ANALYSIS: Belarus’ economy maintains negative dynamics at year-end
<p> Monthly overview of Belarus’ real economy sector, Jan-Nov 2020 </p> <p> </p> <p> MINSK, Dec 28 – PrimePress. The Belarusian economy has sustained negative dynamics at year-end 2020 despite the efforts of the authorities. Producing to stock in a period of falling business activity on the global markets, stimulating incomes and injecting money into the public sector will only accelerate inflationary processes and negative expectations in the economy. The situation is exacerbated by Western sanctions imposed on the Belarusian authorities. </p> <p> </p> <p> Next year, however, the main indicators of the Belarusian economy may show positive dynamics. This will be supported by a gradual recovery of business activity in global markets, as well as a low comparative base in 2020. </p> <p> </p> <p> Table 1. Key indicators of Belarus’ macroeconomic performance: </p> <br> <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> <p> Indicator </p> </td> <td> <p> Real figures, Jan-Nov 2020, billion Belarusian rubles </p> </td> <td> <p> Jan-Nov 2020 on Jan-Nov 2019, % </p> </td> <td> <p> Official forecast for 2020, % </p> </td> </tr> <tr> <td> <p> GDP </p> </td> <td> <p align="right"> 133.9 </p> </td> <td> <p align="right"> minus 0.9% </p> </td> <td> <p align="right"> +2.8% </p> </td> </tr> <tr> <td> <p> Industrial output </p> </td> <td> <p align="right"> 105.1 </p> </td> <td> <p align="right"> minus 0.7% </p> </td> <td> <p align="right"> +2.2% </p> </td> </tr> <tr> <td> <p> Fixed capital investments </p> </td> <td> <p align="right"> 25.3 </p> </td> <td> <p align="right"> minus 4.3% </p> </td> <td> <p align="right"> +4% </p> </td> </tr> <tr> <td> <p> Inflation growth since early 2017, % </p> </td> <td> <p align="right"> 6.1 </p> </td> <td> <p align="right"> 6.6* </p> </td> <td> <p align="right"> 5% at most </p> </td> </tr> <tr> <td> <p> Foreign trade balance (goods and services), USD million </p> </td> <td> <p align="right"> +1,780** (+3.6% of GDP) </p> </td> <td> <p align="right"> +454*** (+0.9% of GDP) </p> </td> <td> <p align="right"> +$650m or + 1% of GDP in 2020 </p> </td> </tr> <tr> <td> <p> Real disposable household incomes, year on year, % </p> </td> <td> <p align="right"> +4.6** </p> </td> <td> <p align="right"> +6.6*** </p> </td> <td> <p align="right"> annual forecast +2.4% </p> </td> </tr> </tbody> </table> <br> <p> * Nov 2020 on Nov 2019 </p> <p> ** Jan-Oct 2020 </p> <p> *** Jan-Oct 2020 </p> <p> </p> <p> Inflation goes beyond limits of revised forecast, continues to accelerate </p> <p> </p> <p> The authorities' zeal to retrain the pace of Belarus’ economic slowdown in 2020 by means of stimulating personal incomes and financing the public sector with concessional resources increases inflation risks. At the same time, the political crisis has an additional negative impact on inflation expectations. </p> <p> </p> <p> The National Statistics Committee of Belarus (Belstat) reports, annual consumer price growth was 6.2% in October 2020 and 6.6% in November, with initial forecast standing at 5% for the whole year. Commentaries made by the Ministry of Antimonopoly Regulation and Trade (MART) indicate that “the 0.4 p.p. year-on-year acceleration in consumer prices is largely due to the rise in prices of certain non-food products and essential imported food products over the past 12 months (primarily due to the weakening of the Belarusian ruble and unfavourable external conditions)”. </p> <p> </p> <p> It is worth noting that the inflation rate in the Jan-Nov period considerably exceeded the revised forecast, which was announced by the National Bank in early November. Back then NBB Board Chairman Pavel Kallaur said that consumer prices are expected to grow by about 6% year on year as of Jan 1, 2021. </p> <p> </p> <p> According to Belstat, consumer prices in Belarus rose by 0.7% month on month in November and by 6.1% year to date. Food products rose by 1% (+4.5% in November compared to December 2019) and non-food products by 0.4% (+7.7%). Tariffs for services rose by 0.5% (+6.6% YTD). </p> <p> </p> <p> Annual core inflation in Belarus accelerated to 6.4% in November 2020 from 6.1% in October. November’s trend inflation stood at 5.1% against 4.7% in October 2020. Administered prices and tariffs increased by 6.5% year-on-year against 5.8% a month earlier. Seasonal prices (for fruit and vegetable products) - by 10.5% against 9.2%. The contribution of these components to the overall inflation rate also changed. </p> <p> </p> <p> Thus, the year-end consumer inflation rate will be close to 7%. At the same time, the authorities expect a slowdown in inflation next year. According to the approved Monetary Policy Guidelines for 2021, the regulator’s monetary policy will be aimed at keeping inflation within 5% at the end of the year. </p> <p> </p> <p> Given the likely resumption of emission lending to the Belarusian economy, the authorities’ forecast for a slowdown in inflation looks quite optimistic. </p> <p> </p> <p> At the same time, it is possible that consumer price growth will be restrained by administrative methods. At a meeting on December 7, Belarusian president Alexander Lukashenko instructed to develop a mechanism to curb prices in all directions. He drew attention to the fact that the task to curb price growth should apply not only to food products. </p> <p> </p> <p> If administrative pressure on pricing is increased, the range of goods may be reduced and even the deficit of some groups of goods may appear, especially when it comes to imports. </p> <p> </p> <p> Produce-to-stock policy fails to prevent collapse of Belarus’ economy </p> <p> </p> <p> The Belarusian authorities' refusal to impose quarantine during the first wave of the coronavirus pandemic and their attempt to maintain the volume of industrial production at the pre-crisis level not only failed to keep GDP growth in the positive zone, but also formed certain risks for 2021. </p> <p> </p> <p> In January-November 2020 the National Statistical Committee of Belarus (Belstat) recorded a year-on-year GDP decline of 0.9% to Br133.9bn, with initial forecast for the whole of 2020 standing at +2.8%. </p> <p> </p> <p> Growth slowed in almost all sectors of the economy, with the exception of agriculture, which benefited from favourable weather conditions. </p> <p> </p> <p> The industrial production in the first 11 months of 2020 decreased by 0.7% year on year to Br105.1 billion, capital investments decreased by 4.3% to Br25.3 billion, while the wholesale turnover decreased by 5% to Br88.9 billion. The retail turnover increased by 2% to Br47.9 billion, while agriculture increased by 4.9% to Br21.7 billion. </p> <p> </p> <p> Thus, amid low demand and a shortage of circulating assets, the industry can no longer keep increasing stockpiles and has to slow down production. The more so, since stocks of finished goods remain higher than in previous years. </p> <p> </p> <p> According to official statistics, as of December 1, 2020, warehouse stockpiles of finished goods amounted to Br5.282 billion, or 69.1% of the average monthly industrial output against 68.3% as of December 1, 2019 and 60.3% as of Dec 1, 2018. Thus, more than $2 billion remains frozen in the warehouses of Belarusian enterprises, and this amount continues to increase. </p> <p> </p> <p> In 2021, the Belarusian authorities expect a year-on-year GDP increase of 1.8. As previously mentioned, it is planned that Belarus’ economy will demonstrate year-on-year growth in 2021 on a low comparative base. The economic growth in Belarus will also be helped by the external environment: next year all of Belarus' main trading partners are expected to see a recovery in GDP growth. </p> <p> </p> <p> However, foreign experts are less optimistic in their estimates for Belarus. “In our baseline scenario for 2021, we expect a gradual recovery of the global economy, some easing of political tensions, continued support from Russia and no emission financing of state-owned enterprises. Under these conditions, which assume the absence of new shocks, Belarus can expect an anaemic growth of about 1%,” reads the latest review of the Centre for Macroeconomic Research of Sberbank, Russia. </p> <p> </p> <p> Thus, we can assume that the dynamics of the Belarusian economy in 2021 will depend on a lot of factors - both internal (resolution of the political crisis, tightened monetary policy, expectations of economic actors) and external (the global economy’s recovery from the pandemic crisis and relations with Russia). </p> <p> </p> <p> Budget deficit remains, reflects govt’s negative expectations </p> <p> </p> <p> The global economic crisis as well as Belarus' internal problems have produced a negative effect on the performance of the public budget, which provided for a deficit in 2020. According to the Ministry of Finance, national budget revenues amounted to Br19.6 billion in January-October 2020, or 77.1% of the adjusted annual plan. Public budget spending amounted to Br20.2 billion, or 72.4%. </p> <p> </p> <p> Thus, in January-October 2020 the national budget was executed with a deficit of Br0.6 billion. In the meantime, Deputy Minister of Finance Yelena Pechen announced on December 9 that Belarus’ national budget deficit may reach Br2.6 billion in 2020, or nearly 2% of gross domestic product (GDP). At the same time, the initially approved version of the budget plan envisaged that the republican budget deficit would not exceed Br1 billion. </p> <p> </p> <p> The 2021 budget plan has been approved with a deficit of Br4.047 billion. On December 21, the Finance Ministry published the main guidelines for fiscal and tax policy in Belarus for 2021-2023. The document says the budget deficit will remain in 2022, and a zero balance of revenues and expenditures is expected only in 2023. </p> <p> According to the main guidelines, the Ministry of Finance calculated the 2021 budget based on the following parameters: GDP growth of 1.8%, the average annual dollar exchange rate against the Belarusian ruble - 2.5678 Belarusian rubles per dollar, the average annual price of Urals oil - $40 a barrel, the volume of oil imports from Russia for further processing at refineries - 18 million tons, the average annual consumer inflation - 5.5%. </p> <p> </p> <p> Republican budget revenues in 2021 are planned in the amount of Br23.304 billion, while expenditures in the amount of Br27.351 billion. Value added tax and excise duties will account for the bulk of budget revenues (over 57%). </p> <p> </p> <p> In 2021 they plan to raise the equivalent of $775 million in foreign markets to cover the state budget deficit. The Ministry of Finance intends to borrow another $200 million on the domestic market through bond placements. </p> <p> </p> <p> On December 21, representatives of the governments of Belarus and Russia signed an agreement on the provision of a state financial loan. The first tranche of the loan, equivalent of $500 million, should be received by Belarus by the end of 2020, the second tranche in the same amount - in 2021. Both tranches will be issued in Russian rubles. </p> <p> </p> <p> Thus, $500 million of the $775 million in 2021 will be covered by Russian resources. An equivalent of the remaining $275 million would likely be raised through the placement of government securities (bonds) in external markets. Depending on the current political situation, this could be either Russia or China. </p> <p> </p> <p> Overall, the national budget for 2021 reflects the state’s declining ability to maintain the welfare of public sector employees and pensioners. In the context the tax manoeuvre implemented in Russia and the closure of many debt markets after the disputed presidential election, the authorities are unable to formulate a balanced budget. </p> <p> </p> <p> A sharp increase in prices for oil, oil products and potash, which will increase foreign currency revenues, may give some chance of improvement in the budget execution in 2021. </p> <p> </p> <p> Budget expenditures are increasingly focused on securing current spending while reducing capital expenditures. Until the disputed 2020 election, international financial institutions such as the European Bank for Reconstruction and Development (EBRD) had been helping to fill the gap in capital expenditures. The EBRD’s cooperation with Belarus’ public sector is now frozen. </p> <p> </p> <p> The 2021 budget plan does not provide for a new Eurobond placement in the international capital market, although the summer drafts of the budget bill allowed for such an option. The quotations of Belarus’ sovereign Eurobonds have not returned to the 2019-2020 levels so far. Also, Belarus’ may be denied access to this market in the near future due to EU and US sanctions. </p> <p> </p> <p> The draft budget plan for next year does not provide for revenues from the privatisation of state assets. Despite the difficult situation in the economy, the authorities do not intend to part with assets that could potentially be of interest to domestic and/or foreign investors. </p> <p> </p> <p> Accumulated imbalances get intensified </p> <p> </p> <p> Thus, the Belarusian economy remains under pressure from unfavourable external and internal factors, which aggravate the previously accumulated imbalances. </p> <p> </p> <p> The main risks remain the growing political and economic isolation of the country in all directions except the Russian one and the intention of the authorities to subordinate the financial sector to the immediate needs of the real economy and to deploy emission lending. </p> <p> </p> <p> Overall, political risks persist and far outweigh economic risks. At the same time, despite the adopted forecasts for 2021, for the majority of economic actors their own future remains uncertain. </p> <p> </p> <p> PrimePress Business Analysis Agency </p>
2020-12-29
Primepress
Monthly overview of Belarus’ real economy sector, Jan-Nov 2020
MINSK, Dec 28 – PrimePress. The Belarusian economy has sustained negative dynamics at year-end 2020 despite the efforts of the authorities. Producing to stock in a period of falling business activity on the global markets, stimulating incomes and injecting money into the public sector will only accelerate inflationary processes and negative expectations in the economy. The situation is exacerbated by Western sanctions imposed on the Belarusian authorities.
Next year, however, the main indicators of the Belarusian economy may show positive dynamics. This will be supported by a gradual recovery of business activity in global markets, as well as a low comparative base in 2020.
Table 1. Key indicators of Belarus’ macroeconomic performance:
Indicator |
Real figures, Jan-Nov 2020, billion Belarusian rubles |
Jan-Nov 2020 on Jan-Nov 2019, % |
Official forecast for 2020, % |
GDP |
133.9 |
minus 0.9% |
+2.8% |
Industrial output |
105.1 |
minus 0.7% |
+2.2% |
Fixed capital investments |
25.3 |
minus 4.3% |
+4% |
Inflation growth since early 2017, % |
6.1 |
6.6* |
5% at most |
Foreign trade balance (goods and services), USD million |
+1,780** (+3.6% of GDP) |
+454*** (+0.9% of GDP) |
+$650m or + 1% of GDP in 2020 |
Real disposable household incomes, year on year, % |
+4.6** |
+6.6*** |
annual forecast +2.4% |
* Nov 2020 on Nov 2019
** Jan-Oct 2020
*** Jan-Oct 2020
Inflation goes beyond limits of revised forecast, continues to accelerate
The authorities' zeal to retrain the pace of Belarus’ economic slowdown in 2020 by means of stimulating personal incomes and financing the public sector with concessional resources increases inflation risks. At the same time, the political crisis has an additional negative impact on inflation expectations.
The National Statistics Committee of Belarus (Belstat) reports, annual consumer price growth was 6.2% in October 2020 and 6.6% in November, with initial forecast standing at 5% for the whole year. Commentaries made by the Ministry of Antimonopoly Regulation and Trade (MART) indicate that “the 0.4 p.p. year-on-year acceleration in consumer prices is largely due to the rise in prices of certain non-food products and essential imported food products over the past 12 months (primarily due to the weakening of the Belarusian ruble and unfavourable external conditions)”.
It is worth noting that the inflation rate in the Jan-Nov period considerably exceeded the revised forecast, which was announced by the National Bank in early November. Back then NBB Board Chairman Pavel Kallaur said that consumer prices are expected to grow by about 6% year on year as of Jan 1, 2021.
According to Belstat, consumer prices in Belarus rose by 0.7% month on month in November and by 6.1% year to date. Food products rose by 1% (+4.5% in November compared to December 2019) and non-food products by 0.4% (+7.7%). Tariffs for services rose by 0.5% (+6.6% YTD).
Annual core inflation in Belarus accelerated to 6.4% in November 2020 from 6.1% in October. November’s trend inflation stood at 5.1% against 4.7% in October 2020. Administered prices and tariffs increased by 6.5% year-on-year against 5.8% a month earlier. Seasonal prices (for fruit and vegetable products) - by 10.5% against 9.2%. The contribution of these components to the overall inflation rate also changed.
Thus, the year-end consumer inflation rate will be close to 7%. At the same time, the authorities expect a slowdown in inflation next year. According to the approved Monetary Policy Guidelines for 2021, the regulator’s monetary policy will be aimed at keeping inflation within 5% at the end of the year.
Given the likely resumption of emission lending to the Belarusian economy, the authorities’ forecast for a slowdown in inflation looks quite optimistic.
At the same time, it is possible that consumer price growth will be restrained by administrative methods. At a meeting on December 7, Belarusian president Alexander Lukashenko instructed to develop a mechanism to curb prices in all directions. He drew attention to the fact that the task to curb price growth should apply not only to food products.
If administrative pressure on pricing is increased, the range of goods may be reduced and even the deficit of some groups of goods may appear, especially when it comes to imports.
Produce-to-stock policy fails to prevent collapse of Belarus’ economy
The Belarusian authorities' refusal to impose quarantine during the first wave of the coronavirus pandemic and their attempt to maintain the volume of industrial production at the pre-crisis level not only failed to keep GDP growth in the positive zone, but also formed certain risks for 2021.
In January-November 2020 the National Statistical Committee of Belarus (Belstat) recorded a year-on-year GDP decline of 0.9% to Br133.9bn, with initial forecast for the whole of 2020 standing at +2.8%.
Growth slowed in almost all sectors of the economy, with the exception of agriculture, which benefited from favourable weather conditions.
The industrial production in the first 11 months of 2020 decreased by 0.7% year on year to Br105.1 billion, capital investments decreased by 4.3% to Br25.3 billion, while the wholesale turnover decreased by 5% to Br88.9 billion. The retail turnover increased by 2% to Br47.9 billion, while agriculture increased by 4.9% to Br21.7 billion.
Thus, amid low demand and a shortage of circulating assets, the industry can no longer keep increasing stockpiles and has to slow down production. The more so, since stocks of finished goods remain higher than in previous years.
According to official statistics, as of December 1, 2020, warehouse stockpiles of finished goods amounted to Br5.282 billion, or 69.1% of the average monthly industrial output against 68.3% as of December 1, 2019 and 60.3% as of Dec 1, 2018. Thus, more than $2 billion remains frozen in the warehouses of Belarusian enterprises, and this amount continues to increase.
In 2021, the Belarusian authorities expect a year-on-year GDP increase of 1.8. As previously mentioned, it is planned that Belarus’ economy will demonstrate year-on-year growth in 2021 on a low comparative base. The economic growth in Belarus will also be helped by the external environment: next year all of Belarus' main trading partners are expected to see a recovery in GDP growth.
However, foreign experts are less optimistic in their estimates for Belarus. “In our baseline scenario for 2021, we expect a gradual recovery of the global economy, some easing of political tensions, continued support from Russia and no emission financing of state-owned enterprises. Under these conditions, which assume the absence of new shocks, Belarus can expect an anaemic growth of about 1%,” reads the latest review of the Centre for Macroeconomic Research of Sberbank, Russia.
Thus, we can assume that the dynamics of the Belarusian economy in 2021 will depend on a lot of factors - both internal (resolution of the political crisis, tightened monetary policy, expectations of economic actors) and external (the global economy’s recovery from the pandemic crisis and relations with Russia).
Budget deficit remains, reflects govt’s negative expectations
The global economic crisis as well as Belarus' internal problems have produced a negative effect on the performance of the public budget, which provided for a deficit in 2020. According to the Ministry of Finance, national budget revenues amounted to Br19.6 billion in January-October 2020, or 77.1% of the adjusted annual plan. Public budget spending amounted to Br20.2 billion, or 72.4%.
Thus, in January-October 2020 the national budget was executed with a deficit of Br0.6 billion. In the meantime, Deputy Minister of Finance Yelena Pechen announced on December 9 that Belarus’ national budget deficit may reach Br2.6 billion in 2020, or nearly 2% of gross domestic product (GDP). At the same time, the initially approved version of the budget plan envisaged that the republican budget deficit would not exceed Br1 billion.
The 2021 budget plan has been approved with a deficit of Br4.047 billion. On December 21, the Finance Ministry published the main guidelines for fiscal and tax policy in Belarus for 2021-2023. The document says the budget deficit will remain in 2022, and a zero balance of revenues and expenditures is expected only in 2023.
According to the main guidelines, the Ministry of Finance calculated the 2021 budget based on the following parameters: GDP growth of 1.8%, the average annual dollar exchange rate against the Belarusian ruble - 2.5678 Belarusian rubles per dollar, the average annual price of Urals oil - $40 a barrel, the volume of oil imports from Russia for further processing at refineries - 18 million tons, the average annual consumer inflation - 5.5%.
Republican budget revenues in 2021 are planned in the amount of Br23.304 billion, while expenditures in the amount of Br27.351 billion. Value added tax and excise duties will account for the bulk of budget revenues (over 57%).
In 2021 they plan to raise the equivalent of $775 million in foreign markets to cover the state budget deficit. The Ministry of Finance intends to borrow another $200 million on the domestic market through bond placements.
On December 21, representatives of the governments of Belarus and Russia signed an agreement on the provision of a state financial loan. The first tranche of the loan, equivalent of $500 million, should be received by Belarus by the end of 2020, the second tranche in the same amount - in 2021. Both tranches will be issued in Russian rubles.
Thus, $500 million of the $775 million in 2021 will be covered by Russian resources. An equivalent of the remaining $275 million would likely be raised through the placement of government securities (bonds) in external markets. Depending on the current political situation, this could be either Russia or China.
Overall, the national budget for 2021 reflects the state’s declining ability to maintain the welfare of public sector employees and pensioners. In the context the tax manoeuvre implemented in Russia and the closure of many debt markets after the disputed presidential election, the authorities are unable to formulate a balanced budget.
A sharp increase in prices for oil, oil products and potash, which will increase foreign currency revenues, may give some chance of improvement in the budget execution in 2021.
Budget expenditures are increasingly focused on securing current spending while reducing capital expenditures. Until the disputed 2020 election, international financial institutions such as the European Bank for Reconstruction and Development (EBRD) had been helping to fill the gap in capital expenditures. The EBRD’s cooperation with Belarus’ public sector is now frozen.
The 2021 budget plan does not provide for a new Eurobond placement in the international capital market, although the summer drafts of the budget bill allowed for such an option. The quotations of Belarus’ sovereign Eurobonds have not returned to the 2019-2020 levels so far. Also, Belarus’ may be denied access to this market in the near future due to EU and US sanctions.
The draft budget plan for next year does not provide for revenues from the privatisation of state assets. Despite the difficult situation in the economy, the authorities do not intend to part with assets that could potentially be of interest to domestic and/or foreign investors.
Accumulated imbalances get intensified
Thus, the Belarusian economy remains under pressure from unfavourable external and internal factors, which aggravate the previously accumulated imbalances.
The main risks remain the growing political and economic isolation of the country in all directions except the Russian one and the intention of the authorities to subordinate the financial sector to the immediate needs of the real economy and to deploy emission lending.
Overall, political risks persist and far outweigh economic risks. At the same time, despite the adopted forecasts for 2021, for the majority of economic actors their own future remains uncertain.
PrimePress Business Analysis Agency