Belarusian bailout plan is unlikely to end recession
The Belarusian government is anticipating resuming economic growth by reducing cost production and diversification of exports. A new plan to improve economic efficiency has been developed due to the economic results in 2015 and negative trends persisting in January 2016. The plan is likely to fail due to the lack of intention to enhance the economy’s efficiency and the lack of comprehensive economic reforms.
On February 23rd, 2016 the Belarusian government approved measures to improve the efficiency of the Belarusian economy, envisaging production costs reduction by at least 25%, improving diversification of exports, and further reduction in interest rates in the economy. The economy’s efficiency would be measured not by fiscal performance, but by ensuring stable and break-even operation of enterprises, which means fewer audits by different controlling bodies. Socially vulnerable groups of citizens will receive additional support through targeted social assistance and non-cash housing subsidies totalling up to BYR 10.8 trillion.
The above measures have been adopted in order to address the economic slowdown, which marked 2015 and persisted in early 2016. In 2015, Belarus’ GDP fell by 3.9%, marking the first decline over the past 15 years. In January 2016, GDP fell to 4.3%. Due to high production costs, eight of 16 industrial productions were loss making by late 2015, net income for the whole economy decreased by 2.7 times in dollar terms. Exports to Russia made 39% of total exports, with the main exports to non-CIS countries including potash fertilizers, oil, oil products and ferrous metals. Exports of capital goods with high added value were negligible. The government has envisaged housing subsidies in order to neutralize negative effects from a significant increase in housing tariffs for socially vulnerable population groups.
Most of the proposed measures are declarative by nature, or even harmful. For example, the envisaged reduction in interest rates may lead to a further outflow of citizens’ rouble funds. In the past six months, due to lower interest rates on deposits, their volume shrank by a quarter, prompting banks to rely on expensive short-term liquidity from the National Bank. In 2014-2015, the government held an administrative reform, which resulted in a higher payroll number of civil servants in 2015, i.e. instead of the planned reduction, the army of civil servants has grown. Many enterprises enjoying the state support are unable to timely service their soft loans, and rising interest rates will increase the amount of their debts to the budget. Reduction in production costs may lead to the deterioration of the quality of goods and is unlikely to lead to an increase in revenue.
Overall, proposed measures are unlikely to be implemented, despite personal liability for their implementation. The economy is unlikely to start growing and the state will continue to reduce its social protection for the population in an attempt to preserve the existing economic model unreformed.
All in all, Belarus’ weak economic performance has prompted the government to adopt measures to remedy the situation. However, the proposed bailout plan is unlikely to be carried out in full and economic growth without structural reforms in Belarus in 2016 is not feasible.