ANALYSIS: Negative trends in Belarusian economy persist, overdue debts piling up

<h3>ANALYSIS: Negative trends in Belarusian economy persist, overdue debts piling up</h3> Monthly overview of Belarus’ money-crediting & banking sector, Jan-May 2020 MINSK, Jun 23 – PrimePress Analysis. The steps taken by the Belarusian authorities to overcome the crisis look quite controversial, especially given the country’s past experience. The change of government, the growth of directed lending, the administrative requirement to reduce interest rates amid rising inflationary expectations, and the politicization of economic decisions threaten the financial stability achieved in recent years. Financial support is provided mainly to the public sector, which was not effective even before the coronavirus pandemic. Now the authorities are using the situation as an excuse to return to their old policy - stimulation of domestic demand at the expense of financial stability. Table 1. Key indicators of Belarus’ macroeconomic performance: <table border="1" cellspacing="1" cellpadding="0"> <tbody> <tr> <td> Indicator </td> <td> Real figures, Jan-May 2020, billion Belarusian rubles </td> <td> Jan-May 2020 on Jan-May 2019, % </td> <td> Official forecast for 2020, % </td> </tr> <tr> <td> GDP </td> <td> 50.999 </td> <td> minus 1.8% </td> <td> +2.8% (+1.6% in H1) </td> </tr> <tr> <td> Industrial output </td> <td> 43.893 </td> <td> minus 3.9% </td> <td> +2.2% (+1% in H1) </td> </tr> <tr> <td> Fixed capital investments </td> <td> 10.262 </td> <td> +2.3% </td> <td> +4% (+1.7% in H1) </td> </tr> <tr> <td> Inflation growth since early 2017, % </td> <td> 3.2 </td> <td> 4.9* </td> <td> 5% at most (not more than 3.2% in June 2020 compared to the level of Dec 2019) </td> </tr> <tr> <td> Foreign trade balance (goods and services), USD million </td> <td> +502.1** (+2.8% of GDP) </td> <td> +85*** (+0.5% of GDP) </td> <td> +$650m or + 1% of GDP in 2020 (+$533.7m or +1.8% in H1) </td> </tr> <tr> <td> Real disposable household incomes, year on year, % </td> <td> +5.7** </td> <td> +7.6*** </td> <td> annual forecast +2.4% (+1.3% in Q1) </td> </tr> </tbody> </table> * May 2020 on May 2019 ** Jan-Apr 2020 *** Jan-Apr 2020 Belarus’ GDP performance keeps deteriorating The decline in external demand due to freezing economic activity in the partner states has slowed down economic growth in Belarus. The National Statistics Committee (Belstat) says the country’s GDP decreased by 1.8% year on year in January-May 2020 Br50.999bn, while the H1 forecast implies that the economy is supposed to expand by 1.6%. In January-April 2020, Belarus’ GDP shrank by 1.3%, after a 0.3% decline in Q1 2020. The negative dynamics of the GDP is primarily due to the fall in industrial production. Belstat says the country’s industrial output decreased by 3.9% year on year in January-May 2020 down to Br43.893bn. It does not come as a surprise that the most significant drop in industrial output in January-May (taking into account the decrease in Russian oil supplies at the beginning of the year) was recorded in the production of coke and petroleum products - down 28.5% to Br4.325bn. The production of chemical products was also seriously affected, down 12.7% to Br3.641bn. The decrease in industrial production was partly offset by the produce-to-stock policy of Belarusian enterprises. Belstat says warehouse inventories of finished products at industrial enterprises amounted to Br5.736 billion as of June 1, 2020, or 81.4% of the average monthly output. A year ago, the stocks of finished products of Belarusian industrial enterprises amounted to Br5.073 billion, or 65.9% of the monthly average output. As for other sectors of the Belarusian economy, deterioration is observed in all sectors except agriculture. The year-on-year improvement in the dynamics of agriculture can be attributed to warmer winters and generally more favourable weather conditions of the current year. The Belarusian government expects economic recovery to begin in Q3 2020, as stated by Economy Minister Alexander Chervyakov. The Belarusian president demands economic growth. During the June 19 meeting with the government to discuss which measures the banking system should take to support the real sector, Lukashenko emphasized the need for a rapid recovery to world’s average pace of economic growth, and obliged the National Bank to go as far as to relax its monetary policy and increase lending. Belarus has repeatedly gone through the stage of stimulating economic growth by means of extended lending by banks. In the long run, this has always led to higher inflation and devaluation of the national currency. Overdue debts on the rise Official statistics show an increase in overdue debts in the Belarusian economy and a worsening financial situation of enterprises in general. Belstat says in a delayed statistical report that Belarusian companies’ total debt stood at Br144.7 billion as of May 1, 2020, up 8.9% since early 2020. This includes overdue debts to the tune of Br11.158bn, up 1.7% since early 2020 (+1.7% in April). Receivables rose by 10.7% to Br45.774 billion (minus 1.2% in April) in Jan-Apr 2020, including overdue receivables - up 7.2% to Br8.532 billion (+2.9%). Payables increased by 2% since early 2020 to Br55.600 billion, including overdue payables - up 4.2% to Br8.255 billion as of May 1, 2020 (+1.7%). The quarantine measures introduced in foreign states resulted in a rapid growth of overdue external receivables. Belstat says it amounted to Br1.094 billion in equivalent as of May 1, 2020, up 18.4% since early 2020, including a 19% increase in April alone. In turn, corporate debts on loans and credits increased by 13.7% in January-April 2020 to Br89.066bn as of May 1, 2020 (minus 4.6%), including overdue corporate debts - down 5% to Br2.903bn (+1.6%). A significant increase in debt on loans and borrowings may be due to the fall of the Belarusian ruble in March-April 2020 against the background of a significant share of FX debt in the loan portfolios of Belarusian companies. In the near future, the poor financial condition of the corporate sector may have a negative impact on budget revenues and the efficiency of the banking system. May’s deflation amid increased inflationary expectations In May, inflationary factors in the form of devaluation of the Belarusian ruble, as well as increased demand for certain goods, which took place in the first quarter of 2020, have almost completely exhausted their negative impact on price dynamics. Due to this, as well as seasonal factors, month-on-month deflation in the amount of 0.1% was registered in May. Belstat says consumer prices in Belarus increased by 3.2% since early 2020. Food prices rose by 2.8% in Jan-Apr 2020 (minus 0.6% month on month in May), while non-food products rose by 3.2% (+0.4%). Tariffs on services rose by 3.8% (minus 0.03% in May). May also saw a slowdown in the annual growth of consumer prices. It decreased by 0.5 p.p. month on month and amounted to 4.9%, while the 2020 target for 2020 is not more than 5%. The improvement of the dynamics is primarily due to the slowdown in the pace of core inflation, which contributed 2.8 p.p. to total inflation in May. Annual core inflation in May 2020 was 3.9% after 4.5% in April 2020. Trend inflation slowed to 3.4% in May to compare with 3.9% in April. Administered prices and tariffs increased by 6.7% year on year after rising by 7.3% in April. The positive dynamics of price indices could not be reflected in the level of inflation expectations, which are regularly assessed by the National Bank. According to the findings of the May poll, the expected inflation rate for the next 12 months was 10.6% against 10.5% in the February poll. The persistence of both external and internal economic and political uncertainties contributes to the high level of inflationary expectations. Foreign trade under pressure from conflict with Russia and falling oil prices This year also has been having an adverse impact on Belarus’ foreign trade. The main destabilizing factors were the conflict with Russia and falling prices on the global oil market. Belstat says Belarus’ exports of goods in January-April 2020 amounted to $8.247 billion, imports - $9.889 billion, with foreign trade totalling $1.642 billion. In year-on-year terms, exports fell by 19.7%, imports - by 19.9%. Since exports decreased by a smaller percentage than imports, the negative balance decreased year on year (it amounted to $2.073bn in Jan-Apr 2019). The import coverage ratio has slightly increased - from 83.3% to 83.4%. It means that in 2020 for every $100 of import there was on average $83.4 of export. In spite of a considerable decrease in export and import flows, the structure of foreign trade in goods has changed little. Russia’s share in the total trade turnover was 47.9%. This is markedly higher than the combined share of the other 13 largest trade partners of Belarus - 36%. Despite the political importance, the stake on food exports does not yet justify itself. Meat and dairy products play a major role in agricultural exports. However, the dynamics of exports in 2020 are not significant in monetary terms. The total effect of the surplus on agricultural products in January-April amounted to only $306 million and did not offset the negative impact of the decrease in oil products export. In general, according to the National Bank, the deficit in trade in goods is offset by the surplus of trade in services in Jan-Apr 2020. As a result, in Jan-Apr, Belarus’' foreign trade surplus in goods and services amounted to $502.1 million to compare with an $85 million surplus in Jan-Apr 2019. Crisis aggravates due to administrative interference in economy Official statistics show that Belarus is sinking into the crisis deeper and deeper. At the same time, the authorities keep saying, without any good reason, that economic recovery will begin soon. Even the most optimistic forecast by S&P, voiced in early April, when the scope of the crisis in Europe and the world was not clear, implies a 2% decline in Belarus’ GDP. May forecasts by international financial institutions and ratings agencies contain indications of a 4-5% decline in the Belarusian economy. On the whole, it is obvious that the situation in the Belarusian economy will fully depend on the recovery pace of demand in the neighbouring markets and primarily in Russia. At the same time, Lukashenko’s latest statements in the field of economic policy show that the Belarusian economy, along with external challenges, is once again facing increased internal risks associated with the easing of the monetary policy and the growth of directed lending. PrimePress Business Analysis Agency

2020-06-24

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ANALYSIS: Negative trends in Belarusian economy persist, overdue debts piling up

Monthly overview of Belarus’ money-crediting & banking sector, Jan-May 2020

MINSK, Jun 23 – PrimePress Analysis. The steps taken by the Belarusian authorities to overcome the crisis look quite controversial, especially given the country’s past experience. The change of government, the growth of directed lending, the administrative requirement to reduce interest rates amid rising inflationary expectations, and the politicization of economic decisions threaten the financial stability achieved in recent years.

Financial support is provided mainly to the public sector, which was not effective even before the coronavirus pandemic. Now the authorities are using the situation as an excuse to return to their old policy - stimulation of domestic demand at the expense of financial stability.

Table 1. Key indicators of Belarus’ macroeconomic performance:

Indicator	Real figures, Jan-May 2020, billion Belarusian rubles	Jan-May 2020 on Jan-May 2019, %	Official forecast for 2020, %
GDP	50.999	minus 1.8%	+2.8% (+1.6% in H1)
Industrial output	43.893	minus 3.9%	+2.2% (+1% in H1)
Fixed capital investments	10.262	+2.3%	+4% (+1.7% in H1)
Inflation growth since early 2017, %	3.2	4.9*	5% at most (not more than 3.2% in June 2020 compared to the level of Dec 2019)
Foreign trade balance (goods and services), USD million	+502.1** (+2.8% of GDP)	+85*** (+0.5% of GDP)	+$650m or + 1% of GDP in 2020 (+$533.7m or +1.8% in H1)
Real disposable household incomes, year on year, %	+5.7**	+7.6***	annual forecast +2.4% (+1.3% in Q1)

* May 2020 on May 2019

** Jan-Apr 2020

*** Jan-Apr 2020

Belarus’ GDP performance keeps deteriorating

The decline in external demand due to freezing economic activity in the partner states has slowed down economic growth in Belarus. The National Statistics Committee (Belstat) says the country’s GDP decreased by 1.8% year on year in January-May 2020 Br50.999bn, while the H1 forecast implies that the economy is supposed to expand by 1.6%. In January-April 2020, Belarus’ GDP shrank by 1.3%, after a 0.3% decline in Q1 2020.

The negative dynamics of the GDP is primarily due to the fall in industrial production. Belstat says the country’s industrial output decreased by 3.9% year on year in January-May 2020 down to Br43.893bn.

It does not come as a surprise that the most significant drop in industrial output in January-May (taking into account the decrease in Russian oil supplies at the beginning of the year) was recorded in the production of coke and petroleum products - down 28.5% to Br4.325bn. The production of chemical products was also seriously affected, down 12.7% to Br3.641bn.

The decrease in industrial production was partly offset by the produce-to-stock policy of Belarusian enterprises. Belstat says warehouse inventories of finished products at industrial enterprises amounted to Br5.736 billion as of June 1, 2020, or 81.4% of the average monthly output. A year ago, the stocks of finished products of Belarusian industrial enterprises amounted to Br5.073 billion, or 65.9% of the monthly average output.

As for other sectors of the Belarusian economy, deterioration is observed in all sectors except agriculture. The year-on-year improvement in the dynamics of agriculture can be attributed to warmer winters and generally more favourable weather conditions of the current year.

The Belarusian government expects economic recovery to begin in Q3 2020, as stated by Economy Minister Alexander Chervyakov.

The Belarusian president demands economic growth. During the June 19 meeting with the government to discuss which measures the banking system should take to support the real sector, Lukashenko emphasized the need for a rapid recovery to world’s average pace of economic growth, and obliged the National Bank to go as far as to relax its monetary policy and increase lending.

Belarus has repeatedly gone through the stage of stimulating economic growth by means of extended lending by banks. In the long run, this has always led to higher inflation and devaluation of the national currency.

Overdue debts on the rise

Official statistics show an increase in overdue debts in the Belarusian economy and a worsening financial situation of enterprises in general.

Belstat says in a delayed statistical report that Belarusian companies’ total debt stood at Br144.7 billion as of May 1, 2020, up 8.9% since early 2020. This includes overdue debts to the tune of Br11.158bn, up 1.7% since early 2020 (+1.7% in April).

Receivables rose by 10.7% to Br45.774 billion (minus 1.2% in April) in Jan-Apr 2020, including overdue receivables - up 7.2% to Br8.532 billion (+2.9%). Payables increased by 2% since early 2020 to Br55.600 billion, including overdue payables - up 4.2% to Br8.255 billion as of May 1, 2020 (+1.7%).

The quarantine measures introduced in foreign states resulted in a rapid growth of overdue external receivables. Belstat says it amounted to Br1.094 billion in equivalent as of May 1, 2020, up 18.4% since early 2020, including a 19% increase in April alone.

In turn, corporate debts on loans and credits increased by 13.7% in January-April 2020 to Br89.066bn as of May 1, 2020 (minus 4.6%), including overdue corporate debts - down 5% to Br2.903bn (+1.6%). A significant increase in debt on loans and borrowings may be due to the fall of the Belarusian ruble in March-April 2020 against the background of a significant share of FX debt in the loan portfolios of Belarusian companies.

In the near future, the poor financial condition of the corporate sector may have a negative impact on budget revenues and the efficiency of the banking system.

May’s deflation amid increased inflationary expectations

In May, inflationary factors in the form of devaluation of the Belarusian ruble, as well as increased demand for certain goods, which took place in the first quarter of 2020, have almost completely exhausted their negative impact on price dynamics. Due to this, as well as seasonal factors, month-on-month deflation in the amount of 0.1% was registered in May.

Belstat says consumer prices in Belarus increased by 3.2% since early 2020. Food prices rose by 2.8% in Jan-Apr 2020 (minus 0.6% month on month in May), while non-food products rose by 3.2% (+0.4%). Tariffs on services rose by 3.8% (minus 0.03% in May).

May also saw a slowdown in the annual growth of consumer prices. It decreased by 0.5 p.p. month on month and amounted to 4.9%, while the 2020 target for 2020 is not more than 5%. The improvement of the dynamics is primarily due to the slowdown in the pace of core inflation, which contributed 2.8 p.p. to total inflation in May.

Annual core inflation in May 2020 was 3.9% after 4.5% in April 2020. Trend inflation slowed to 3.4% in May to compare with 3.9% in April. Administered prices and tariffs increased by 6.7% year on year after rising by 7.3% in April.

The positive dynamics of price indices could not be reflected in the level of inflation expectations, which are regularly assessed by the National Bank. According to the findings of the May poll, the expected inflation rate for the next 12 months was 10.6% against 10.5% in the February poll. The persistence of both external and internal economic and political uncertainties contributes to the high level of inflationary expectations.

Foreign trade under pressure from conflict with Russia and falling oil prices

This year also has been having an adverse impact on Belarus’ foreign trade. The main destabilizing factors were the conflict with Russia and falling prices on the global oil market.

Belstat says Belarus’ exports of goods in January-April 2020 amounted to $8.247 billion, imports - $9.889 billion, with foreign trade totalling $1.642 billion. In year-on-year terms, exports fell by 19.7%, imports - by 19.9%.

Since exports decreased by a smaller percentage than imports, the negative balance decreased year on year (it amounted to $2.073bn in Jan-Apr 2019). The import coverage ratio has slightly increased - from 83.3% to 83.4%. It means that in 2020 for every $100 of import there was on average $83.4 of export.

In spite of a considerable decrease in export and import flows, the structure of foreign trade in goods has changed little. Russia’s share in the total trade turnover was 47.9%. This is markedly higher than the combined share of the other 13 largest trade partners of Belarus - 36%.

Despite the political importance, the stake on food exports does not yet justify itself. Meat and dairy products play a major role in agricultural exports. However, the dynamics of exports in 2020 are not significant in monetary terms. The total effect of the surplus on agricultural products in January-April amounted to only $306 million and did not offset the negative impact of the decrease in oil products export.

In general, according to the National Bank, the deficit in trade in goods is offset by the surplus of trade in services in Jan-Apr 2020. As a result, in Jan-Apr, Belarus’' foreign trade surplus in goods and services amounted to $502.1 million to compare with an $85 million surplus in Jan-Apr 2019.

Crisis aggravates due to administrative interference in economy

Official statistics show that Belarus is sinking into the crisis deeper and deeper. At the same time, the authorities keep saying, without any good reason, that economic recovery will begin soon.

Even the most optimistic forecast by S&P, voiced in early April, when the scope of the crisis in Europe and the world was not clear, implies a 2% decline in Belarus’ GDP. May forecasts by international financial institutions and ratings agencies contain indications of a 4-5% decline in the Belarusian economy.

On the whole, it is obvious that the situation in the Belarusian economy will fully depend on the recovery pace of demand in the neighbouring markets and primarily in Russia.

At the same time, Lukashenko’s latest statements in the field of economic policy show that the Belarusian economy, along with external challenges, is once again facing increased internal risks associated with the easing of the monetary policy and the growth of directed lending.

PrimePress Business Analysis Agency

2020-06-24

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