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Economic developments in Belarus
Daniel Krutzinna
Investment Company Uniter
Current situation
Main prerequisites of the crisis
Main causes of the crisis
Policy options
Government approach to tackle the crisis
Belarus financing needs
Projections
Current situation
March 22: the National
Bank stopped selling foreign
currency to commercial
banks.
May 24: the National Bank
devaluated Belarusian ruble
by 56%, but the foreign
exchange market didn’t
recovered.
October 20, the National
bank introduced free floating
regime for Belarusian ruble,
total depreciation from the
beginning of the year
accounted for 189,3%
100%
Currency depreciation, %
0%
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Uncertainty on foreign
exchange market led to
inflation acceleration up to
74% for Jan 11 – Sep 11
(comparing to CPI 2010 =
9,9%)
Oct-11
-100%
Period of uncertainty in economic policy
No legal access to free foreign exchange
-200%
Foreign trade balance (in goods), bn USD
- 184%
Positive trade balance
for July 2011 = 173,8
mn USD
1,000
0
-1,000
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
FT balance cumul
FT Balance mom
-2,000
-3,000
-4,000
Following limited access to
foreign currency the foreign
trade balance started to
improve
Sep-11
-3924.5
-5,000
CPI, %
80%
74%
60%
CPI, cumul
40%
CPI, mom
20%
0%
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Main prerequisites of the crisis
CA deficit, % of GDP
Structural imbalances of
Belarusian economy +
boosting internal demand
through soft macroeconomic
policy caused a chronic CA
deficit during last 5 years
Fixed exchange rate was
maintained by exhausting the
international reserves.
Before 2009 currency
depreciation and before 2011
crisis international reserves
dropped by third.
5%
0%
-5%2005
2007
2008
2009
2010
-10%
-15%
-15%
-20%
Oct 1: 4,7 bn USD
or 5,5 weeks of
imports
International reserves, bn USD
8.0
-33%
6.0
-34%
4.0
2.0
0.0
Jan-05
To maintain international
reserves on appropriate level
government was forced to
seek external financing. Thus,
the gross external debt
increased from 17 % of GDP
in 2005 to 52% of GDP in
2010
2006
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Gross external debt, % of GDP
52%
60%
40%
20%
0%
2005
2006
2007
2008
2009
2010
Main causes of the crisis:
1. Internal factors
• Structural imbalances: state sector accounts for 70% of
economy
• Soft macroeconomic policy: stimulating of demand by low
interest rates
• Large quasi-fiscal investment financing through state programs
• Pertaining high employment by subsidies to state enterprises
• Raising wages of state sector employees before 2010
presidential elections
• Existence of fixed exchange rates
2. External factors.
• Reduction of energy/hydrocarbons subsidies from Russia.
• Entry into the Customs Union with Russia and Kazakhstan.
Policy options:
4th June, 2011 EurAsEc Anti Crisis Fund (ACF) approved a $3 billion loan to Belarus to
support the balance of payments and to augment foreign exchange
reserves. The loan is accompanied by a stabilization program.
Since September, 2011 Belarusian Government has started to take clear steps for economic
stabilization under the EurAsEc stabilization package.
13th September, 2011 IMF issued its Country Report with analysis of current situation. The
report offers more tight stabilization package.
17th October, 2011 The IMF appreciated the Government’s efforts in recovery from the
crisis, but required deeper reforms and a “clear commitment—including
at the highest level to stability and reform and to reflect this
commitment in their actions”.
20th October, 2011 The Head of the National Bank Ms. Ermakova said, that the IMF loan is
unlikely to be provided.
So the baseline scenario seems to be EurAsEc ACF stabilization package
Government approach to tackle the crisis
Monetary policy

Positive real interest rates
Restrain credit growth
Refinancing rate and CPI, 2011
74%
80.0%
+80%
60.0%
32,5%
40.0%
Refinancing rate
Aug-11
Jul-11
Jun-11
May-11
Apr-11
0.0%
Mar-11

20.0%
Feb-11
11606
Jan-11
Current policy
indicators
New credits, in bn BYR
14000
12000
10000
8000
6000
4000
2000
0
Oct-11
•
•
Sep-11
EurAsEc
requirements
CPI cumul, %
Implications for The Head of the National Bank Nadezhda Ermakova supposes that there is no
economy need to raise the refinancing rate to the level exceeding inflation (80%)
motivating this view by her considerations regarding the vanishing role of the
refinancing rate in crisis situation and economic security concerns.
The governmental policy now is focused on combating inflation. But in frame of
price liberalization (introduced this year under Directive of the President No 4) the
only instrument to tackle inflation is tight monetary policy. So there is certain risk
that the Government will fail to curb inflation in short term perspective (the
inflation target for 2012 is 19%).
Government approach to tackle the crisis
Budget policy 
•
•
•
•
EurAsEc
requirements
Current policy
indicators
Budget deficit decrease from 3% of GDP to 1,5% of GDP:
Freeze of budget sector wages
Reduction of subsidies for transportation and household utilities
Increase in export duties for potash fertilizers, tax rates for the
extraction of mineral resources, and excise tax rates for alcohol and
tobacco.
•
Real incomes are declining
Decrease in real wages (vs. Dec -10), %
0.0%
Jan-11
-5.0%
Feb-11 Mar-11 Apr-11 May-11 Jun-11
Jul-11
Aug-11 •
-10.0%
-15.0%
-20.0%
•
•
•
•
-18,8%
however at the lower pace than
inflation
In Sep-11 the Government
introduced a one-time additional
payment to all pensioners
Decrease in real incomes of state
sector employees are partly
compensated (lower than
inflation rate)
The Jan-Aug budget generated a surplus of 0,9% of GDP. The government prepared the
adjusted budget plan for 2011 which envisages budget deficit of 1,5% of GDP. The
additional inflation-generated revenues, revenues from oil export duties and higher
potash export duties will be channeled to some increase in budget sector wages and
social payouts.
The adjusted budget plan also provides for reduction of subsidies for transportation and
household utilities up to agreed levels.
Although export duties for potash fertilizers and tax rates for the extraction of mineral
resources were raised this year, the excise taxes are planned to raise gradually next year.
Government approach to tackle the crisis
Lending under government programs (LGP)
EurAsEc •
requirements
•
•
•
Current policy
indicators
•
•
•
•

Gradual decrease of lending under government programs (LGP):
• 4% of GDP in 2011;
• 3% of GDP in 2012;
• 1% of GDP in 2013.
Sources of LGP financing – only MinFin deposits, no National Bank
subsidized lending.
Establishment of special Development Bank to manage LGP
Voluntary participation of commercial banks in LGP on market
conditions
For Jan-Apr 2011 the LGP volume accounted for 2,2% of GDP
21st June, 2011 – President issued an Edict “On establishment of Development Bank” for
managing LGPs.
New mechanism of interest rate compensation: funds are channeled not to banks, but to
the borrowers.
On 2 September, 2011The National Bank sent a circular to all banks engaged in LGP with
instruction to limit the volume of debt of the borrowers under Government Programs by
the 1st September 2011 level. This means that new loans in frame of LGP will be provided
within the amounts of repayment of the previous debts.
Government approach to tackle the crisis
Exchange rate policy 
EurAsEc •
requirements •
Current policy
indicators
•
•
Exchange rate unification
All trade conducted at a market-clearing rate
20th October, 2011 – after a month-lasting period of existence of 2 segments
of foreign exchange market (one segment operated on market conditions,
another segment was maintained to allow foreign exchange at lower-themarket rate for purchase of imported energy sources and medicines) the
National bank introduced free floating regime for Belarusian ruble. Total
depreciation since the beginning of the year accounted for 189,3%.
To maintain stable market exchange rate in short and middle term the
Government and the National Bank has only 2 instruments:
• Market interventions of the National Bank, which require considerable
level of international reserves
• Tight monetary policy, which will limit money supply and aggregate
demand
Now the level of international reserves is still below the safety level and the
monetary policy is still not tight enough so there are certain exchange rate
risks
Government approach to tackle the crisis
Structural reforms 
EurAsEc •
requirements
Large scale privatization during 2011-2013 (7,5 bn USD).
Current policy •
indicators
According to the Privatization plan for 2011-2013 the state planned to sell
178 state enterprises in 2011, another 64 are planned to be sold in 2012,
2013 (most of the enterprises are small and medium, loss-making or noneffective state companies with liquidity problems). As for 19th October 2011,
29 enterprises were sold (primarily to local competitors) and the proceeds
from the privatization accounted for 110 bn BYR (about 12,8 mn USD). The
failure of privatization program is caused mainly by lack of appropriate
approach to market the assets, poor quality of the assets, and rigidity of
local management to change the status quo. There are talks in government
structures that 2011-2013 privatization plan could be extended up to 600
enterprises.
The progress in privatization of large interesting enterprises is the following:
1. The sale deal of another 50% of Beltransgaz to Gazprom for 2,5bn USD
is planned to be finalized by the end of the year.
2. There are 2 Russian bidders to acquire MAZ (one of the largest CIS
trucks and buses producer): GAZ and KAMAZ
3. The President announced the Belaruskali price: 30 bn USD which is
about 2 times higher than market price. No real plans to sell.
4. Belarus plans to sell its 50% stake in mobile phone operator MTS for 1
bn USD on 1st December, 2011
•
Belarus financing needs
Items
The IMF projections
provide for existence of
considerable financial
gap even in 2011.
However, the IMF plan
does not consider
certain issues:
•
Additional source
of financing (FDI),
•
Better CA balance
situation,
•
Extra loans
Financing needs
Current account balance
Amortization of debt securities
Amortization of medium- and longterm debt
Amortization of short-term debt
Financing sources
FDI (net)
Portfolio investment inflows
Trade credits (net)
Medium- and long-term debt
financing
Short-term financing
Other
Targeted increase in reserves
Exceptional financing
of which ACF ()
of which IMF (net)
Residual financing gap
Our adjustments for 2011:
Financing needs
Current account balance
Financing sources
Sberbank loan secured by Naftan
shares
Sale of 50% stock of Beltransgaz
Residual financing gap
2010
2011
2012
2013
2014
IMF projections
-14,1
-14,9
-6,9
-7,1
0,0
0,0
-13,1
-8,5
0,0
-15,3
-8,4
0,0
-13,4
-6,5
-0,2
-1,0
-3,6
12,6
1,3
1,2
1,1
-1,5
-5,3
7,7
1,8
0,8
0,3
-1,8
-4,9
8,3
2,0
0,2
0,4
-2,4
-4,8
8,7
2,4
0,0
0,4
2,8
5,3
-0,5
0,8
0,5
0,0
0,7
0,0
2,5
4,9
-2,3
-1,5
1,2
1,2
0,0
6,3
3,9
4,8
-0,5
-3,0
0,5
0,9
-0,4
4,7
4,7
4,8
0,8
-3,5
-0,8
0,9
-1,7
6,2
-12,9
-6,0
3,5
1,0
2,5
0,4
2014
2014
-17,0
-7,7
-1,0
-17,0
-8,2
0,0
-3,0
-4,8
10,0
2,6
0,0
0,4
-3,5
-4,8
11,4
2,8
1,0
0,4
-4,0
-4,8
11,2
3,2
0,0
0,4
5,2
4,8
1,5
-3,0
-1,4
0,0
-1,4
6,3
4,4
4,8
0,1
-2,0
-0,1
0,0
-0,1
5,6
4,8
4,8
0,0
-2,0
0,0
0,0
0,0
5,8
Limited access to external financing
S&P: Local/foreign currency rating: BIssuer credit long-term rating: BIssuer credit short-term rating: C
Moody’s: Country Ceiling for For. Curr.
Bonds – LT: B3
Country Ceiling for For. Curr.
Bank Deposits – LT: Caa
Projections
Basing on the
conservative scenario
the Government
prepared forecasts
for the main
economic indicators
GDP growth, yoy
Real domestic demand growth, yoy
Real population income growth, yoy
Investments growth
CPI dec-of-dec
Foreign trade bakance, mn USD
Foreign trade bakance, % of GDP
Current account balance, mn USD
Current account balance, % of GDP
Financing account balance, mn USD, i.a.
FDI i.a.
Privatization proceeds
International reserves, mn USD
International reserves growth rate, mn USD
International reserves, months of imports
External debt, mn USD
External debt, % of GDP
Economic security
indicators
Banks' claim on the economy, bn BYR
Banks' claim on the economy growth, %
Banks' claim on the economy in BYR, bn BYR
Banks' claim on the economy in BYR growth, %
Funds
for state programme finansing, bn BYR
Indicator
2010
Real sector
7,60%
11,20%
14,90%
16,60%
9,90%
External sector
-7 426
-13,60%
-8 493
-14,6%
7 273
2011E
2012F
2013F
2014F
4,80%
2,10%
1,20%
2,40%
118,60%
0,50%
-2,80%
0,20%
-8,50%
19,20%
6,50%
5,60%
6,00%
8,00%
12,10%
7,30%
7,40%
7,00%
11,50%
9,00%
-3 667
-7,50%
-8 689
-17,70%
8 869
3 744
1 843
3,50%
-3 674
-6,90%
6 774
3 804
2 270
4,00%
-3 518
-6,10%
3 448
3 874
2 256
3,70%
-3 629
-5,90%
3 983
4128
5 031
-622
1,6
10 666
19,50%
Monetary sector
92 875
39,90%
72 346
2 500
6 010
978,9
01.май
13 235
26,40%
2 500
9113
3 103,20
2,6
13 144
24,70%
2 500
9 259
146
2,4
11 305
19,80%
2 500
9 856
598
2,4
9 304
15,20%
173 646
87,00%
99 563
213 847
23,20%
108 551
255 244
18,80%
118 336
301 501
18,10%
128 336
56,60%
37,60%
8,60%
8,50%
9,00%
12
000
2011
201270
75
Safety level
55
2010
52
State external debt, % of GDP
25
19
26
International reserves, monthes of imports
3
1,6
Foreign trade balance, % of GDP
-5
Inflation
12
External debt, % of GDP
2013
2014
77
78
25
20
15
1,5
2,6
2,4
2,4
-13,7
-7,5
3,5
4
3,7
9,9
120
19
12
8
Thank you
Daniel Krutzinna
Investment Company Uniter