Risks of financial instability
The month was marked by unusual weakening of the Belarusian ruble against the US dollar: instead of the usual 100-110 rubles, the US dollar increased by 160 rubles. The National Bank had to apply this measure as a response to the sharp rise of the dollar value against the euro and the Russian ruble in particular. But even taking into account such dynamic of the American currency, the Belarusian ruble strengthened in September against the basket of currencies. A smooth and predictable depreciation is considered by the authorities as a key element in maintaining stability in the money market. However, the National Bank is apparently that confident in stability of the current situation, that it dared to break the unwritten rule of the US dollar growth, which lasted for more than a year. And there are obviously reasons for that: net supply of currency continues to be observed in the currency market, however, it has increased to record levels (USD 157.3 mln) among the population, and the Russian ruble deposits of the population show significant positive dynamics (5.5% growth in August). As a result, despite the record increase in crediting in August, the situation in the banking system still shows significant excess of ruble liquidity. The fundamental index of the foreign trade balance remains at a relatively good level, the inflation continues to slow down (in August it was about 0.8%), and the measures of Government on the average wage restraining have led to its fall by 2.2% in real terms, which also has a positive effect on macroeconomic stability in the country. Several large credits have been received or agreed in September (Russian intergovernmental loan, of Chinese credit line in the amount of USD 1 billion, the loan for NPP construction of up to USD 10 billion). A significant reduction in gold and foreign exchange reserves (hereinafter GCR) (minus USD 284.9 million in September) is seen largely due to servicing of the foreign debt and the fall in gold value.
In general, the money market may assume the attack of rates stabilization, or at least a significant slowdown in their fall. This is due to a necessity of weakening the ruble correspondingly to the basket of currencies (as a result of which the dollar yield will be reduced on ruble deposits), and the prevailing rate of inflation. In this case, the National Bank is likely to continue the campaign of real easing monetary policy, but in much more cautious pace (thus the refinancing rate is already planned not to be reduced until the end of the year).
Implementation of the budget still remains a tense situation due to surplus, which currently amounts to 1.2% of GDP as a result of cut in low priority expenses. We may assume with high probability that the Government will be forced to take serious measures to reduce the budget expenditures, similar to the ones undertaken in late 2013. The fate if the budget for 2015 is not clear yet: previously proposed tax changes are apparently still not taken, and there is actually nothing to compensate the lost income. Additional complications arise as a result of the tax maneuver in Russia and the alleged fall of oil refining profitability. However, the Government intends to fulfill the next year budget at a deficit-free level, by increasing the social spending at the same time. We may assume that some of this will be achieved through cuts in the Government investment programs.
Risks to economic independence
Perhaps the biggest event in the field of integration projects was the Russian decision to proceed with the so-called tax maneuver (shift of the tax burden from petroleum and oil, as well as from the oil extraction) since 2015. These plans have caused serious discontent of the Belarusian side, and evolved into attempts to bargain for additional preferences in exchange for ratification of the treaty on establishment of the Eurasian Economic Union (hereinafter referred to as the EAEC). Thus, the Belarusian side again began to demand concessions on the issue of duty drawback from export of oil to the Russian budget in the amount of USD 1-1.5 billion. The direct linkage of the export tax rebate with the issue of reforming the taxation of oil production in Russia does not look quite logical, but the dissatisfaction of the official Minsk is quite clear: gradual curtail of the system of subsidies to domestic consumers of energy reduces the profitability of Belarusian oil refining, and generally reduces the competitive advantages of the Belarusian producers.
Apart from the plans to soon joining the Union of Armenia, the number of even relatively small conflicts between its participants continue to take place. Thus, in September, the Russian side has decided to introduce the restrictions on import of the Kazakh and Belarusian vodka, since the excise rates in these countries (especially in Kazakhstan) and the price of the final product are substantially lower than in Russia. The Kazakh side has responded to the proposal rather abruptly, declaring such action does not conform to the Customs Union and the EAEC. In general, this situation is a direct result of the fact that the integration of education were established hastily without the necessary preliminary work on the synchronization of economic systems. And though earlier, Russia was ready to finance the solution of arising conflicts at its own expense, now it will have to do it selectively. This makes the integration formations significantly less stable.
Risks of the economic downturn
On the background of modest economic growth (1.5% for the eight months in 2014), the authorities have declared the basic plans for 2015, which proved to be quite restrained: GDP growth of 2-2.4%, investments in fixed assets of 0.7 %, real income of population by 1.7-2.1%. However, given the current GDP growth and forecasts of the international institutions on economic growth in Belarus and Russia, these figures still remain quite optimistic. It is noteworthy that for the third consecutive year, the Government forecasts are becoming more modest and closer to reality (5.5% in 2013, 3.3% in 2014, 2-2.4% in 2015). Not surprising in these terms is the activated talking about another preparation of the structural reforms plan, which should be implemented from 2016 (i.e. the first post-election year). The key points of the supposed transformation should be the change of the mechanism of management of state property and the elimination of cross-subsidization. In this case, as far as it can be understood, a large-scale privatization is not seriously considered. The example of the so-called integration project, none of which has yet been implemented, clearly shows that the Belarusian authorities are ready to part with state property as a last resort.
It is also necessary to allocate the signing of the agreement with China for a credit line of USD 1 billion for implementation of investment projects. Practically, this means that the issue of financing the Belarusian-Chinese industrial park finally got off the ground. But the allocated sum is relatively small and received only a year after its announcement, and in a completely different form. Thus, in July 2013 the Chairman of the National Bank Nadezhda Ermakova told about the negotiations with China on allocation of the untied credit to be used to replenish the gold and foreign exchange reserves. According to the signed agreement, a credit line is provided not directly to the Government, but to the Belarusbank and the Development Bank, and for investment projects only. In general, it shows the degree of the project importance for China and gives no hope that the industrial park could become any major engine of economic growth in the country.
Thus, the results of September may be called a slight improvement in the financial and the real sector of the economy. The most serious external risks are still associated with deepening of the conflict between Russia and Ukraine. On the other hand, the preservation of the conflict gives the Government of Belarus the ability to obtain additional preferences on the part of Russia, for example, compensation for oil export duties at a higher level than earlier agreed. The authorities’ plans for 2015 suggest that the next election year will pass without the traditional excess support of the economy and increase of dangerous imbalances. The Government is already contemplating options (though yet quite restrained ones) on reforming the economy in a politically favorable way for the post-election period.