the financial stability remains the search for resources to finance the external debt. Since 2016, the Government has been going to stick to the following rule: at least half of the country’s foreign currency debt will be paid from its own sources and the second half will be refinanced. The main potential sources of such refinancing in 2016 (USD 3.2 bln. will be spent for external debt servicing) are the new credit programs with the international financial institutions, particularly the IMF and the Eurasian Fund for Stabilization and Development (EFSD). The negotiations with the latter are already in the final stage, the matrix of measures for structural reforms has been already agreed and it is only left to wait for a political decision of the EFSD (which, in fact, is the decision of the Russian authorities) on accommodation of a credit in the amount of USD 2-3 billion. And it is still in plans to work out the schedule of reforms under the new IMF credit program, wherefore the IMF mission will visit Minsk in November. In this regard rather a counterintuitive, but customary situation arises for Belarus. On the one hand, the Government of the state is actually blocking the enhancement of reforms in the country and is actively promoting the idea of the absence of necessity in them; on the other hand, according to the foreign organizations, the official development of structural reforms is actively in progress.
Despite the problems of economic downturn, at the moment the investors estimate the ability of the Government to service the external debt as rather high. The quotes of the Belarusian eurobonds have continued showing positive dynamics for several months already, and in October they have considerably exceeded their nominal value. Thus, as at the end of the month they were listed at the rate of 103 % of the nominal value with the current yield near 7.6%. Such rate is potentially rather attractive for new listing, which is under discussion under the Government and the potential organizers. However, further quotes dynamics will also depend on reaching agreements with the IMF regarding the new program. A positive sign is maintaining the credit rating of Belarus, according to the Standard & Poor’s agency, at the B-/ B level with a stable forecast.
In general, the key risks to financial stability are currently removed to the external sector and are associated with the possible fluctuations of the oil prices and the Russian ruble. As for the domestic policy, the authorities continue to adhere to the policy of money supply targeting, not allowing the traditional imbalances to arise. As a result, no significant growth in the ruble supply or outstanding loans in the economic sectors have occurred in comparison with the level of the beginning of the year. At the level of surplus the implementation of the budget is fixed (2.2% of GDP in January-September) and inflation is within the planned limits (1.3% in September and 9.2% YTD). Relatively flexible exchange rate policy does not allow the ruble to seriously deviate from the equilibrium value, as evidenced by the theoretical calculations of the National Bank, as well as the indicators of foreign trade and the balance of payments. Thus, in January-July the current account deficit fell to 1.7% of GDP against 6.9% of GDP in the same period of 2014, and the surplus of foreign trade in goods and services in January-August amounted to nearly USD 1.5 bln. The overgrowth of domestic demand is constrained by the Government due to the policy of balancing changes in productivity and wages.
The risk for economic independence.
Despite the fact that the Government considers integration a potential source of the accelerated economic growth, at the moment this process brings more risks. Thus, the Speaker of the Council of the Republic Mikhail Myasnikovich stated of direct competition with the Russian manufacturers, and in his opinion, the acceleration of integration without reforms may lead to negative consequences. The additional risks for Belarus on certain product markets (for example, raw sugar) are also associated with accession of Kazakhstan to the WTO, as a result of which this country has unilaterally lowered the customs tariffs. In this light, the statements made by the officials of the Eurasian Economic Union seem strange in their desire of a common economic zone with the EU and expansion of cooperation with the BRICS countries. The possible liberalization of trade in the framework of these projects will only increase the competition in the traditional Belarusian market and worsen the economic recession.
The risk of economic recession.
The main expectation of the month was publication by the authorities of the economic program for the next year and the five-year period as a whole. In September, the representatives of the Government promised to provide the public with a package of strategic documents by the middle of the month. However, at the beginning of November this has not happen yet, and, judging by the dynamics of events, the original plans of the Council of Ministers became the subject of tough debate in the corridors of power. Thus the main public opponent to the Government regarding the market wing was represented by Alexander Lukashenko, who repeatedly declared the inadmissibility of radical reforms and appropriateness of improving the Belarusian economic model. We may assume that the stumbling block was the reform of the public sector management. According to the voiced intentions of the Government, the public sector should be transferred to the self-financing mode and the size of directed crediting should be seriously reduced. It was announced about the plans to finance in 2016-2020 only five state programs, herewith during the previous 5 years there were 180 such state programs. In case of impossibility of the enterprise to survive under the conditions of severe budgetary constraints, it would be subject to bankruptcy. It was also assumed to entirely abandon the plans to reach the GDP growth by transferring the planning entirely to the level of a particular enterprise. The measures to reduce the state support of the unprofitable sectors of the economy have been intended by the initiators to lead to a drop in interest rates in the credit market to 24-27% (at present, because of the significant amount of soft loans at the rate of 9-10% per annum, the resources cost the rest of the economy near 35-37% per annum). Simultaneously with maintaining the current monetary and foreign exchange policy of the National Bank, it would allow to reduce the inflation to 5% by 2020. However, the proposed innovations caused serious discontent on the part of the economic nomenclature (according to the Lukashenko’s assistant in economics Kiril Rudy, “the law-enforcement and economic managers”), which was the reason for delaying the adoption of the repeatedly announced legislative acts. It is not clear, what kind of constructive proposals are put forward by the opponents of the Government. We may assume that they are traditionally reduced to the need of tightening the controls and appropriateness of accumulating the resources for survival of the enterprises for the period of crisis, after which the demand for the Belarusian goods will significantly rise on the foreign markets.
However, the current economic dynamics and forecasts of experts allow to doubt the likelihood of such a scenario. After some improvement in the previous month on the results of September, the decline in the Belarusian GDP accelerated again and reached 3.7%. It is rather likely that by the end of the year due to the weakening of the Russian ruble and the planned reduction in the production of potash fertilizers, the fall in GDP will become even more profound. According to the World Bank (hereinafter referred to as the World Bank) and the IMF, in 2016 the economic downturn will only slow down, and the first growth may be expected not earlier than 2017, according to the World Bank, and not earlier than 2020, according to the IMF. At the same time it will be far behind the world average values.
The key challenge for the country’s economy is the economic downturn, concerning which there currently remain no certain planned ways of overcoming it. Starting a substantial liberalization of the currency market, the Government, apparently, is not yet ready to follow the similar transformations in the real sector. In case if a positive scenario, the Government will still be able to implement the spot transformations together with obtaining the financing from the international funds. In case of a negative scenario, the real changes in the economic system will be frozen until the critical accumulation of negative phenomena.