Belarusian National Bank set to reduce public debt servicing costs
The National Bank has decided to change the size of mandatory deductions to the reserve fund. Due to an increase in people’s expenses in 2016, the Belarusian international reserves grew and all due public and domestic debt payments were made. By reducing interest rates on currency deposits, the NB would save circa USD 25 million to refinance public debt.
As of February 1st, 2017, the National Bank will increase the size of compulsory contributions by banks to the reserves fund from corporate and private foreign assets from 7.5% to 11%, and will reduce the contributions in national currency from 7.5% to 4%. When the new rules take effect, banks’ cost of fundraising in foreign currency will increase, which will reduce interest rates on foreign currency deposits. Simultaneously, banks may leave interest rates on rouble deposits unchanged, so as the discount rate will reduce from 18% to 17% per annum as of January 18th, 2017.
In 2016, the National Bank increased its gold reserves by USD 751 million from USD 4.175 billion to USD 4.927 billion, while paid its due international and domestic debt, which totalled circa USD 3.3 billion in early 2016. Foreign currency inflow was provided by raised utility costs for the population, reduced soft loans and reduced interest rates on all types of deposits. The interest rate on rouble deposits decreased from 23% to 13% per annum and on currency deposits - from 3.7% to 2% per annum. This made households to spend more and earn less to due to lower income from deposits. In January - November 2016, the population sold USD 1.8 billion net, and the National Bank bought a part of this sum from the banks to refinance its debt.
By reducing the interest rate on currency deposits, and retaining the interest rate on rouble deposits, the National Bank aims to solve two tasks. First, amid reduced profitability of currency deposits, some depositors may decide to convert their currency funds to the national currency and place it in the banking system, thereby boosting foreign currency supply on the domestic currency market. Second, by reducing rates on foreign currency deposits by 1 per cent, the National Bank will reduce the annual yield of currency depositors by USD 74.5 million. Due to deficit of reliable borrowers, banks will invest foreign currency deposits of the population in the National Bank bonds. By setting a lower interest rate on its bonds, the National Bank will save money for refinancing its current debt, which relates to the obligations of the state. Throughout 2016, interest rates on the NB bonds dropped from 7% to 5% per annum and due to the NB efforts, may reduce to 4% per annum or lower by late 2017, enabling the NB to save circa USD 25 million.
Overall, by reducing deposit interest rates, the National Bank reduced profitability of deposits and increased its international reserves in 2016. Due to the need to increase the international reserves by USD 0.5 billion in 2017 and to reduce public debt servicing costs, the National Bank is likely to pursue its current policy aiming to reduce currency deposit profitability and interest rates on government bonds may reduce to 4% per annum.
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.