Reduced revenues from compulsory sale of foreign currency earnings

In May sales of foreign currency on the Currency and Stock Exchange under the mandatory sale of foreign exchange earnings rule (30%) dropped by 22.6% compared with April and amounted to USD 541.2 million.

Statistical report of the National Bank of Belarus noted that in April compared with March, the mandatory sale of foreign exchange by enterprises decreased by 8.2%.

In May the population sold $ 201 million of foreign currency, which is 14.6% less compared with April. In April sale of foreign currency by the population had decreased by 63.5%.

Comment

Reduced revenues from compulsory sale could be explained by the increased number of beneficiaries (for instance, “Belneftekhim”), or by decreased supply as exporters started hiding their currency earnings. Using administrative measures the authorities are trying to make businesses and banks to work with the NBoB exchange rate, however the market rate is 20% higher therefore banks and exporters have strong incentives to use various shadow schemes.

Obligatory sale of 30% of the foreign currency earnings at a “confiscatory” rate make businesses compensate it by increasing prices and / or sale of the remaining foreign currency at a higher rate, thereby inflicting inflation and foreign currency deficit in the country.

In order to remove all the distortions on the market, a single market rate should be introduced.

The majority of the population makes foreign currency transactions outside official bank exchange bureaus.