Belarus will meet inflation forecast for 2016

December 12, 2016 10:44
Image: Komsomolskaya pravda

In January - November 2016, consumer prices in Belarus grew by 10.1%. Unlike in recent years, there were no major price hikes in 2016 due to the stability of the BYN exchange rate and frozen pay rises. The forecast for inflation in 2016 at 12% will be met, which will allow to reduce interest rates in the economy.

According to the National Statistics Committee, in November 2016, consumer prices rose by 0.8% and overall inflation since the beginning of the year totalled 10.1%. In 2016, housing and utility services costs grew most rapidly: technical maintenance costs increased by 63%; lift usage, heating and sanitation costs by more than 40%. Housing and utility costs went up due to the government's plans to reduce cross-subsidies in the economy in order to end subsidies entirely by 2018. Food prices went up by 9.4% in 2016 and prices on other consumer goods by 7.4%.

In previous years, devaluation was the main driver of price hikes in the Belarusian economy. Devaluation of the Belarusian rouble led to higher prices for imported goods. In addition, Belarusian producers used a lion’s share of imported raw materials, which led to subsequent price hikes on domestic products. In January-November, 2016, the Belarusian rouble depreciated against the US Dollar by 6.3% and against Euro by 3.3%. People’s additional income thanks to pay rises was absorbed by a rise in the utility costs, leading to reduced demand and lower prices on imported consumer goods.

According to the government's forecast for 2016, inflation should not exceed 12%, which would be the minimum value for the last six years. Housing and utility costs will continue to increase in early 2017. As a rule, prices on seasonal fruits and vegetables go up in December. Hence, in order to contain inflation in December, the authorities are likely to fix prices on some produces and announce sales on a wide range of food and non-food items. In addition, the regulatory bodies may implement price monitoring in trade networks and apply administrative measures to suppliers and manufacturers who increased prices unreasonably. In 2016, Belarus is likely to fail most economic forecast indicators and the economic authorities will aspire to demonstrate positive trends in the economy. Thanks to administrative means, inflation in 2016 is likely to remain within the limits of the forecast, which will allow to lower interest rates in the economy and reduce the enterprises’ debt burden vis-a-vis the banks.

Overall, the stability of the Belarusian rouble in Belarus has had a moderating effect on prices. Taking into account the administrative resource possibilities, the inflation forecast for 2016 will be met and interest rates in the economy will continue to reduce.

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Yet the Belarusian authorities have not taken any action to prevent massive protests against the decree on ‘social parasites’. On February 26th, 2017, multiple protests against the decree were held in three Belarusian regions in Vitebsk, Baranovichi, Brest and Bobruisk (more than 4 000 people participated in total). Very likely, the authorities, on the one hand, anticipate that the decree will be abolished, and other hand, do not want to take responsibility for decisions either on the decree or on the protests.

It should be noted, that the mass street protests on February 17th, 19th, and 26th, were held in the absence of the president in the country. There are reasons to believe that the authorities did not expect such a massive action. The state propaganda responded tangentially, insisting that protests were unjustified, because ‘the state did not require a lot’, despite the fact, that the protesters primarily complained about the lack of jobs in the country. In addition, the protesters pointed to the unfairness of the requirement to pay the tax for being unemployed as the state could not provide job and money making opportunities, while people were humiliated by the need to prove to the state they were unable to pay the tax.

In the past ten days, there were several protests against the decree, which were characterised by the following: the protesters easily picked up anti-Lukashenka slogans; they eagerly shared their outrage with journalists; many protesters said it was their first time when they took to the streets; protesters were ‘common people’, i.e. not political activists; there were fewer white-red-white flags during these protests than during conventional oppositional actions; politicians, who organised protests (eg on February 26th, by the centre-right coalition and the independent trade union) did not attempt to take the lead, especially in the regions. All this gives a picture of truly popular protests.

While refraining from interfering with the meetings and protest marches, the militia on February 26th attempted to put pressure on the protest organisers in the regions by handing out reports on administrative violations after the events. Other than that, it appears that the local and central authorities are unable to respond to the massive protests against the Decree No 3, including crowded street speeches, numerous signatories of petitions (over 80 000), multiple collective and personal appeals to the authorities, and mass meetings.

That said, the authorities are unable to enforce the Decree No 3 as they do not have sufficient resources to trial some 400 000 people for non-compliance. In addition, the authorities do not have sufficient institutional capacity to exempt all those not liable for the tax from the mailing lists of the Tax authorities. The Belarusian Bar Association will provide free legal consultations on March 1st, 2017 for those wishing be exempt from the tax imposed by the Decree No 3, however, this would only slightly east the tension in society.

In addition, despite concerns expressed by some experts and the leader of the protest in Minsk on February 17th Mikola Statkevich, there were only scarce reports in the Russian media about the protests in Belarus.